By Bernice Lee

Will Rio+20 just be a side show to the global scramble for resources or will it grasp the realities of the looming crisis and form a political agenda that can succeed?

Experts are predicting a global scramble for natural resources - energy, water, food and minerals - for decades to come, with the struggle taking place against a backdrop of environmental change, economic uncertainty and social unrest. The anticipation of future scarcities, together with high and volatile prices, has already influenced decisions by businesses and governments. Are we on the cusp of a new world order dominated by struggles over access to affordable resources?

This month, the world's governments will gather for the Rio+20 United Nations Conference on Sustainable Development, a return to Rio 20 years after it hosted the seminal Earth Summit in 1992.

The original Rio summit put a number of critical environmental issues such as climate change and biodiversity on to the global agenda. The next summit's task should be different. As more than 150 world leaders and 50,000 other delegates head to Rio, they should be aware that too little attention has been devoted to resource politics. This is a mistake.

Fractured politics and policies on energy, minerals and food are a fault-line that derails politics - foreign and domestic - around the world. For example, high food and energy prices in 2007-8 prompted protectionist responses that have caused distrust and changed geopolitical landscapes in politically fragile regions. These fractured responses will only continue to undermine co-ordinated action to deliver global food, energy and water security.

This blindness to the underlying politics of resource access and national competitiveness has derailed other multilateral attempts to address issues of sustainable development - from climate change at the Copenhagen summit of 2009 to the G20's attempts to deal with food security. If it ignores the politics, Rio will at best be a side show to the global scramble for resources, as politicians pay lip service to sustainability, agree a warm and fuzzy communiqué and continue to pursue policies that nurture unsustainable business models and perpetuate zero-sum competition.

More, more and more

Fears that the world is running out of resources are not new. Some hard truths, however, cannot be avoided. One is that demand for natural resources is growing at an unprecedented pace. The other is that meeting this growing demand will not be easy.

Energy needs are predicted to grow by 50 per cent by 2035. The world is expected to triple the amounts of minerals, ores and fossil fuels consumed each year between now and 2050. Water demand will increase by 50 per cent in the same period. McKinsey, the consultancy, has argued that, barring major macroeconomic shocks, prices are likely to remain high and volatile for at least the next 20 years.

Population growth, urbanization and the rise of the emerging economies are critical pieces in this puzzle. China today accounts for more than 40 per cent of global metals consumption, up from only 13 per cent 10 years ago. By 2020 it will become the world's largest oil importer, something it was self-sufficient in only two decades ago.

Additionally, many forecasts show unprecedented supply gaps and investment needs in the coming decades. A transformational leap in productivity is required to meet growing food needs, particularly in Africa. The Gates Foundation estimates that investments of around $100 billion a year will be needed in developing countries alone. To meet projected oil and gas demand would require more than half a trillion dollars every year until 2035.

Meeting these rising resource needs will be made more difficult by environmental pressures and the effects of climate change. Water and land are already scarce in many parts of the world, and are coming under pressure from urbanization and industrial development. Climate change is expected to change the seasonality and the amount of rainfall, while extreme weather events such as heat waves and storms are expected to become increasingly common by 2040.

New fault lines

The anticipation of future supply gaps and scarcities is sharpening the politics of re-sources and national competitiveness.

Until recently, for example, food availability and price volatility was not considered a threat to political stability. But the 2007-8 food crisis, including the price spikes for cereals and oil, led to protests in 61 countries, with riots in 23 and one change of government. Three years later, high food prices contributed to civil unrest throughout the Arab world. High and fluctuating oil prices have caused political challenges across the globe, from Burma and Nigeria to the US and China.

As these events have shown, the rapid transmission of price increases to poorer consumers often results in political unrest and instability as well as large-scale migration. The effects are not limited to the poor. High energy prices have undermined the macro-economic position of importing countries such as the members of the European Union.

Resource-rich countries with weak governance and poor financial resilience can also be caught in the classic 'resource curse'. This is a toxic mixture of rising exchange rates which kill off other forms of industrial activity; increased opportunity for corruption; and the challenge of investing the new-found revenue. Without transparent and effective financial management, these countries are also particularly exposed to a price fall.

Water pressure

This competition for resources will have profound implications for the environment. Food and water are already under pressure. Continued consumption at the current scale could lead to the collapse of critical ecosystems, whether forests, cropland, rangeland, fisheries or usable water. For many industries, water availability will be critical when deciding where to invest and where to produce. Water constraints already affect production of many commodities. Shortages of fresh water are expected to grow in the coming decades, provoking competition for water use in many countries. Seventy-five per cent of the world population could face significant shortages by 2050.

