The Free Market and Sustainable Development

8/12/2019 The Free Market and Sustainable Development

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Introduction

In the following essay we will be investigating the connection between our currenteconomic system and sustainable development, specifically the long-term viability of the

existing economic rgime.

By current economic system or economic rgime we are talking about the freemarket in general, and the profit motive and deregulation in particular.

As per sustainable development, we would like to live with the definition of theBrundtland Commission, that it refers to a mode of human develo pment in which resourceuse aims to meet human needs while preserving the environment, so that these needs canbe met not in the present, but also for generations to come. This is in contrast to the othereco- centric idea termed steady state economy, wh ich refers to a system of stablepopulation and stable level of consumption where growth is only attributed to theaccumulation of knowledge and technology.

By connection, we will be investigating the compatibility of the free market systemand sustainable development by exploring several key factors, such as:

-the utilization of resources, and through that the depletion of key natural resources,such as petroleum, metals, soil and sweet water

-excessive pollution and global warming leading to food shortages

-overpopulation, the resulting social problems

-whether the effect of the aforementioned factors causes irreversible damages andlead to a negative vicious cycle

At the end of the essay we will be discussing several possible alternative economicapproaches that could aid in the aforementioned problems, and also several policyrecommendations that could help nations endure the required reforms.


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The previous graph is from the Population Institutes published material for the 2009Conference in Washington, and depicts the major factors (blue: available resources; red:industrial output; pink: food production; green: world population; yellow: pollution) that wewill explore and also provide a visual representation of the correlations we will be describing

during the essay, such as the increasing pollution decreases food production, and also thatthe growth of food production, and eventually its decline, cannot feed the growingpopulation.

I. Resource depletion

The issue we will be discussing is resource depletion. Resource depletion is probablythe most important issue here even if the coastal cities have been flooded due to globalwarming and people are unhealthy because of massive pollution, the economy is still able to

function (in some way), but without resources, it can do nothing.First we would like to introduce the concept of Hubbert peak. The original Hubbert

peak theory states that the rate of petroleum production, both of a given area and of theplanet in general, tends to follow a bell-shaped curve. This peak theory was originally andsuccessfully - applied for the prediction of petroleum production in the USA, however later itwas applied to other resources as well, mainly to other energy sources, such as natural gasand coal, but recently even to food and raw materials (iron, phosphorus) as well.

Marion King Hubbert has originally published his study about peak oil in the USA in

1956 at a meeting of the American Petroleum Institute. In that report he has predicted thatUS oil production will reach its peak around 1965-1970, after which it will start to decline and he was correct.

The visual representation of the Hubbert curve and the actual US petroleumproduction in the lower 48 states (USA minus Alaska and Hawaii) is the following:


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(Source: Energy Information Administration)

a) Peak petroleum

As per the world goes, the American Petroleum Institute estimated in 1999 that the

worlds oil supply would be depleted between the years of 2062 and 2094, for which theyhave assumed that the total world oil reserves are between 1,4 and 2 trillion barrels andconsumption at 80 million per day. However in 2004, the total reserves have been re-estimated at 1,25 trillion barrels with consumption at 85 million barrels per day, making thedate of oil depletion to happen at 2057. ( Tim Appenzeller (June 2004). "The End of Cheap Oil".National Geographic)

Assuming the 2004 oil estimates and the original 80 million barrels per day usage tobe constant, we get the following oil depletion rate for major producers:


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This is however a very optimistic prediction, because as mentioned before, annual oilconsumption was already 85 million barrels per day in 2006. Future predictions are evengloomier at least for the future generation - as according to the International EnergyAgency, global oil consumption will reach ~95 million barrels per day by 2020, while oil

producers are developing an additional 22,5 million barrels per day of capacity, totallingproduction capacity at ~111 million barrels per day by 2020.

(the source also contains climate change predictions, thus it will later be re-used)

As per the rule of supply and demand applies, the additional production capacity willlead to the decline of oil prices globally, leading to a spike in consumption, furtheringdepletion and on the long-term potentially bringing it closer, possibly even as early as 2040.An even pessimistic assumption is that this large increase in capacity is in fact the large surgein worldwide production before a major collapse, as it has been noticed before in nationalmarkets.

