How should we define scarcity?

Professor Hellweg, which resource do you think is the scarcest?
Stefanie Hellweg: Strictly speaking, resources are natural raw materials, such as fossil fuels and metals, but also renewable resources such as water. A raw material is said to be scarce when it is no longer available in the quantity or quality needed to satisfy demand. In my work, I look at resources from an environmental perspective and examine the effects on the environment from, say, extraction activities. If the use of metals increases, over time you will find ores with lower and lower concentrations of the metal you’re looking for. This could mean that in future, more energy is required to extract it. Things were different in the past, though, because the technology was becoming more refined and energy was being used more and more efficiently. In global terms water is not a scarce resource, but at the regional level water scarcity can have dire consequences for people and the environment. If you’re talking about fossil fuels, we consider the climate change caused by burning them to be a much bigger problem than their availability.

And if you define the term “resource” more broadly?
Hellweg: Then you could also count the climate or biodiversity as natural resources. Next to global warming, loss of biodiversity is probably the most serious problem we face worldwide.

As an environmental policymaker, Dr Oberle, do you hold the same view?
Bruno Oberle: At the Federal Office for the Environment, we define “resources” very broadly, similar to the way the European Union does. This definition does include biodiversity, for example. However, at the moment Swiss law doesn’t include any protective regulations for rare goods. The environmental law in effect right now is really concerned only with the negative consequences of resource use, such as emissions or pollution. An amendment to this law is currently in the Swiss Parliament. If it goes through, it would mark the first time that Switzerland has made scarcity a topic in its own right and a basis for taking action. If we want to show that these actions are actually effective, we automatically talk about the global situation as well. And that plunges us right into the complicated discussions we’re all used to having about the climate. In this respect, the scarcest resource I have is political consensus [laughs]

Why do you want to change Switzerland’s environmental protection act?
Oberle: Because we believe that demanding too much from the systems upon which our economic and social activities are based will jeopardise Switzerland’s welfare over the medium and long term. Science is indicating that this is already the case in many areas. As regards biodiversity and the climate, we are already outside a “safe operating space” – in other words, we have exceeded the limits of what the earth can tolerate.

Professor Bretschger, which resources are considered scarce from an economic point of view?
Lucas Bretschger: In economics, we operate with a very broad definition of “resources”, because we’re interested in how people manage them. This view includes natural resources, but could encompass things like time or political restrictions. Scarcity is everywhere, in fact; we have less than we’d like of most resources.

So is it a question of allocation?
Bretschger: There are certain mechanisms for allocating scarce resources. One of these is an individual’s own decisions, or personal responsibility. Another is the market that determines the price, which itself is an indicator of scarcity.

Is it as simple as saying the most expensive goods are the scarcest?
Bretschger: It’s not quite that straightforward, as demonstrated by the “diamond–water paradox”, for example. Although water costs virtually nothing while diamonds are very expensive, if you were dying of thirst, you would gladly trade a diamond for some water. In certain situations, the usual relationships are reversed. This means we have to take a good’s value or price into consideration in all possible circumstances.

If resources have no price, practically speaking, such as air or water, does that lead to wastefulness?
Bretschger: This is the core of environmental economics. If the price of a good doesn’t reflect the entire social cost, then it is too low and will lead to waste. Basically, there is no such thing as a good that is completely free. There’s competition for everything, even the air we breathe. Of course I can pollute without having to pay the cost myself, but someone else is going to suffer as a result. And let’s not forget the long-term consequences for our climate. This is why we have to come up with different allocation mechanisms – ones that are not provided by the market.

What are they?
Bretschger: For example the state, which supports allocation through regulation. There’s also international trade, which balances out the uneven distribution of rights of use among countries. In our research, we look at how we can manage natural resources sustainably. This means using natural systems in a way that doesn’t give future generations a quality of life that’s worse than our own. Other resources come into play here: inputs created by people, such as knowledge and human capital, better institutions, etc. Hellweg: Our research aims to quantify effects on the environment, such as the loss of biodiversity or the years that get taken off people’s lives when something harms their health. The idea is to take costs that currently have no price – what we call external costs – and make them transparent. By doing so, we want to help those who make decisions about which resources should receive more protection. You could even go a step further and translate the costs into a monetary currency, but that’s not so easy.

How effective is price as a regulation mechanism?
Bretschger: We’re often able to adjust only relatively poorly to prices over short time frames. Let me explain using crude oil as an example: the price of oil can indicate many things, but it can’t change the fact that the heating systems in our homes are designed to last for 10 to 30 years. At today’s rate of renovation, it would take a whole century to completely equip Switzerland’s buildings with an alternative. This means the influence of price is greatest over the long term. The same holds true for transportation systems, which are similarly designed with long service lives in mind. And here’s an interesting thought: if China skipped over the petrol-powered phase and went directly to electric mobility, the impact would be massive – and would extend to the European automotive sector, too.

Besides prices, there are also laws and regulations.
Oberle: Wherever a system doesn’t regulate itself – in other words, where there’s some kind of market failure – that’s where sensible laws should be put in place. But laws can also be used to help a certain development along. For example, the Chinese could ban petrol-powered cars, a measure that would require strict government implementation – something the Chinese have that we don’t. However, we could also try to do more in future. Theoretically you could define an upper limit for certain resources, based initially on scientific findings, and then let the price mechanism do its work. That’s what was done with the CO₂ pool.

