Megatrends in Global Interaction

Bertelsmann Foundation (ed.)

• Publisher: Verlag Bertelsmann Stiftung
• Year: 2012
• eBook ISBN: 9783867934701
• Edition: 1
• Topic: Politique et relations internationales
• Subtopic: Mondialisation

We inhabit an increasingly interconnected world, yet too often policymakers and advisors view each issue in a vacuum, focusing primarily on short-term impacts. All of us - policymakers, citizens, and local and global communities - must begin to consider how the major trends that shape our world are likely to develop, and how they will intersect and influence one another. This volume is designed to explore and discuss correlations between these global trends, or megatrends: Global Governance, Demographic Change and Migration, Energy and Natural Resources, Global Security, Biodiversity, and Economic Globalization. The book's primary focus is to provide a qualitative overview of the trends, and to analyze their intersections and interdependencies in the 21st century. The authors hope it will help define some of the complex challenges and exciting opportunities to shaping a world of sustainable economies and societies.

Energy and Natural Resources

Stephen P. A. Brown, Joel Darmstadter

1 Introduction and Organization of the Chapter

Throughout the 20th and early 21st centuries, economic and population growth have driven the use of energy and natural resources (Figure 1). Today, these resources are being consumed at an ever-increasing rate, setting up a collision course in economic development. The recent emergence of industrializing countries such Brazil, China and India has significantly altered global growth and consumption, which only increases the pressure on resources, particularly energy. These trends have renewed concern about resource scarcity, rising prices and environmental degradation.

Our success in responding to climate change and shifting to a sustainable development path depends in large part on whether we can decouple energy consumption from economic growth. As long as economic growth depends on consuming ever-greater quantities of nonrenewable resources, the social costs are expected to rise to unprecedented heights.

The purpose of this paper is to map out trends in energy and natural resources throughout the duration of the 21st century. We break this down into three periods: 2010 – 2030, 2030 – 2050 and 2050 – 2100.

2010 – 2030: A Decisive Time

The probable course of development in natural-resource use between now and 2030 is already pretty well determined. Economic growth, resource consumption and environmental degradation will continue to be strongly correlated until technologies and policies evolve. While change is possible in this time frame, it will likely be modest and gradual. Even so, the potential for the next two decades to shape the implications of these trends far beyond 2030 is remarkable. Policies implemented in the early part of the century will have much more leverage in shaping the future because they will have time to accumulate momentum.

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2030 – 2050: Technology Jumps Ahead

By 2050, we should develop a better sense of the extent to which anthropogenic greenhouse gases contribute to global warming and economic loss. That knowledge will reshape policy in the latter part of the century. Developing countries will need to leapfrog developed countries in utilizing sustainable energy sources rather than the traditional fossil-fuel infrastructure.

2050 and Beyond: Reflecting Action Today

Looking beyond 2050, much will depend on the development of energy technology and the control of greenhouse gases in the earlier part of the century and the development of de-carbonization technology. A shift away from fossil energy in the first half of the century and the development of cleaner technologies will mean lower atmospheric concentrations of greenhouse gases and the well-developed means for controlling them in the latter part of the century.

A continued heavy reliance on fossil energy in the first half of the century and the lack of development of cleaner technologies would mean substantially higher atmospheric concentrations of greenhouse gases and little means for controlling them in the latter part of the century.

These findings underscore the importance of taking action now to make sure we have the best of advantages in the future for tackling resource scarcity and climate change.

Section Overview

In the exposition that follows, in which our major focus is on energy, we take a largely global market perspective. It goes without saying that public-policy initiatives, environmental constraints, technological developments and fundamental scientific breakthroughs all have important effects – at times, decisive ones – on future trends in energy and natural resources. But it is arguably factors such as income, price and cost – and their interaction with forces of supply and demand – that set the track that natural resources will follow over the remainder of this century.

Accordingly, Section 2 provides a broad tutorial on the concepts that inform analysis and understanding of the supply behavior related to natural resources.