After the USA has reached Hubbert peak of oil in the early 1970s, scientists havebegun to research the reason why the actual curve diverged from the original Hubbert curve,

that is, that instead of a flat curve, that was a sharp spike. It has been observed that this hashappened because as consumption has reached production limits, the oil companies have


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drilled out all existing fields simultaneously, and so many fields have peaked in the sametime, lead ing a spike appearing on the curve. This might be the case with the currentworldwide situation, except that oil companies are replaced by oil producing nations. Thusthe global application of this hypothesis is that major oil producing countries are drilling out

their current existing fields as global oil consumption is reaching production limits, leading tothe depletion of major fields worldwide and an oil crush somewhere in the middle of the2020s (we will refer to it as 2025 for easier usage later on).

As per the prices go, the market of oil is extremely inelastic. During the 1973-74 oilcrisis, global petroleum production has declined by ~5 million per day, or around 10% of theglobal market, and it has lead to the quadrupling of the price of petroleum (although onlythe doubling of real prices due to massive inflation). Given that global oil depletion willfollow that of the USA, global oil production will decline by ~15% by 2035, ~40% by 2045,and 55% by 2055. Using the 1973 crisis as a basis for calculating future price hikes, we willget that oil prices (real) will double between 2025 and 2035 (~$300 per barrel), again doubleby 2040 (~$600), yet again double by 2045 ($1200), and then again nearly quadruple by 2055(~$4500). Naturally this will never happen exactly this way this model prerequisites ceterisparibus, that is that nothing else changes which will not be the case and also that thesechanges happen in a linear fashion, which is also never the case in economics. However stillit can be concluded oil prices will increase by nearly unimaginable amounts until the 2040swith the world currencies possibly entering into a hyperinflationary state by the late 2030s early 2040s (the above mentioned scheme means a 30 times increase in oil price, which

would mean a 900 times increase in the price level, or 90.000% inflation rate over 30 years).

If these projections did not sound bad enough, then the upcoming paragraph will.Back in 2004, Royal Dutch has downgraded its reserves twice due to previous exaggerations,thus soaring its proven reserves by 20%, including the re-estimation of their Omani fields by40%. This has also raised questions about the reserves of the other companies andcountries. According to British geologist, Colin Campbel l, Saudi Arabias oil reserves are only210 billion, instead of 261 billion; 90 billion for Iraq, instead of 112 billion; 55 billion forKuwait, instead of 94 billion; and only 60 billion of the UAE, instead of 98 billion(http://www.countercurrents.org/peakoil-blance170404.htm ). According to former vicepresident of Aramco, Sadad I. Al- Husseini, 300 billion barrels of the worlds 1,2 trillion barrelsof proven reserves should be recategorized as speculative resources. This is also supportedby the following graph:
http://www.countercurrents.org/peakoil-blance170404.htmhttp://www.countercurrents.org/peakoil-blance170404.htmhttp://www.countercurrents.org/peakoil-blance170404.htmhttp://www.countercurrents.org/peakoil-blance170404.htm


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The graph shows several abnormally large increases in proven reserves withoutassociated discoveries, and also every countrys graph lacks decreases due to production.

A 2006 document, based on leaked information from the Kuwaiti government backform 2001, reported that Kuwaits reserves are only 48 billion barrels, of which only 24 were

fully proven and the amount of oil burned by Iraqi troops during the Gulf War has not beendeducted from it.

Also in November 2009, an official at the IEA alleged that the US government hadencouraged the agency to falsify depletion and reserve reports to maintain lower oil prices.In 2005 the agency reported that 2030 production will be 120 million barrels per day,however amidst criticism it has been revised to 105 million, but insider claim that even 90million might be impossible, and some have even suggested that the actual production ofcrude oil will only be 55 million barrels per day, or 75 million if non-conventional oil and

liquefied natural gas are included too.This would mean that our previous, very gloomy calculations actually constitute the

optimistic scenario the pessimistic scenario is that the growth of production will peak at90-95 million barrel per day around the middle of this decade (will refer to as 2015 later on),and the 55% slump will happen by the late 2030s instead of the middle of the 2050s.


