Wednesday, November 30, 2011

Sustainable growth and the resource productivity challenge

The spectacular growth in the demand for energy, water, food, and commodities has ressurected the Malthusian spectre of a world running out of these resources. In this context, a new report by the McKinsey Global Institute brings some cheer claiming that this resource challenge can be met through a combination of expanding supply and resource productivity improvements (ranging from capping water supply leakages to building energy efficiency).

It claims that it is possible to save $2.9 trillion by extracting and using the world’s resources more productively. With carbon dioxide emissions priced at $30 a tonne these saving rises to $3.7 trillion. Resource productivity improvements - change in the way they are extracted, converted, and used - are the focus of the report, and it writes,

"Such resource productivity improvements, using existing technology, could satisfy nearly 30 percent of demand in 2030. Just 15 areas, from more energy-efficient buildings to improved irrigation, could deliver 75 percent of the potential for higher resource productivity."

The report advocates action by governments on three fronts to expand supply and improve prodcitivity. It writes,

"Policy makers should consider action on three fronts: unwinding subsidies that keep prices artificially low and encourage inefficiency; ensuring that enough capital is available and that market failures associated with, for instance, property rights and incentives are corrected; and bolstering society’s resilience by creating safety nets to help very poor people deal with change and educating consumers and businesses to heed the reality of future resource constraints."

As national incomes rise, as is happening at a swift pace with China and India, per capita resource consumption increases.

A reflection of a resource crunch is the steep increase in the prices of commodities...

... and also the price volatility of these resources.

Fifteen resource productivity improvement opportunities represent 75% of all such opportunities.

Developing countries account for 70-85% of these resource productivity opportunities.

Fortunately, considerable gaps exist between different countries on these productivity areas. This also means there exists considerable catch-up opportunity for the lagging countries.

See this post in Free Exchange which describes the findings of the report as a summary of market failures, whose correction would result in the promised resource productivity improvements.

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