Resource Productivity

Resource Productivity

The lesson South Africa needs to learn

Written by Mark Swilling on 2011-07-05 20:05:11

Published in Cape Times in June 2011

Unless global economic growth is “decoupled” from escalating primary resource use, recovery from the recession will not be achievable. This was the conclusion of a new report launched Thursday 12th May, at a side event of meetings of the United Nations Commission on Sustainable Development. Entitled Decoupling Natural Resource Use and Environmental Impacts from Economic Growth, the report brings together work done over three years by the International Resource Panel (IRP), an expert panel established by the United Nations Environment Programme (UNEP) in 2007 to address the challenge of making the global economy more sustainable.

 

The speakers at the launch included Achim Steiner, Executive Director of UNEP; Ashok Khosla, IRP co-chair and President of the IUCN and the Club of Rome; and Jacqueline McGlade, IRP member and Director of the European Environment Agency. All emphasized the fact that decoupling resource use from growth rates is the next great challenge on the sustainability agenda, on a par with the other big challenges such as climate change, degrading eco-system services and the water crisis.

The report shows that by 2005 the global economy depended on the extraction from the Earth’s crust of 60 billion tons of resources (which includes biomass, construction minerals, industrial ores and minerals, and fossil fuels). This, together with the 500 Exajoules of energy used by the global economy, is what the Earth makes possible so that humans can survive. However, the capitalist economy has evolved in ways that have resulted in 20% of the world’s population consuming 86% of these resources. For example, the average Canadian consumes 25 tons of materials per annum, compared to 16 tons for the average European, 8 tons for the average Chinese and 5-6 tons for the average Ghanaian.

As the report demonstrates, the problem is that there is mounting evidence of resource depletion. This is most clearly reflected in the fact that we may well have hit peak oil production – oil production has remained flat for five years now despite rising demand. Furthermore, the quality of mining ores has been steadily declining for at least 4 decades now, which means that it costs more to get less out the ground. The clearest indication of the problem is that since 2000 resource prices – like food prices - have been going steadily upwards. This reverses the long-term c.20th trend of declining resource and food prices that ended in the late 1990s. The fact that the recession did not reverse this upward trend has led even mainstream economists to refer to the end of cheap resources. Not since the start of the industrial revolution in the 1700s has the world faced the challenge of counteracting economic recession while resource prices are rising. This, the report suggests, is a unique set of circumstances.

The solution, the Report argues, lies in finding ways “decoupling the rate of GDP growth from escalating resource use”. This can only be achieved if economic policy shifts its focus away from its traditional obsession with labour productivity to focus more on resource productivity. This, it turns out, means building on current trends. Since 1900, GDP has increased 28 fold while resource consumption has only increased 8 fold – a trend that has been made possible by the fact that resource productivity (i.e. economic value generated by a ton of resources) has increased by 1.8% - 2% per annum. What is needed now is to double or quadruple this figure so that eventually it becomes possible to do a lot more with less (which is what resource productivity means in practice).

Under a ‘business-as-usual’ scenario (i.e. only small improvements in resource productivity), the global economy will need 140 billion tons of resources by 2050. This will supply a world made up of 9 billion people and where everyone consumes the same as the average European (i.e. 16 tons per capita per annum). However, there is no scientific evidence that this will be bio- and geo-physically possible (i.e. sustainable). If the global economy was run according to the science that the governments of the world approved when they signed off on the 4th Assessment Report of the Inter-Governmental Panel on Climate Change (IPCC), then average consumption for all 9 billion people by 2050 should be 6 tons per capita per annum. This means radical changes for the world’s over-consumers (who average at 25 to 16 tons), and it also means that developing countries will have to find ways of eradicating poverty via development strategies that are not resource and energy intensive. If developing countries refuse to face this reality, they will end up investing in infrastructures as well as production and consumption systems that will require increasingly costly resources thus undermining all their ambitions for rapid economic growth.

Interestingly, all the evidence suggests that resource productivity is relatively easy to achieve. The result is cost savings over the life cycle of the good or service produced, and higher levels of labour absorption. However, it depends to a large extent on whether Governments will invest in what the Report calls “sustainability-oriented innovations”. This will be the focus of the next report that the IRP will publish in early 2012.

The Report has major implications for South Africa which is currently enjoying the benefits of the so-called ‘resource curse’. Rising resource prices since 2000 is what has made it possible for South Africa to fund its rapidly expanding fiscal budget. However, in a recent unpublished report prepared by the Sustainability Institute and commissioned by the Development Bank of Southern Africa, it was established that resource depletion is already undermining South Africa’s growth rates. Peak gold production has already come and gone, and coal reserves could be as low 10 billion tons (one fifth of what Government estimated them to be before 2003). ESKOM data shows that more coal is needed to generate a KWh of energy because the quality of the coal is declining. Furthermore, 98% of South Africa’s water resources are allocated, which means all future economic growth must of necessity be decoupled from rising water demand – a brutal fact hardly anyone refers to. 5 million of South Africa’s 14 million hectares of arable land are degraded and therefore either less- or un-productive. Nearly all the landfills are full, and yet average waste per capita is higher than the European average. And our CO2 emissions per unit of economic value are the highest in the world.

Unless South Africa takes seriously the recommendations of the IRP’s Report on Decoupling, it will face the consequences of being globally uncompetitive as other economies invest heavily in decoupling. This means going beyond simply decarbonisation – it means recognising that full-scale dematerialisation via investments in sustainability-oriented innovation or a matter of economic survival. Ten years ago, China and South Africa had no solar industry. China decided to invest in a solar industry while South Africa bet on the pebble bed nuclear technology. China is now the world leader in solar technology and South Africa has closed down the pebble bed project after spending an amount that could have paid for a solar hot water geyser for every South African household. Financially wasteful strategically stupid decisions like these must stop if South Africa wants a place in a global economy that is rapidly adapting to rising resource prices as resource depletion sets in.