And what about appealing to people to take voluntary action?
Hellweg: That can be successful if people understand what it’s about and how to adjust their actions accordingly. I’m sceptical as to whether or not such appeals can work on their own. Changing consumption behaviour is particularly difficult. You usually need additional support measures, such as legal requirements, taxes or subsidies for new technologies.

Bretschger: Individual responsibility plays a major role in every system, but it doesn’t go far enough for urgent environmental problems. What really drives people – and we see this in climate talks – is a consideration of fairness. The price is in fact the mechanism that correctly signals scarcity, but how rights to use the environment are allocated is key to achieving political acceptance. If some people have good intentions and do something for the environment, but others don’t, then those who do will eventually find the situation unfair and will stop. This is counterproductive.

Oberle: Day-to-day politics are complex; it’s not simply a question of whether voluntary action is the way forward. In the initial phase, we often work with people who volunteer to effect change. You have to protect these pioneers so that they’re not immediately clobbered by reality. Once there are enough of them to provide a foundation, you can try offering incentives to get more people on board. And if we then have, for example, a two-litre car or an electric car, or engineers know how to build a truly energy-efficient house, then you can say: right, as of now, this technology is standard and mandatory. Political action takes time – for major changes, about 30 years.

Is it true that when the economy is doing poorly, such as in recessions, it means tough times for environmental policies?
Bretschger: If you look at it that way, then it’s always a tough time for environmental policy. In bad times, people say, oh, we can’t afford that right now, and in good economic times, they say, oh, we don’t want to do anything to jeopardise things when they’re going so well. In other words, environmental policy should ignore these economic cycles; we have to think on a much larger time scale.

Is it still possible today to take political action with such long-term perspectives?
Bretschger: One can find examples throughout Switzerland’s history of people realising intergenerational projects – the Gotthard Tunnel, for instance. Nowadays, there’s less and less enthusiasm for such long-term projects, and less pioneering spirit. People often overestimate the difficulties and costs that would result from such a transformation. In the long run, switching to environmentally friendly technologies would also provide opportunities for growth and advantages in international competition.

Switzerland is not a country rich in raw materials; we have to import most of what we need. What implications does that have for the environment?
Hellweg: The biggest part of the footprint created by Swiss consumption lies outside Switzerland. We can show this with the help of a lifecycle analysis.

What does this mean specifically?
Hellweg: Let’s take food imports as an example. When you look at the land used to produce the total amount of food consumed in Switzerland, the area of that land located abroad is roughly the same as here in Switzerland. While it is possible to see effects on biodiversity in Switzerland, the negative consequences in other countries are much worse; for example, when you look at species loss. Water consumption presents a similar picture. We have plenty of water in Switzerland, but when we import fruit from Spain, then we contribute to water scarcity there. Regarding CO₂ emissions and the effects on climate change, the relationship is more balanced, but even so nearly half of CO₂ emissions attributable to Swiss consumption are produced abroad by the many products we import. This is also a problem of the political instruments at hand – especially if they’re somewhat older than, say, the Kyoto Protocol. Here the thinking is still very much bound by national borders, with hardly any incentives to reduce indirect emissions.

Oberle: The Kyoto Protocol ties emissions to the locations where they are produced. An alternative approach would be to attribute emissions to countries based on their consumption. The thing is, we ought then to have the opportunity to say at the border: this or that product isn’t allowed in because it would put too much of a strain on our CO₂ account. However, that clashes with international treaties and of course with the interests of exporting countries. In this context, what concerns me much more is that we have to consider how completely dependent we are on the world – not just as regards oil and gas, but also food.

In light of this international interdependence, what can Switzerland do?
Bretschger: As I see it, there’s no need for a complicated switch from the current production-based perspective to a consumption-based one. After all, adding environmental taxes into the product price means they are still very much borne by consumers, which is advisable from an economic point of view. But in my opinion, it would be better if we here in Switzerland developed new low-emissions technologies and drove them forward. Then we would really be achieving something on a global scale. We should also play a more active part in international negotiations: we may not be the most influential country, but we can build bridges and liaise among the various players, contribute good ideas and perhaps soften the hard line taken by the major blocs. Ultimately, if we still want to achieve the two-degree target, the upcoming climate negotiations in Paris will have to produce substantial results.

What sort of global effect would it have if Switzerland were to develop new technologies?
Oberle: We export technologies and standards as well. Take cement, for example: cement production is a major source of CO₂. Lafarge-Holcim is the largest cement manufacturer in India. The company operates to the same standard in every country as a matter of principle, so if Holcim came up with a good technology, then this would also be an enormous help in India.

Hellweg: Another example would be technologies for waste incineration and for recovering metals from slag. This is an area where Switzerland is a world leader, and international interest in these technologies is quite high.

Oberle: If the new environmental protection act goes through, we will have the opportunity to roll out this kind of new technology throughout Switzerland. This would let us create at least a limited market.

This article is published in collaboration with ETH Zurich. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Roland Baumann and Martina Märki write for ETH Zurich.

Image: A woman walks with her greyhound dogs along a path in the Durand forest near the French border to Switzerland, in Ferney Voltaire. REUTERS/Denis Balibouse