Resource Revolution: Meeting the world’s energy, materials, food, and water needs
The English thinker Malthus argued in his famous Essay on the principle of population in 1798 that there was no longer sufficient land in the world to feed a rapidly growing world population, threatening poverty and famine. But an agro-industrial revolution soon transformed the economies of Europe and North America, and his fears proved unfounded.
In more recent years, the conventional wisdom has taken hold that market forces would always come to the rescue. Until ten years ago, this hope was largely fulfilled. During most of the 20th century, resource prices, whether they be food, water, energy or steel, declined despite strong growth in the world’s population and even stronger growth in GDP. This price fall was due to a combination of new low-cost sources of supply and technological innovation.
But in just the past ten years, demand from emerging markets, particularly in Asia, has erased all the prices declines of the previous 100. A number of factors are conspiring to create a risk that we might be entering a new era of high and volatile prices over the next two decades. Up to three billion people could join the middle class, boosting demand at a time when obtaining new resources could become more difficult and costly. The stress on the resource system is likely to be compounded by increasing links between resources that mean that price shocks in one can swiftly transmit to others. In addition, environmental deterioration, driven by higher consumption, is making the supply of resources—particularly food—more vulnerable.
A joint report by the McKinsey Global Institute and McKinsey’s Sustainability & Resource Productivity Practice shows that the resource challenge can be met through a combination of expanding their supply and a step change in the way they are extracted, converted, and used. Resource productivity improvements that use existing technology would satisfy nearly 30 percent of demand in 2030. Fifteen areas, from more energy-efficient buildings to improved irrigation, could deliver 75 percent of the potential for higher resource productivity.