How can the global system manage scarcity?

November 16, 2010

     By Duncan Green     

Alex Evans is on a bit of a roll at the moment, with an excellent new paper on ‘Globalization and Scarcity: portrait_alex_evansMultilateralism for a World with Limits’. It’s a great summary of the problems created by the threat of scarcity of food, land, water, energy, and ‘airspace’ (for greenhouse gas emissions). He confines his solutions to the implications for the multilateral system, rather than equally important responses from citizens, nation states or the private sector. Here’s a summary of the summary. First the problem:

“Globalization has improved the living standards of hundreds of millions of people – but growing resource scarcity means it risks becoming a victim of its own success.
On food, projections suggest that production will need to increase by 50% by 2030 (and 100% more by 2050), to meet forecast demand. Yet there are already signs that the productivity gains of the Green Revolution are running out of steam, even as significant amounts of crops are being diverted to biofuels. The 2008 food price spike provided a taste of what may be to come.

On land, competition between different land uses is increasing fast – both globally (between land uses including food, feed, fuel, forest conservation, carbon sequestration and growing cities), and in hotspots where land degradation, desertification, fast growing populations and weak systems of land tenure create the risk of political discord or violent conflict.

On water, demand will rise by around 25% by 2025, but even existing consumption levels are already beyond sustainable levels. Water scarcity will intensify over the next decade as groundwater depletion continues in many regions. Declining water availability is also projected to be probably the most significant impact of climate change over the next decade, with particular impacts on regions dependent on glacial meltwater and trans-boundary freshwater resources.

On energy, the International Energy Agency estimates that investment of $26 trillion is needed between now and 2030 to meet projected demand – a figure that rises to $36.5 trillion once the need to reduce greenhouse gas emissions is factored in too. However, current investment totals are nowhere near this level.

Climate change, finally, will intensify all of the above challenges, reducing food and water availability, driving massive shifts across energy and agricultural systems and causing a range of other shocks and stresses. A particular challenge facing policymakers is the fact that climate change impacts are likely to be highly unpredictable, non-linear, and hallmarked by sudden shifts as key thresholds are passed.

These scarcity challenges need to be understood as an integrated whole, not as separate issues. All of them present the greatest risk to poor people and countries, who have the least capacity to cope with shocks or adapt to new realities.

Scarcity issues could emerge as an important catalyst for collective international action to tackle global challenges – in the process helping to ensure that a globalization that is already efficient also becomes more sustainable, equitable and resilient. The paper focuses in on four key policy areas:

Alex Evans coverDevelopment and Fragile States
Climate change and resource scarcity will hit poor people and countries hardest – not only for geographical reasons (e.g. that climate impacts will impact disproportionately on low latitudes), but also because of their high vulnerability. Environmental shocks are often part of the reason people become poor in the first place; poor people and countries spend high proportions of their incomes on food and fuel; the institutional and political weaknesses of fragile states can make them more susceptible to conflict risks arising from scarcity (although scarcity issues will usually be threat multipliers, rather than stand-alone conflict risk drivers).

Multilateral actors are already massively involved in issues of development, state fragility and conflict response, and this – together with the fact that poor people and countries are most vulnerable to scarcity – means that the multilateral system will have no choice but to take account of scarcity in its work in developing countries, whether in humanitarian assistance, conflict mediation, peacekeeping, long-term development partnership or support in international forums.

Finance and Investment
The key areas in which investment is needed as a result of climate change and resource scarcity are (a) energy systems, where the policy challenge is to deliver both energy security and climate stabilization at the lowest possible cost; (b) agriculture, where there is a need to finance increased crop production, again in a way that addresses climate stabilization, and with far lower input levels than today’s agriculture; and (c) the costs of financing improved resilience (for example, through social protection systems), especially in developing countries.
Three roles stand out for multilateralism. Collective action is needed, first, to correct market failures, such as environmental costs that are not reflected in prices; second, to provide ‘signals from the future’ that can improve long-term predictability for private sector investors; and third, to protect poor people and poor countries from the effects of scarcity by financing enhanced resilience.

International Trade
The food and fuel price spike demonstrated the risk of acute trade shocks such as price spikes, and how these can lead to knock-on social, economic and political consequences. At the same time, such impacts risk leading to countries losing confidence in open international trade, while the potential for unilateral use of ‘carbon tariffs’ risks leading to a slide towards tit-for-tat protectionism. Over the longer term, increasing energy scarcity or tight emissions controls could impede international supply chains and reduce the overall volume of international trade.

Effective multilateral cooperation can help to head off these risks by creating trust between countries that they can rely on the trade system to meet their needs.

Strategic Resource Competition
Finally, increasing scarcity will create new strategic resource competition between states – at worst, involving the risk of inter-state conflict.158 of the world’s 263 international river basins lack any kind of cooperative management framework, with projected glacial melting an especially important risk driver in the future. Already, both developed and emerging economies are engaged in a scramble for energy resources in numerous regions, and a similar dynamic may be emerging in the context of land and food access deals. Climate impacts, especially rising sea levels, will create new political disputes over newly available resources and sea lanes, whilst challenging existing legal infrastructure (for example, water sharing agreements).

Multilateral cooperation is needed not only to contain worst case scenarios, such as the risk of inter-state conflicts over resources, but also the risk of a generalized shift away from international cooperation, and towards zero sum competition.”

The paper provides specific short and medium term suggestions for how the multilateral system can better handle scarcity in each of these areas. As is often the way, the recommendations are not quite as powerful or original as the diagnosis, often reading like pretty standard development policy (increase aid and R&D spending, educate girls, build social protection systems), but the paper as a whole is incredibly useful.