Section 3 presents and assesses projections of global energy use for the period between 2010 and 2030. Since the underlying determinants of developments during that period (e.g., demographic factors) are largely in place today, this section allows for the most detailed quantitative picture contained in the chapter.

Section 4 looks forward to the period between 2030 and 2050. The different parts of Section 4 address alternative-energy trajectories to 2050 while placing major emphasis on meeting particular targets for greenhouse gas emissions.

Section 5 looks ahead to the period between 2050 and 2100. Noting how fundamental scientific and technological developments were inherently unknown and unknowable 90 years ago, our comments on the global energy profile 90 years from now are, at best, highly uncertain and speculative. That said, certain lessons and principles (e.g., on the nature of scarcity and market-driven incentives) do justify a measure of optimism about society’s sustained potential for adapting to changing and unexpected circumstances.

Section 6 concludes by considering the sweep of history and the future. It pulls together the trends from the past as well as those that may emerge in the future.

A review of the principal ways in which the issues pursued in the present chapter interact with topics addressed as part of the “Megatrends” project as a whole forms part of the Appendix.

2 Basic Concepts in Energy and Natural-Resource Use and Availability

Much of this chapter will deal with issues of scarcity and price, factors that greatly influence the direction of trends. Understanding these concepts will help inform our later discussions on trends over time.

Scarcity and Pricing of Nonrenewable Natural Resources

Figure 1A: Energy consumption and GDP per capita: 2005

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Figure 1B: Log CO₂ emissions (tones) per person / Log GDP per capita, PPP

Source: data.worldbank.org

Visualization from Gapminder World, powered by Trendalyzer from www.gapminder.org.

Aluminum, coal, copper, iron, lead, natural gas, nickel, oil, silver, tin, zinc and other nonrenewable resources exist in fixed quantities on Earth – and once they are gone, they are gone. In addition, people tend to use the most easily found and produced quantities of these nonrenewable resources first, leaving the more difficult ones for later production. Together, these two factors suggest that nonrenewable natural resources will become scarce over time.

Today, the amount of proven oil and natural gas reserves has never been higher. However, in an absolute sense, there is always less fossil fuel present on Earth. The rising level of consumption of oil and other fossil-fuel resources creates a great deal of speculation about the amount of resources remaining and the price of those resources.

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Geophysical and Economic Approaches to Scarcity

Historically, there have been two approaches to assessing the scarcity of nonrenewable natural resources: a geophysical approach and an economics approach. The geophysical approach emphasizes the effort required to produce a given resource. With oil and natural gas, for example, this effort might be the number of feet that need to be drilled to reach resources. Thus, the greater the effort required to reach it, the more “scarce” something is.

In contrast, the economics approach emphasizes how the market prices and production costs of a natural resource evolve over time. If a nonrenewable natural resource is becoming scarcer over time, its price or cost of production should rise. The economics approach thus reflects both supply and demand conditions for the natural resource.

How Scarcity Impacts Price

With either approach, consumption impacts price, and price then impacts supply:

– From the geophysical standpoint, the demand for nonrenewables raises prices, creating incentives for producers to generate more supply. Typically, to generate more supply, the most easily found and extracted resources will be consumed first. This makes nonrenewables harder to access and thus scarcer (from a geophysical standpoint) over time, leading to higher prices.

– From the economic standpoint, both supply and demand forces will also yield rising market prices for a natural resource if it is becoming scarcer.

o On the demand side, increasing scarcity of a natural resource would mean that the amount of the natural resource available for use would decline relative to that of capital and labor. In other words, you will need more capital and labor to access the same amount of resources. Consequently, the marginal product of the resource would rise relative to that for labor and capital. Under normal market conditions, a rising marginal product would increase the price of the natural resource relative to wages and the return on capital.

o On the supply side, the prices of nonrenewable natural resources evolve over time based on how the owner of the resources decides to allocate them (Hotelling 1931). In an economy with other investments earning a market interest rate, individuals saving nonrenewable natural resources for future consumption must expect to earn normal market interest rates. If the expected return is lower than the market interest rate, the resource owners will save less for the future. This action will make the resource more plentiful today and less plentiful in the future, which will lower today’s price and increase expected future prices. On the other hand, if the expected return of saving the resource is greater than the market interest rate, the resource owners will save more for the future. Their actions will make the resource less plentiful today and more plentiful tomorrow, which will increase today’s price and reduce expected future prices.

