Natural Resources and the Environment

Attention has long been focused on the strains in global energy markets. Although most analysts believe that oil reserves will be sufficient to meet worldwide consumption over the next several decades, proven oil reserves (barring major geopolitical upheaval) are highly concentrated in the Middle East and Central Asia, where ongoing political instability raises concerns about future costs and availability. Industrialized countries and key emerging markets are turning toward alternative resources that lessen their dependency on oil, but these alternatives also carry many hidden costs. Surging economic growth in China and India will drive two-thirds of the global demand for coal by 2030—but burning all this coal may significantly erode air quality and public health in these countries. China, with one-twentieth the per capita oil consumption of the United States, already ranks as the world’s second largest importer of oil. The country accounts for 26 percent of the world’s coal consumption and has announced plans to build at least 100 additional power plants by 2020, most of them powered by coal.

The United States and Europe have begun consuming so much natural gas that domestic reserves are already overstretched and utility prices are rising. Ample supplies of natural gas can be found elsewhere, but energy companies will have to invest billions of dollars to develop the infrastructure to extract and deliver it. Challenges also loom in another resource that is at least as critical, if not so often discussed. By 2050, as much as half the world population may suffer from insufficient access to water—a condition that will not only undermine human development but could also touch off competition among countries and within communities for access to water resources.

Some of the world’s toughest “hot spots” involve competition for water, and the number is likely to grow. Moreover, dwindling supplies of freshwater may lead to a crucial shortage of locally produced food in developing countries, since agriculture accounts for 70 percent of global water use. This could increase dependency on foreign aid among the poorest countries and raise prices as countries compete for imported food. Adding to the list of global challenges are such slow-moving trends as climate change. Even one-time skeptics of global warming now grudgingly acknowledge that the accumulation of greenhouse gases in the atmosphere is steadily increasing the temperature of the planet.

The United Nations Environment Programme warns that economic losses due to catastrophic natural disasters are doubling every decade and may cost $150 billion per year by 2010 if current trends continue. Climate change alone could stress banks and insurers to the point of impaired viability or even insolvency.18 Countries could limit greenhouse emissions by relying more on cleaner, alternative sources of energy such as wind, the sun, and hydrogen. But there is little market incentive to develop these technologies given the comparative abundance of fossil fuels.

As governments and consumers become increasingly concerned about the costs of environmental degradation, forward-thinking global companies such as Coca-Cola and BP are working to minimize water pollution and greenhouse gas emissions. Value-building companies are pouring more resources into the research and development of new technologies that will satisfy the world’s insatiable demand for clean, renewable, natural resources.