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b) Post-peak petroleum

However the previously described predictions about oil production and consumptionare meaningless in themselves, and thus to get an accurate picture about the future ofenergy we need to look at contingency too. For this we have to analyze the direct effects ofan oil shortage and the development of alternatives.

As per political will goes, there arent many governments with a serious contingencyplan, and most governments are still only subsidizing fossil fuels. Notable exceptions areIceland (fertilizer production using geothermal energy and water), Ukraine (bio-fuelproduction up to 10% of the countrys oil consumption , mostly from ethanol and fuel algae)and Brazil (nearly 20% of energy consumption comes from ethanol). According to the currenttrends, the only country that could substantially reduce its oil consumption and evenbecome quasi-oil independent in the foreseeable future is Brazil, thanks to legislation andvery strong government involvement which has started in 1931.

However to take a better picture of the global market in general, we should at globaltrends in the oil industry.

As the picture above shows, the rise in per capita petroleum production has stoppedin the early 1970s (due to the 1973 oil crisis), remained on the peak during the 1970s, and


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has been the decline ever since with a per capita decline of roughly 25% from 1980 to 2000,contrary to the over 100% increase from 1960 to 1970.

This above graph shows that oil discoveries have been on the decline since the 1960s(peaked in 1964 to be correct), and basically projections for the period of 2010-2050 are less

than annual discoveries in the 1960s.


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The above graph shows the consumption by sector of the United States, which isquite an extreme to the heavy consumption of the light-duty vehicle sector, however ingeneral it is representative enough in the sense that it proves that the majority of theworlds petroleum is consumed by the transportation sector, more specifically by personal

vehicles. Additionally, the transportation sector is the most sensitive to changes in thesupply of oil due to the absolute lack of alternatives the only alternatives worthmentioning are electric cars, flex cars (cars running on a mix of diesel and ethanol) andbicycles. In case of electricity generation, there are numerous viable alternatives and arapidly growing renewable energy sector, but in the transportation sector no meaningfulchanges are predicted, and they would take decades to take effect anyway.

All these figures , along with the Oil Crisis and the fulfilling of Hubberts prophecy,should have been a strong enough warning sign for the world governments to start shiftingaway from oil, however the only considerable change was in electricity generation as severalcountries have heavily invested in nuclear energy projects which have been mostlycancelled after the Chernobyl disaster, and recently in renewable electricity. However theseelectricity projects have little impact on the overall demand of oil as they only constitute afraction of consumption, and the decline experienced in Europe, the USA and Japan areeasily offset by increases in developing countries and by increases in the transportationsector.

According to this, the electricity generating sector of the European Union will be ableto adjus t to renewable and other alternatives during the oil depletion, and probably thesame could be said about the USA too, where even though little effort was made in thephysical development of renewable energy (compared to Europe), but has the capital andthe industrial capacity to shift to alternatives after the costs increase to the level that makesit profitable.

However when it comes to transportation, the only nation that currently has analternative capacity ethanol - in the number of stations (35.000 by 2008), productioncapacity (nearly 3 million flex cars in 2011) and overall making up a huge part (22%) of themotor fleet, is Brazil. No other nation has the required capacity, and although it would be

easy to gear to the production of flex cars (Brazil has increased it from 0% to 84% of overallproduction in 7 years), the production of ethanol could not be increased with that pace and in case of non -tropical nations, it could never be increased to the point that it couldfeed the transportation industry.

Viable alternatives for Europe and the USA could be electric cars (complementedwith solar energy) and hydrogen cars, or more likely a hybrid of the 2 genres, hydro-electriccars, in which electricity is generated by proton exchange. However this would require a lotof investment in the distribution system there are well over 130.000 gas stations in Europe

and around 120.000 in the USA, of which a huge chunk should be upgraded with specialequipment to be able to service liquefied, cryogenic hydrogen fuel, while also upgrading the


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regional distribution centres. And this does not even include that hundreds of millions oftonnes of liquefied hydrogen that should be produced every year to satisfy such a huge fleetof cars. Although theoretically i t is possible to achieve a hydro -electric Europe/America , itis highly unlikely to achieve in the near future. However despite this, the European Union

has the potential to survive such an oil depletion, both by using technical alternatives(public transportation and bicycle instead of cars) and over time energy alternatives(hydrogen cars).

