A complete rethink of resource management will be needed to keep pace with demand, as up to three billion new consumers join the world’s middle classes over the next 20 years. A new McKinsey report, Resource Revolution: Meeting the world’s energy, materials, food, and water needs shows that the challenge can be met through a combination of expanding the supply of resources and a step change in the way they are extracted, converted, and used. Such resource productivity improvements, using existing technology, could satisfy nearly 30 percent of demand in 2030.
But meeting the resource supply and productivity challenges will be far from easy. There are many barriers, including the fact that the capital needed each year to generate a resource revolution will rise from roughly $2 trillion today to more than $3 trillion, with additional capital required to pursue the climate change and universal-energy-access agendas. The benefits could be as high as $3.7 trillion a year, however, if carbon had a price of $30 per metric ton and if governments removed substantial resource subsidies and taxes.
McKinsey suggests that policy makers should consider action on three fronts: unwinding subsidies that keep prices artificially low and encourage inefficiency; ensuring that enough capital is available and that market failures associated with, for instance, property rights and incentives are corrected; and bolstering society’s resilience by creating safety nets to help very poor people deal with change and educating consumers and businesses to heed the reality of future resource constraints.
In the 20th century, governments and businesses didn’t have to worry about resource productivity; they could focus on capital and labor. Over the next 20 years, resources must be at the heart of public policy and business strategy.
The main findings of the report include:
- Progressively cheaper resources underpinned global economic growth during the 20th century
- The world could be entering an era of high and volatile resource prices
- Meeting future demand would require a large expansion of supply
- A step change in resource productivity is possible
- Additional efforts would be necessary to address climate change and universal access to energy
- Tackling the resource agenda must start with a shift in institutional mind-sets and mechanisms
- Firms should consider how to adjust strategy to take account of resource-related risks and opportunities
The strategic implications of resource related trends are likely to vary from sector to sector, of course. Nevertheless, all companies are likely to benefit from adopting a more systematic approach to how resources might shape their profits, produce new growth opportunities and technological discontinuities, and generate new stresses on their management of risk and regulation. Industry leaders could usefully go one step further and strive to shape industry standards in a way that generates greater transparency through the supply chain about resource productivity and the end-to-end measurement of that industry’s environmental footprint.