The new scarcity?

Gardner and Clark begin their Dust-Up today with a debate on current trends in resource supply and demand, and whether they portend a future of global scarcity. Later in the week, they’ll discuss the emergence of China and India as major resource consumers, government policies aimed at altering consumption habits and more.

Our demand for resources cannot be sustained
By Gary Gardner


Former World Bank economist Herman Daly has used the term “full world” to describe an increasingly crowded planet whose people demand ever more materials and energy. I like the term because it neatly sums up this stage of our civilization. If the 20th century were an era of resource-intensive expansion and new frontiers, the 21st will be about adapting to greater limits on resource use. Oil, water and arable land are all finite resources, yet human demand for them is on a steady upward trajectory.

Consider oil. The concept of a coming peak in oil production is increasingly accepted even by mainstream organizations. The World Energy Council, for example, recently predicted that the peak of global oil production would arrive within 15 years -- this in a world whose energy demand, says the council, is projected to double by 2050.

Similarly, 47% of the world’s population will live in areas of severe water stress by 2030, according to the Organization for Economic Cooperation and Development. Scarcity reveals itself through extreme and costly measures of supply: Desalination capacity globally is up by 45% in the last five years, with similar growth projected through 2012. On a local level, the government of Spain’s Catalonia region declared last month that it would import water by boat and train to get through the summer.

This isn’t just about human beings -- nature must have its cut of resources too. Water, for example, is vital to wildlife and healthy ecosystems, not just farms and factories. And the atmosphere needs carbon-free space to provide a stable climate. Nature’s demands, more apparent and more insistent in a full world, add to our resource scarcity.

Scarcity does indeed raise prices and stimulate efficiency improvements or a shift to substitutes for scarce items. Already we see the use of hybrid vehicles, compact fluorescent lightbulbs and myriad other efficiency measures flourishing in our economy. Biofuels are increasingly used in place of gasoline. But the efficiency and substitution strategies have their limits.

Greater efficiency often carries a rebound effect: Efficiency can reduce consumption and lower prices, which can stimulate even greater demand. U.S. economic output per cubic meter of water used increased 2.6 times between 1960 and 2000 because of efficiency gains, and the same story holds for energy use. But scarcity of water and U.S. oil increased anyway, as a growing population demanded more overall of each resource.

The vital resources in short supply today may have no easy substitutes. What will substitute for water, the essence of all life on this planet? What will substitute for rich land suitable for agriculture? What will have all the upsides of petroleum without its pollution and climate downsides?

We are a creative species that will adapt to scarcities -- even scarcities of fundamental resources. But this much is clear: The scarcities of oil, water and land are increasingly real.

Gary Gardner is a senior researcher at the Worldwatch Institute, where he is also co-director of the report, “2008 State of the World: Innovations for a Global Economy.”

We’ve heard these doomsayers before
By Gregory Clark


Since the Industrial Revolution, the prices of oil, coal, foods, metals and timber have fallen drastically relative to wages. You propose that that 250-year “commodity holiday” has now come to an end and that we face a future of scarcity. That is bad news for Californians, who live their lives predicated on cheap gas, cheap food and abundant water.

However, before people abandon their suburban ranch houses and SUVs, they should note that history has not been kind to those many commodity Jeremiahs who have prophesied scarcity on the basis of commodity price spikes.

In 1865, economist William Stanley Jevons predicted the exhaustion of Britain’s coal reserves. Today, Britain’s energy prices are considerably cheaper than when Jevons wrote. In 1972, the Club of Rome predicted the depletion of oil reserves in 20 years. Up until last year, oil was cheaper and more abundant than when the club wrote.

The trend of energy and resource prices is completely uncertain, not inevitably higher. It is true, however, that two new elements have entered world demand.

First, more than 2 billion people in China and India now have rapidly growing incomes. For the previous 200 years, their incomes stagnated, and Europe and the U.S. had the world’s energy reserves to themselves. World demand for energy and commodities is now rising faster than at any time in history. Second, fear of global warming has led to substantial areas of farmland in the U.S., Brazil and Europe being converted to growing crops suitable for the production of biofuels.

But on the other side of the equation is the constant advance of energy and farm technologies, which amounts to 250 years of steady progress. Permanently higher prices will accelerate research that cheapens energy and allows us to use it more efficiently. In past years, generating electricity with carbon-free nuclear power was only modestly more expensive than coal- and gas-powered plants, even at yesterday’s bargain oil prices. If we can find some hole in the Earth to shove the nuclear waste in, then we have a huge alternative source of energy ready to go.

Before you throw up your hands in horror at the prospect of new Chernobyls, note that the French have been generating 80% of their electricity through nuclear power for 20 years without incident. And these are people so fussy about their food purity that they are the world’s second-biggest consumers of bottled water.

The Holy Grail of energy research is, of course, solar. It’s free, environmentally friendly and made in the U.S.A., not imported from lands of strife and terror.

Solar electricity, however, is still about four times as expensive to generate as conventional electricity. It is produced at times and places inconvenient for consumers. It can only supplement rather than replace other power sources. But new technologies could change that cost disadvantage at any time.

The recent price hikes in commodities and energy are too sudden to have been caused by a gradual squeeze on the markets by Asian demand and biofuels. Energy and commodity prices will likely cease their long decline soon. Whether they will rise significantly only a true prophet knows.

Gregory Clark is chairman of the economics department at UC Davis. His recent book is “A Farewell to Alms: A Brief Economic History of the World.”

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