In the USA this conversion will be a bit harder due to several factors lowerdevelopment of public transportation (graph showing the percentage of trips using publictransportation, bicycles and feet in the different countries);

lower fuel efficiency (graph showing miles per gasoline per country/bloc);


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(source: http://www.washingtonpost.com/blogs/ezra-klein/files/2012/09/fuel_economy_comparison.png )

lower population density;

-USA: 33.7/km 2

-European Union: 116.2/km 2

lower fuel prices (graph showing fuel prices and composition of fuel prices in selectedcountries);

less government involvement in the development of renewable energy;
http://www.washingtonpost.com/blogs/ezra-klein/files/2012/09/fuel_economy_comparison.pnghttp://www.washingtonpost.com/blogs/ezra-klein/files/2012/09/fuel_economy_comparison.pnghttp://www.washingtonpost.com/blogs/ezra-klein/files/2012/09/fuel_economy_comparison.pnghttp://www.washingtonpost.com/blogs/ezra-klein/files/2012/09/fuel_economy_comparison.png


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China has the fastest growing energy sector (and by far the fastest growing economyin absolute terms), which is growing by using nearly exclusively fossil fuel (although half of itis coal which is still an abundant energy source).

To get an even better knowledge about the trend in world oil consumption, thefollowing graph shows the change in oil consumption by region:

(source: http://www.eia.doe.gov/emeu/international/RecentPetroleumConsumptionBarrelsperDay.xls )
http://www.eia.doe.gov/emeu/international/RecentPetroleumConsumptionBarrelsperDay.xlshttp://www.eia.doe.gov/emeu/international/RecentPetroleumConsumptionBarrelsperDay.xlshttp://www.eia.doe.gov/emeu/international/RecentPetroleumConsumptionBarrelsperDay.xlshttp://www.eia.doe.gov/emeu/international/RecentPetroleumConsumptionBarrelsperDay.xls


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This graph perfectly shows that the fastest growing economies have the fastestgrowing oil consumption rate too. This is on the one hand linked to the natural connectionbetween oil consumption and GDP growth (bigger industry needs more electricity and rawmaterials, richer people demand more petrol and products), and also to the much lower

resource utilization efficiency of developing countries. GDP per CO2 emission is a goodindicator of this:

-China: 435 $/ton

-India: 579 $/ton

-USA: 2.291 $/ton

-Brazil: 3.090 $/ton

-EU: 3.712 $/ton

(source: http://www.iea.org/publications/freepublications/publication/name,32870,en.html , 2006 )

The above graph shows the very close correlation between oil consumption and GDPgrowth. From this it can be concluded that with the decline of oil production, the hardest hitnations will be the currently fastest growing ones, such as China, India and other developingcountries, while on the long-term the countries that will suffer the most are those with thelowest fuel efficiency and renewable energy capacity, and in general those that cannot adaptto alternatives, which will again be the developing countries.
http://www.iea.org/publications/freepublications/publication/name,32870,en.htmlhttp://www.iea.org/publications/freepublications/publication/name,32870,en.htmlhttp://www.iea.org/publications/freepublications/publication/name,32870,en.htmlhttp://www.iea.org/publications/freepublications/publication/name,32870,en.html


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c) Natural gas depletion

The closest substitute of petroleum is natural gas, and indeed it has been leading thegrowth in capacity of electricity production both in North America and the European Union,due to being cleaner than coal or oil, safer than nuclear power, and being more convenientin terms of logistics as it can be stored and transported easier than oil and coal.