Resource Scarcity and Technological Progress

So, to review, both the geophysical and economic approaches to scarcity predict that nonrenewable resources will become scarcer over time, and that prices for those resources will rise. Yet, in reality, many indicators predict that fossil fuels will still be available for the foreseeable future and, paradoxically, real prices for nonrenewable natural resources have actually decreased over time. How does that happen?

One cannot forget that rising market prices create tremendous incentives to develop new technology (Nordhaus 1973). Consumers will look for technological gains that allow them to use less of a natural resource that is becoming scarcer. Producers will look for technological gains that reduce production costs or increase supply. This means that the very price signals that indicate scarcity also help stimulate the technology that overcomes it. In that regard, higher oil and natural-gas prices stimulated the development of technology for both deepwater drilling and shale gas production (see Box 2 in the Appendix).

Numerous economic studies have addressed the question of whether technology has advanced sufficiently to offset resource scarcity, beginning with Barnett and Morse (1963) and continuing through Jorgensen and Griliches (1967), Nordhaus (1973), Brown and Field (1978), Fisher (1979), Hartwick and Olewiler (1986), Schmidt (1988), Berck and Roberts (1996), Brown and Wolk (2000), Tilton (2003) and Krautkraemer (2005). The research has reached mixed conclusions, but it generally finds that the economic evidence is inconsistent with what one would expect from increasing scarcity of nonrenewable natural resources. ⁵ Technological advance has kept ahead of geophysical scarcity, and real prices for most nonrenewable natural resources have declined over time.

Using new technology to keep prices in check is not without risks, as demonstrated by the 2010 Deepwater Horizon disaster and catastrophic oil spill in the Gulf of Mexico. For the appropriate market pricing of natural resources, such risks need to be passed forward to consumers in the form of higher prices that reflect both the costs of steps industry takes to reduce risks – whether voluntarily or to comply with new regulations – and the remaining risk to the environment (Brown 2010).

Costs and Externalities

The historical real-price trends typically used to measure the scarcity of nonrenewable natural resources reflect neither the environmental and climate externalities nor the costs of their use (Simpson, Toman and Ayres 2005).

An externality is a cost of an economic activity imposed on an unrelated party. Greenhouse gas emissions, for example, often impose costs on others who are not directly involved in the original emitting transaction, be it an industrial process or energy produc-tion. Such externalities distort market decisions because the purchaser of the natural resource does not have to take into account all the costs of producing and using the natural resource. Moreover, the lack of pricing of these environmental costs understates the potential scarcity of the resources (ibid.) and results in reduced market incentives to develop new emission-control technology (Nordhaus 1973).

Awareness of these costs may provide a somewhat more qualified perspective on whether technological progress has overcome resource scarcity in a broad sense. As Figure 2 shows for the United States and (in the case of oil sands) Canada, the transition from conventional oil that is easy to produce and refine to unconventional oil that is more difficult to produce and refine is likely to result in increased production of greenhouse gases and other emissions or much higher costs (Brandt and Farrell 2007; Darmstadter 2010).

Renewable Natural Resources

To be sustainable, a resource must either be used at rates that don’t deplete suppli...

Table of contents

• Title Page
• Copyright Page
• Foreword
• Introduction
• Demographics and Migration
• Global Security
• Biodiversity and Climate Change
• Energy and Natural Resources
• Economic Globalization
• Global Governance
• Conclusion
• Contributors