Natural Resources, Nonrenewable
Natural Resources, Nonrenewable
It is common to subdivide natural resources into the non-renewable and renewable categories, respectively. The former, predominantly metals and fossil fuels, are derived from a limited stock, whose ultimate size is unknown. The supply of the latter, primarily of biological origin, relies on regeneration that can be repeated in perpetuity. This difference leads to frequent assertions that sustainability requires more reliance on renewables, to avoid, or at least delay, an impending and unavoidable depletion of nonrenewable resources.
The differences in the conditions of long-term supply between the two categories are often exaggerated. Everything being equal, the supply of both tends to become more costly with expanded use, for that necessitates the employment of more meager mineral deposits and more marginal soils. Everything is not equal, however, and technological progress has more than compensated for this upward push, so that the real cost of mineral as well as agricultural output has tended to fall over time. Furthermore, examples of dramatic exhaustion are easier to quote from the renewable category. Witness how the forests disappeared in antique Italy and in seventeenth-century England, or the virtual extinction of cod in the world’s oceans in the late twentieth century.
The fear of depletion of exhaustible resources is almost as old as humankind, but the available experience suggests that painful scarcity is less of an immediate threat than ever in history. Despite impressive growth rates in usage, which have raised present world consumption to many times that of the early or mid-twentieth century, the reserves of virtually all metal minerals and fossil fuels have expanded at even faster rates, through a combination of discovery and subsequent appreciation of the newfound deposits. Extraction costs show a falling trend in real terms, and the prices of most exhaustible resources have declined in parallel. All this is counter to the predictions of a dire future made by the Club of Rome in the early 1970s. These predictions completely missed the point, primarily because they neglected technological progress in exhaustible resource exploration and exploitation. There are no indications that the benign trends caused by technological innovation are in the process of reversal.
Though in most cases, declining costs have resulted in falling prices, there are important exceptions. The price of oil has followed an upward trend in real terms ever since the Organization of Petroleum Exporting Countries (OPEC) took effective command of the oil market in the early 1970s. The cartel has been able to exercise market management to its advantage because its members control the world’s largest and most economical reserves, those in the Middle East. The most potent tool for maintaining monopolistic pricing in the oil market has been a virtual arrest since the late 1970s in the cartel’s expansion of capacity to exploit this resource wealth. The prices of petroleum have spilled over to other fossil fuels, since the latter can substitute for oil in many cases. Monopolistic market conditions are likely to be maintained so long as the cartel remains in charge.
The prices of virtually all primary materials, exhaustible as well as renewable, rose impressively in the first half of the 2000s. The price of oranges and rice increased by 50 percent between 2002 and 2005, coffee went up by 68 percent, and rubber by 95 percent. The price of oil doubled while the prices of nickel and copper increased by even more. This was the third powerful and general commodity boom since World War II (1939–1945). As was the case with commodity booms during the time periods between 1950 and 1951 and between 1973 and 1974, this boom was triggered by a sudden and sizable demand expansion at a time when inventories were small and no slack capacity existed to satisfy the surge. As on previous occasions, the rising prices were temporarily decoupled from the costs of production.
The demand shock centered on 2004 was primarily due to a very fast growth in world gross domestic product (GDP). The new phenomenon was that the economies of several large developing countries, notably China and India but also Brazil and Indonesia, expanded at voracious rates, and contributed strongly to the global boom. The successful growth performance in those nations was primarily due to the economic liberalization measures implemented during preceding decades. An intensified participation in the integration of the global economy was a key factor behind these countries’ impressive growth rates. At the present stage of their economic development, involving industrialization, urbanization, and the buildup of infrastructure, these economies are very intensive resource users. This accentuated the demand shock in the raw materials markets.
Normality will likely return to these markets before the end of the 2000s, just as it did a few years after the outbreak of the earlier commodity booms. The year 2004 was exceptional in terms of global growth, unlikely to be repeated in the near future. The profitability of the natural resource industries at the prevailing prices is exceedingly high, so the incentive to invest in capacity expansion is strong. Sizable investment efforts are also under implementation. Building new capacity will take several years to complete, but once that capacity becomes operational, and the supply can increase, prices are bound to fall, to reflect once more the cost of production. Oil is an exception in this regard. The cartel’s efforts to keep capacity constrained may permit it to continue extracting monopolistic prices.
Successful globalization could well result in higher world economic growth than was attained in past decades. But there is no reason to believe that this will compromise the nonrenewable natural resources availability. The world is still very far from the bottom of the barrel of the resource wealth, and with continued cost-reducing technological progress, it is uncertain whether that bottom will ever be seen. Faster growth in the demand for natural resource commodities can easily be accommodated by a more speedy supply expansion, but producers must be given a sufficiently early warning of what to expect in order to adjust their production capacity. Successful globalization brings prospects for a speedier increase in the incomes of the poor in this world, which should be seen as a blessing and not a resource threat.
Radetzki, Marian. 2002. Is Resource Depletion a Threat to Human Progress? Oil and Other Critical Exhaustible Materials. Energy Sustainable Development: A Challenge for the New Century (Energex2002 ). Krakow: Mineral and Energy Economy Research Institute, Polish Academy of Sciences.
Tilton, John. 2003. On Borrowed Time? Assessing the Threat of Mineral Depletion. Washington, DC: Resources for the Future.