In terms of discovery, natural gas is following oil by a close to 10 year lag, as itsdiscovery has peaked in the 1970s and has started to fall in the 1980s. Also, in a 2009 pressrelease BP has reported that current natural gas reserves equal to around 1,2 trillion barrelsof oil, which would be enough for another 60 years given constant demand. Howeverdemand is not constant, due to the previously mentioned reasons of being a betteralternative than coal, oil or uranium, and also because of the depletion of oil as mentionedin the previous section.

However despite the rise in consumption, it is unlikely to reach the peak in theupcoming 10-15 years because of the developing of new technologies, such as fracking,which has increased and continues to increase the economically exploitable natural gasreserves. This potentially pushes peak gas out to the late 2030s or even the early 2040s. Thisis potentially enough time for North American and the EU to switch over to renewableenergy, while also increasing energy efficiency.

The losers this time will also be the developing countries who have just recently

started developing their energy sectors and are heavily relying on natural gas as a betteralternative to coal, and this dependence is growing. As natural gas supply begins to sour, theeconomic growth of these countries will most likely also begin to decline.

d) Gold depletion

In case of gold, we dont have to research too long to find out the date of peak itwas in 2000. Since then, the production of gold has been rapidly declining (10% from 2000 to2008), despite the skyrocketing price ($273/oz in 2000 to $1.410/oz in 2011), that even orewith less than 3 grams of gold per 1 ton is being mined, compared to the standard 12 gramsof gold per 1 ton in 1950, and that in South Africa the gold mines are reaching a recorddepth of (!) 3.900 m.

The gold industry is a good example of a post-peak sector despite skyrocketingprices, high demand from both the public and private sector, the mining of ore with the lowpurity of 0,0003% is economical and that mining is pursued in the stunning depth of 4 km,global production is still rapidly declining.


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e) Coal depletion

Coal is one of the few resources that we are still very much abundant of. Currentproven recoverable reserves amount to around 900 gigatons, while a combination of totalphysical reserves, including prospects, amounts to more than 2.700 gigatons. World coalconsumption has been 7,25 billion tons in 2010 and is expected to rise to 9 billion tons by2030. According to a 2007 report of British Petroleum, we have 147 years to depletion basedon the reserve-to-production ratio based on proven coal reserves. This is naturally not thecase as production is growing (though eventually start to decline, probably somewhere inthe middle of the century), while eventually more reserves will become exploitable. So as faras coal production goes, the world has enough resources for the upcoming century with apeak happening somewhere in the middle of the century.

However by energetic value, coal has already reached its peak in 1998 at 598 milliontons of oil equivalents, and by 2005 it has fallen to 576 Mtoe, a roughly 4% decline in 7years. High-grade anthracite has already peaked as early as 1914, and its production hasdeclined from 44 million tons in 1950 to 1,6 million in 2007. The production of black has alsobeen declining since the 1990s.

f) Peak fissionable material

Uranium has probably the most optimistic prospects. Even though with theproduction and consumption the peak of uranium is predicted to happen by the 2030s, the

world has enough reserves for centuries used uranium can be re-enriched, while with theusage of fast breeder reactors the life cycle of uranium could be increased 100 times. Also,using fast breeder reactors and anticipating a very high price for uranium, currentlyuneconomical and even unrecoverable deposits (granite, oil shale, sea water) becomeeconomically recoverable.

Additionally, thorium is an alternative to uranium and is 3 times more abundant.With all of these stated, the world has enough fissionable material for centuries, even if100% of oil, natural and coal was replaced by nuclear energy by the time the world would

run out of fissionable material, it would be possible to mine it on the Moon or even otherplanets.

g) Copper depletion

Copper is one of the most important materials in our world due to its applications inelectronics and the electric system in general (wires). The demand for copper was around 15million tons per year in 2006, and it was increasing by 575.000 tons per year. Additionallycurrently available resources are calculated at 1,6 billion tons, of which 950 million tons areconsidered economically recoverable.


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As per sustainability goes, the peak in copper discovery was in 1996, out of the 28largest copper mines in the world, 21 cannot be expanded further, and the majority of themare planned to be exhausted between 2010-2015. Based on these data, environmentalanalyst Lester Brown has suggested that copper might run out within 25 years (~2030). A

group from the Yale University in 2006 has given a more optimistic date of depletion 2100.

