May 19, 2011, Ottawa, ON – Are the current high prices for gasoline and other petroleum products evidence that the world's oil production has peaked (so-called "peak oil theory"), and that the world faces a grim future of declining supply and steadily rising prices? And are rising prices for other commodities similarly evidence that the world is running out of natural resources as some others have claimed, including a recent report by the United Nations?

According to MLI's Managing Director, Brian Lee Crowley, the answer to these questions is a resounding "No." His reasoning is contained in a new MLI Commentary released today, entitled Are We Running out of Natural Resources?

Yet a great deal of current public policy debate is based on this very notion that natural resources are not merely in short supply, but will be exhausted in the relatively near future. Not only is this view mistaken, but it is the direct opposite of the truth. Similar predictions, such as the imminent exhaustion of our oil and gas supplies, were being made in the 1970s. Instead, after 40 years of rising consumption, we now have known petroleum reserves that exceed those that existed in that earlier era.

Understanding this counter-intuitive result is vital if we are to understand where natural resources come from and why the supply is far greater than most people imagine. The supply of oil and gas, for example, is not limited primarily by the amount of these resources in the Earth's crust, but rather by the human and financial capital we invest in finding and producing them. It is when we mix nature and human intelligence that we greatly increase the bounty of nature. Our greatest wealth comes in our ability to invent new ways to sustain, supplement or replace natural capital (i.e. natural resources) as it becomes scarce.

Climate change might suggest a different reason for restraining our consumption of fossil fuels, and Crowley is sympathetic to this view that the current price of such resources does not fully reflect the environmental damage they cause. He also points out, however, that the consensus of those who have attempted to quantify the value of the ecological damage caused by consumption of fossil fuels place the figure at roughly $20 per tonne of carbon – not enough to change behaviour very significantly if it were imposed on consumers through either a carbon tax or a cap and trade system.

The most effective approach to dealing with climate change is the same one that ensures us a continuous supply of natural resources, namely technological innovation in response to rising prices and economic growth, not heavy-handed attempts to discourage consumption.

Crowley concludes that the pessimists, "... are not wrong in having identified challenges facing the human race at specific moments in our history – they have simply misunderstood how the right human institutions, such as private property, the rule of law, contract, incentives and human intelligence all work together reliably to solve those problems, even when we cannot foresee with precision what the solution will look like."

This Commentary is based on a presentation at a panel convened as part of a Queen's University program on "Clean Energy Superpower and Environmental Assessment: Canada's Ambitions and Choices". The conference was held in Kingston, Ontario on April 14-15, 2011.

 

One Coment, RSS

  • Marcar

    says on:
    May 23, 2011 at 3:05 pm

    I think Mr Brian Crowley needs to review the scientific and biological data, as well as longterm resource forecasts, before advocating the "business as usual model", with economic growth at it heart.

    Water tables worldwide are falling dramatically, especially in the grain growing hubs of China, India and the US. Right now 1 billion are going hungry and lack access to fresh water. Over 2 billion are facing impending water scarcity.

    And this is with 7 billion. What does Mr Crowley think will happen as we climb toward 9 or even 10 billion ?

    Turning to metals: Extraction rates of key metals are rising, not lowering, and though we are not running out yet, and detailed data is lacking, the longterm scenario does not bode well. In fact, the discovery rate for many metals is now less than the extraction rate. Nevertheless, as currently stocks of ore are large compared with current needs, prices of these metals do not yet reflect scarcity value as improved extraction techniques have kept the average real prices of these metals roughly steady in the last decades.

    But this wont last much longer, and in the meantime environmental destruction is accelerating and our numbers continue to climb in an unsustainable way.

    According to Metal Stocks and sustainability, Gordon et al, 2005, Yale & Harvard press, we are going to have great difficulty in maintaining and increasing production levels if we want to keep the current growth machine going:

    "Data on the stock of copper used in the U.S. over the past century cast doubt on the idea that demand for metals eventually decreases as incomes rise.

    Although the nation’s GDP has increased much faster than the copper stock-in-use, the rate of increase of the per-capita copper stock remains undiminished. We find that the per-capita copper committed to some services has decreased in the 20th century but that this decrease is overbalanced by the provision of new services.

    The demand for new services is deeply embedded in a western popular and political culture that sees growth and development as absolutes, quickly converting services originating as luxuries or entertainments for the wealthy into necessities for everyone. Scenarios depicting future use of copper resources anticipate worldwide spread of the metal services enjoyed by the postindustrial nations. These scenarios need to explicitly address the cultural factors that continue to increase the per-capita use of copper in wealthy societies and the use of alternative materials to provide copper services.

    Concern about the extent of mineral resources arises when the stock of metal needed to provide the services enjoyed by the highly developed nations is compared with that needed to provide comparable services with existing technology to a large part of the world’s population.

    Our stock data demonstrate that current technologies would require the entire copper and zinc ore resource in the lithosphere and perhaps that of platinum as well. Even a lower level of services could not be sustained worldwide because a continuing supply of new metal is needed to make up for inevitable losses in the recycling of the metal stock-in-use. Substitution has the potential to ameliorate this situation, but one should not automatically assume that technology will produce a satisfactory substitute.

    The topic of resource constraints inevitably recalls the classic bet between Julian Simon and Paul Ehrlich in 1980, in which Ehrlich bet that the prices of five metals would increase by 1990 (36). Instead, the grouped prices fell, and Ehrlich paid Simon $576.07 to settle the wager. Unlike Ehrlich, we do not imply that metal price is a satisfactory measure of the remaining amount of a resource. Rather, we merely point out the present state of affairs: that anthropogenic and lithospheric stocks of at least some metals are becoming equivalent in magnitude, that world- wide demand continues to increase, and that the virgin stocks of several metals appear inadequate to sustain the modern ‘‘de- veloped world’’ quality of life for all Earth’s peoples under contemporary technology. These facts compel us to ask two key questions: Do we really envision a developed world quality of life for all of the people of the planet? and If so, are we willing to encourage the transformational technologies that will be re- quired to make that vision a reality? "

    Surely we should be concentrating on avoiding further humanitarian suffering and disasters rather than increasing human suffering and environmental destruction?