Green Growth – The New Normal?

Global exhaustion of fisheries, droughts threatening 9.5 million lives in East Africa in 2011, 44 million people driven into poverty by rising food prices in only half a year during 2010, ever soaring oil prices, depletion of natural resources, climate change, economic crisis…

It seems that the many environmental issues that have been increasing worldwide since the 1980s are more than just the paranoia of a couple of hippies worried about the colour of the fruit fly’s eyes. It is high time to face the fact that our current economic growth model will not be feasible within the next 90 years; perhaps we don’t even have that much time. Actually, many children today will live to see it.

Lead by Jeremy Oppenheim -no doubt one of the Global experts in Sustainability and Green Growth – McKinsey & Company have carried out fascinating research into how the demand for resources during the 20^th century has led to the current environmental crisis and what challenges we will have to face over the next two decades. On October 26,  Mr Oppenheim delighted us by sharing their findings, which are gathered in Resource Revolution: Meeting the world’s food, material energy and water needs[i], in a lecture at UCL titled ‘Green Growth – the New Normal?’

The second half of the 20th century was an era of not only economic prosperity but also contradictions. While the population experienced a strong growth, resource prices (food, water, energy, steel) generally declined. The resource regeneration rates, however, remained just as they had always been; their resulting availability thus declining over time. “We are now reaching the peak of most resources’ availability but, while subsidies keep their prices artificially low, we still consume them as if they were abundant” said Jeremy Oppenheim.

Oil, conversely, is constantly escalating in price, and with all economic sectors now so intertwined, variations in one resource rapidly spreads to others, resulting in ever changing overall resource prices (i.e. volatility). Much is currently being done towards increasing the efficiency of energy systems and in looking for alternative energy sources, but whilst the transport sector is monopolised by oil (with more than a 90% energy supply), little can be done to avoid being ruled by the whims of the oil market.

Moreover, many green technologies are still in their infancy. Mr Oppenheim likened it to a flock of grey swans, meaning that assessing the environmental costs and benefits is not always that straight forward. Much and more research and development must still be done in these technologies in order to achieve true greenness and market competitiveness.
As for how the environmental constraints led by climate change will influence economic growth and human welfare, as Jeremy Oppenheim pointed out “we know the variables that matter, what we don´t know is how they are going to matter; how they are going to play out”.

We are 1.8 billion highly demanding middle class consumers and we are already scrambling for resources. Examples of such are the ever higher sums of money that are currently being spent in discovering ever scarcer and smaller unexploited resource sources of oil, minerals and others. By 2030, we will be 3 billion MORE people, and an increasingly hazardous climate is likely to further limit resources availability. How should we plan to deal with such a demand increase? And, more importantly, will the shift come in time?

The only feasible solution is a sustainable economic model (i.e. a model that is able to maintain itself indefinitely overtime). This will only be possible if the economic system effectively takes into account the complex reality of the availability of natural resources. Politics and institutions will no doubt need to play a key role in shifting towards this sustainable economic model.

How is this shift going to be done? That is another matter. Perhaps, it is initially easier to start investing in change amongst the booming economies of India and China, where there is a greater opportunity for investment. Besides, these two countries are amongst the most vulnerable regions to climate change hazards.

 

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