However, the depletion of copper might never actually happen due to 2 veryimportant factors: recycling and lower grade exploitation.

80% of all copper ever mined is still available for the economy through recycling, andby now every year more copper is recovered and put back into the economy than derivedfrom new mining. As time goes on and more copper is mined, it might even happen that wewill not need to mine more copper as it will be available to just circulate it in the economy ina closed system.

Also, copper is one of the most abundant elements in Earths crust with anoccurrence of 0,005-0,007%, meaning that there is around 1 kg of copper in every 15-20 tonsof earth crust even in a worse-case scenario, copper will be 2-3 times more efficient tomine than it is to mine gold right now, and with a total concentration of 2 quadrillion tons inthe planets crust, it would secure the copper source for thousands o f years.

However it wouldnt come without a price literally. Based on the increase in theprice of copper recently (~$1.300/tons in 2001 to ~$10.000 in 2011) and the exhaustion ofthe majority of major mines in the upcoming decade, peak copper might be happened laterin this decade or during the 2020s. However the fall in production will be much lower than inthe case of oil or natural gas, due to the previously mentioned reasons, and it will bepossible to secure practically unlimited copper sources with a highly increased price.

As a conclusion it can be said that as in the case of other resources, humanity cansurvive peak copper even more easily than that of other resources however it will bevery expensive. The conversion will include not just higher prices, but also the developmentof a whole new series of copper mines and new smelters that can use the much lower gradeores. In the meanwhile the current smelters could be maintained in places where theamount of copper is not increased and thus copper is gained through recycling in therichest countries, as developing countries require more and more copper for their growth.Thus in can be said that just like in the case of every other resources, it will be the poorercountries who will suffer the most of it, and the richest countries who will suffer the least, inthis case to an extreme.


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h) Summary

As a summary of this chapter, it can be said that humanity will be able to survive thedepletion of resources, however it will be painful, especially in the case of the depletion ofenergy sources, as the growth of energy very closely correlates with the growth of theeconomy. During this process the economies with the slowest current growth, the highestlevel of renewable energy (and other alternatives), the highest energy efficiency and themost capital (both material and monetary) will suffer the least, and the countries with theleast developed and fastest growing economies will suffer the most. This means that thecurrently richest countries (North America, European Union, Japan) will remain the richest inthe future, while the currently fastest growing economies, such as China and India, willexperience a decline in their growth during the late 2010s and 2020s that might even stop bythe 2030s. The economies that will win the most are those with highest concentration of

energy sources that already have a well-developed industry, and are also abundant of semi-renewables (arable land, water), such as Brazi, Russia or even Iran.


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II. Food supply

There is only one thing more important to humans than the smooth running of theeconomy, and this is the adequate supply of food and water. Food and water sources are of

paramount importance for humanity, and therefore this chapter will be devoted to theanalysis of the stability of future food and water supply.

The major factors in the determination of crop yield and overall food production are:adequate water supply; adequate fertilizer supply (phosphorus and nitrate); adequateclimate (analysis regarding climate change). Our analysis will analyze these factors and thensummarize what these could mean.

a) Peak water

Water is probably the most important resource of all it is vital and unreplacable forthe economy, for agriculture and for human beings. Water production (or more like waterwithdrawal) has to grow exponentially with population, as more people will need morewater, they will need more food, which requires more water, and require more products,which again requires more water and most likely they want to develop their country, whichwill raise per capita consumption, which will further raise water usage.

The most extremely effected nations are those with a high and growing populationand very low precipitation which is the Middle East, several parts of Africa and Central

Asia.

To describe the challenges that the major oil producers are facing, we would like topresent the case of Saudi Arabia.

