PBL analysis finds that resources are not depleted, but expensive; badly functioning markets and wrong policies

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Framework of the different dimensions of scarcities. Source: PBL. Click to enlarge.

Current high prices of food, oil and many other resources are indications of increasing scarcity. This scarcity, however, has little to do with stock depletion; badly functioning markets and wrong policy reactions play a particularly important role, according to a new analysis by the PBL Netherlands Environmental Assessment Agency.

The analysis, “Scarcity in a Sea of Plenty? Global Resource Scarcities and Policies in the European Union and the Netherlands”, examines scarcity using a framework comprising three dimensions: physical, economic and political. It finds that for most resources, global stocks will be sufficient to meet increasing demand over the coming decades. However, the report notes, these stocks are not equally distributed over the world; they tend to be located in a limited number of countries. This causes an increasing European dependency on imports, which, in turn, feeds the fear of a decrease in security of supply.

“Major concerns regarding resource scarcities are to be found less in the physical dimension…but rather in the economic and political dimension of resource scarcity. Economic and political considerations are main driving factors of current resource scarcity concerns.”
—“Scarcity in a Sea of Plenty?”

The causes of the current high resource prices are varied. Suppliers often struggle to keep up with the dramatic growth in demand from emerging economies. A new mine, for example, takes several years to open. Thus, scarcity is created on the resource market, which leads to high and fluctuating prices. Another factor that drives up prices is the increasing monopoly power of suppliers.

The PBL analysis shows that a scarcity of one resource often is connected to that of another, increasing it or even causing it. Thus, high energy prices lead to high food prices, as transport and fertilizers become more expensive. High oil prices increase the appeal of biofuels, and a subsequent increasing demand for corn and grain leads to higher food prices and additional food scarcity. Moreover, a scarcity of fossil fuels may cause a shift towards electric vehicles. However, the batteries for these vehicles require special metals, such as lithium. This metal is only found, globally, at a small number of locations. Therefore, the dependency on oil may be replaced by a dependency on lithium.

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Key policy options for dealing with energy scarcity. Click to enlarge.

Scarcities may be increased further by government policies in “stock countries”. Argentinian restrictions on the export of grains in reaction to high food prices, for example, have led to higher grain prices in the rest of the world. And Chinese export restrictions on rare earth elements have caused new and clean technologies that require such elements to become more expensive for Europe.

The world is unlikely to run out of oil, metals and minerals, in the foreseeable future. Current resource estimates suggest ample reserves still remain. However, it takes time for supply to adjust to demand fluctuations, since the development and exploration of resources is capital-intensive. As a result, short-term scarcities of energy and minerals will remain a common feature. The long-term supply prospects for agricultural commodities are uncertain. Climate change and water scarcity could have significant impacts on yields.

—“Scarcity in a Sea of Plenty?”

The high resource prices and large price fluctuations are expected to occur also in the coming years. This will have a great and negative influence in many developing countries. In these countries, high energy and food prices will lead to hunger and poverty, as—although resource-exporting countries benefit from such high prices—these benefits only rarely are passed on to their populations. Furthermore, in developed economies, a fear of increasing dependency on countries such as China and Russia prevails.

Both the Netherlands and Europe as a whole appear insufficiently prepared for a future in which resources become more expensive and concerns over security of supply will increase, the report finds. PBL concludes that an integral approach is important. The policy on biofuels has demonstrated that a concentration on a single scarcity can lead to powerful negative side effects. In addition, competition over resources should not be at the expense of the environment or the poorest people. The EU may play a key role, geopolitically and in an economic sense, which makes it important for Europe to speak with one voice, PBL suggests.

The Netherlands Environmental Assessment Agency (PBL) is the national institute for strategic policy analysis in the field of environment, nature and spatial planning.

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