Some regions most at risk from water shortages are also globally important agricultural centres: including northwest India, northeast China, northeast Pakistan, California's Central Valley, and the mid-western United States.

Interruptions in access to water, food or fuel can trigger large movements of populations - whether due to price spikes or physical shortages. For those unable to escape from vulnerable regions, their entrapment will add to social tensions and can result in conflict as populations compete for resources amid environmental shocks such as drought or flooding.

Inhuman resources

Markets for resources have always been political. Government interventions in agricultural, energy and water markets have been the norm rather than the exception. Notable examples include US subsidies for biofuels or its soya bean and wheat export restrictions in the late 1970s and early 1980s, China's export restrictions on rare earth metals, and strategic stockpiles of metals (Japan), food (China) and oil (by the International Energy Agency).

This is not going to change. The market for resources will probably become even more political in the coming decade. The recent nationalisation of YPF, the Spanish-owned oil company, in Argentina and First Quantum, the Canadian mining enterprise, in the Democratic Republic of Congo is testimony to this new era of resource strife between investors and host governments. The race for new resources has also opened frontiers, not least in the Arctic, raising the prospect of conflict between regional states, such as Russia and Canada.

State-backed investment strategies from China, India, Brazil and the Gulf States, for example, have already changed the business environment for competitors in extractive industries and other infrastructure investments in developing countries. Some of these importers are willing to intervene through state-owned enterprises and sovereign wealth funds to guarantee future supply.

Commodities now account for two-thirds of foreign direct investment by state-owned enterprises. Others prioritize long-term bilateral deals for oil, gas and coal, offering political and economic support. And the search for water is already one of the driving forces of the wave of deals by some major emerging economies and Arab Gulf states to secure land for agricultural production overseas.

Meanwhile, new producers are seeking to restrict the market in key resources in order to promote their own industrial policy and technological development. Examples include the Indonesian ban on exports of unprocessed nickel and China's export restrictions on rare earth metals. These dynamics are creating not only north-south but also south-south tensions, like the current controversy over China's decision to ban super-sized ships from Vale, the Brazilian mining giant, from docking in Chinese ports.

Conflict, collusion or collaboration?

The international community faces two major challenges in the coming decade - managing the transition to sustainable 'resource' equilibrium while keeping the lights on and putting food on the table.

If governments were pursuing a co-operative agenda, the dual challenge would be hard enough. But rising population, environmental change and a rapidly shifting global economy are exacerbating scarcities and making resource politics more divisive; zero-sum national strategies to hedge against scarcity and price swings typically make things worse not better.

High and fluctuating commodity prices are likely to spur resource nationalism and increase the attraction of unilateral and bilateral responses that erode trust and undermine multilateralism. Increasing concentration of producer powers - whether through mergers and acquisition, nationalisation or investments by state-owned enterprises - may limit options for many.

Meanwhile, different patterns of resource consumption will continue to aggravate political and social stresses - between sectors, communities and states. Competition for critical resources, already acute in many parts of the world, will esca-late, heightening the risk of a downward spiral of increasing competition and decreasing trust.

In situations such as this, politics usually trumps science and good economics. Support for the Green economy is one of the two key themes of this Rio conference: the need for environmental and social costs to be reflected in the pricing of goods and services, and removing environmentally perverse subsidies. But expectations of scarcity and concerns about resource security are emboldening domestic lobbies which depend on unsustainable policies and practices.

Rio, or more precisely whatever emerges from its conference halls, is unlikely to be successful unless fundamental political issues are tackled as well.

Governments must seek answers to some difficult questions. Can we collectively challenge vested interests to move towards a more constructive politics? Are the right mechanisms in place to insulate consumers and producers from price swings, so creating more space for governments to pursue less reactive, and more cooperative agendas? Will the existing international architecture be robust enough to shepherd the world towards an equitable sharing of resources? Can we manage or resolve an explosion of resource-related conflicts?

The private sector also has a role to play, not least in developing and implementing credible business models that can help break - or at least rapidly decouple - the link between resources use and future competitiveness, so easing demand, challenging incumbent industries, and reshaping notions of resource security in the process.

What the world needs most is a new politics of resources - of co-operation and collective action, rather than competition and unilateralism.

This could never be an explicit outcome from Rio+20: it is not the stuff of frameworks, panels, goals or communiqués, nor for that matter could it be forged over the course of a few days at a single conference. But conversations, meetings, and discussions will certainly take place at Rio. Tacit outcomes and shared understandings about resources and the challenges we face may emerge, helping to set a course towards a new politics.

If this happens, then Rio+20 will have been a success.

(Bernice Lee is Research Director for Energy, Environment and Resources at Chatham House.)

 

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