What if we fail to adapt to the new era of scarcity?

Dominic Waughray, Head of Environmental Initiatives at the World Economic Forum, explores what could happen if the world fails to get to grips with the new reality of extreme weather and scarce resources. The interview is part of the Risk Response Network’s “What if?” series.

What is your main field of expertise and current research?
I am Senior Director of Environmental Initiatives at the World Economic Forum. This means that I have an institutional, professional and personal interest in looking at environmental and sustainability issues within the context of economic growth.

Given your research, what would you say is the most under-appreciated risk?
I would suggest that one of the most under-appreciated risks is the issue of scarcity, meaning a lack of sufficient resources.

Traditionally, during the 19th and 20th centuries, the focus was on accumulating capital, and we assumed that we had an unlimited supply curve of environmental goods and services. What we are witnessing at the turn of the 21st century is that actually, we have accumulated significant pockets of capital around the world – sovereign wealth funds, pension funds, even some extremely wealthy individuals – and yet we are just starting to nudge against a constraint in our environmental goods and services. This could be in terms of assets that we can take out of the ground, or food, or assumptions about what we can pollute into the atmosphere or water.

How would you frame this risk as a hypothetical scenario: “what if” this was to actually happen?
Rather worryingly, we do not need a “what if” because it is already happening. Take 2010, which was the second-warmest year on record. Russia endured a heat wave which reflects what the new model for extreme weather is becoming: something that would once have been a one in a 100 year event is now occurring every five or six years. The heat wave was so intense that it wilted much of the grain and wheat supply in Russia to the extent that trade barriers were erected to slow exports; and these had an impact on the commodity markets. Speculators in the commodity markets pushed the price up further. The market reaction rippled through a number of other crops.

Flip forward a few months and we had one of the biggest droughts we have ever seen in the Horn of Africa. The World Food Programme, which is one of the world’s biggest spot purchasers of food, then had to gauge how much food is worth, while trying not to exacerbate the problem. This was both a market and humanitarian response to effectively a structural challenge we are facing with the climate. If we do not tackle the structural risk we face in the world economy through mitigating, stabilizing and adapting to a variable climate, then we will be failing to deal with one of the most systemic risks and challenges that we face.

In your analysis, how might this scenario of damaging scarcity unfold?
It would be surprising to me if we did not see more consumers or citizen disquiet about issues surrounding access to energy, access to cheap food, not just in some of the fast-growing markets around the world, but in some of perhaps the more historically affluent societies. Floods, droughts, a melting Arctic, volatility in the prices of food, energy and oil – these and all the interrelated issues that go with them will be on the agenda. I would also be interested to see over next the five years how much middle class discontent starts to emerge when we realize the era of the cheap T-shirt is over.

Who would feel the impact the most, and how?
It is a systemic risk. Are we going to be able to sustain growth at 4-5-6% and up to 9-10% in some emerging economies around the world over the next two decades, and supply an emerging middle class with the goods and services that it wants and requires?

If we are going to be equitable in that growth and poverty, we face a new kind of macroeconomic challenge: how do we deliver that growth when we have a tightening supply curve of environmental goods and services? And if we do not address that challenge, what is that growth equation? Then we will be facing a series of these risks that chip-chip-chip away and which will get deeper and more substantive with every five or 10 years that pass.

How well do you think we are prepared for such a contingency?
Our international arrangements are not geared to tackle this, as we saw with the emergence of the G20 to tackle the financial crisis. We have many multilateral environmental arrangements and many institutions. Yet, the scale of the problem has perhaps overtaken these institutions which were set up in the 1950s, 1960s and 1970s.

What is your top mitigation approach for this risk?
What if we had, instead of just a Security Council at the UN, a Natural Resource Security Council, for example? And what if around that table were not the historically rich countries, but the eight or 12 nations who were facing the biggest demand for natural resources around the world or the countries with the greatest endowment of natural resources? So, you might have for example a DRC and a China and a Brazil around that table, a Natural Resource Security Council. As a concept, it starts to address at the highest level some of these issues, and then would filter that downwards towards international arrangements – that is one idea.

On the flip side to risk, what opportunities do you see associated with this “what if” scenario?
Well, if we take the scenario I have presented as a step forward, then the fact that you might have 12 nations around a table under the framework of a Natural Resources Security Council means that not only can you see a contingency plan about how we organize who gets what, but you could also have other similar natural resource-related organizations emerge, for example the organisation of water-endowed states. This becomes interesting when there are countries in the Gulf region that are looking for land in well-watered parts of the world to grow the crops that they need. A group of cash-poor but water-rich countries would have a better bargaining position with those richer countries who need their water, as opposed to being negotiated with one-by-one.

If you had that roundtable, opportunities would start to emerge for a more sophisticated global conversation around how we organize our affairs. This would perhaps be better than the bilateral or independent arrangements currently going on which are fracturing rather than coalescing with our international system.

Do you sense a willingness to move towards these kinds of arrangements?
I think that there is a lot of desire to take another look at the international arrangements that we have. The discussions at the Rio+20 Summit this June for example are looking at our international arrangements for sustainable development. They may well suggest the creation of a new UN Council for Sustainable Development – which goes some way toward the suggestion I made earlier – as well as a set of associated Sustainable Development Goals. I also think there is a lot of interest in some of the public-private collaborations which are occurring at a national or regional or multi-country level, whether in agriculture or water or clean energy systems. Can these be “implementation vehicles” to help countries meet these new sustainable development goals? This is something the World Economic Forum will help to develop some thinking on for the Chair of Rio+20. However, the big question is: are these changes going to be incremental, or will they create the scaled, swift transformation toward a resource-efficient economy that we require? We need international arrangements to help bring successful collaborations up to scale quickly in order to deal with the challenge of scarcity.

Pictured: Malnourished cattle in a drought-stricken area of Mexico (Reuters)

Dominic Waughray is a Senior Director and Head of Environmental Initiatives at the World Economic Forum.