(source: Walid A. Abderrahman (2001). "Water demand management in Saudi Arabia" . IDRC. Retrieved 2009-02-01.)
http://www.idrc.ca/en/ev-93954-201-1-DO_TOPIC.htmlhttp://www.idrc.ca/en/ev-93954-201-1-DO_TOPIC.htmlhttp://www.idrc.ca/en/ev-93954-201-1-DO_TOPIC.htmlhttp://en.wikipedia.org/wiki/International_Development_Research_Centrehttp://en.wikipedia.org/wiki/International_Development_Research_Centrehttp://en.wikipedia.org/wiki/International_Development_Research_Centrehttp://en.wikipedia.org/wiki/International_Development_Research_Centrehttp://www.idrc.ca/en/ev-93954-201-1-DO_TOPIC.html


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The included picture shows the production of water in Saudi Arabia in million cubicmeters. As can be seen, water production has peaked in 1993 a bit above 30 billion m 3, andduring the course of only 10 years it has literally halved, with the declining continuing eversince. The cause of this is that Saudi Arabia has been (and still is) gaining the majority of its

water from fossil water sources, that is, from ancient aquifers that do not or only veryslowly get replenished, which is too slow compared to withdrawal. This results in a Hubbertcurve similar to oil as demand grows, more and more water pumps are built that withdrawmore and more water, which later dry up, and after a certain time the amount of new wellsadded are not able to upkeep with the amount of old wells that dry up. This results in a peakproduction and later decline.

The effect of this is chronic water shortage during the 1990s, Saudi Arabia has beenan exporter of food, which by the 2000s has eroded to mere self-sufficiency. In 2008 thegovernment of Saudi Arabia has decided to stop agricultural subsidies, and it is expected thatby 2016 it will entirely rely on imports. Thus during the course of only 20 years, Saudi Arabiais turning from a significant food exporter into a nation that completely relies on imports.The other Arab countries are facing the same fate right now:

Country (2008) Freshwater withdrawal (km 3/yr) Freshwater supply (km 3/yr)Yemen 6,63 4,1Saudi Arabia 17,32 2,4Libya 4,27 0,6United Arab Emirates 2,3 0,2

Kuwait 0,44 0,02

The above table shows the water statistics of selected Arab countries, comparingthe amount of water withdrawn and its supply. Note that freshwater supply does notmean freshwater that can be fully utilized , as only a part of it can ever be utilized. Thetable clearly shows that most Arab countries are very heavily overusing their water supplies:Saudi Arabia 7 times; Libya 8 times; UAE 11 times; Kuwait 22 times.

However the situation is not that gloomy for these countries (except Yemen, which

will be described later). It can be noticed that while fresh water exploitation has alreadydecreased to 15 billion cubic meters by 2001, freshwater withdrawal was still 17,32 billioncubic meters in 2008 this is because Saudi Arabia has been heavily investing in seawaterdesalination plants. As of 2006, the country has been producing 3 billion cubic meters ofwater, and this amount has been rapidly growing. Calculating with 4 kWh/cubic meter ofproduction with desalination plants, Saudi Arabia will require 60 TWh of energy to produce15 billion cubic meters per year. That amounts to the electric power that can be gained byburning 100 million barrels of oil, something that Saudi Arabia and the other Arab states caneasily achieve (although probably they will use natural gas instead, but the assumption staysthat it is easy to achieve for them). As per the costs, Saudi Arabia has spent 10 billion dollars


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on a plant that can produce 800 million cubic meters of water in 1998, about $15 billion withtodays price. That would mean that to construct desalination plants able to produce 15billion cubic meters per year, Saudi Arabia would have to pay around $280 billion. This is anenormous amount of money, but with sufficient political will, all of the major oil producing

Arab countries will be able to shoulder it, especially that they have already constructed ahuge part of it (around of it in Saudi Arabia).

However this model only works in the case of rich countries, whose populationconcentrates within close proximity to the sea. These countries are only the Gulf states andLibya there are also intermediary countries, such as Yemen and Turkmenistan where thiswater shortage is still within reasonable boundaries, have access to seawater and on thelong-term will probably have the capital to force through the necessary changes. However incase of Yemen, the problem is already very problematic: the aquifer that is supplying Sanaahas nearly dried up, while demand for water is still growing, which is currently satisfied bytransporting water into the city using trucks, or cleaning ground water. The only viableoption would be the construction of a desalination plant that would be transporting water tothe city from the Red sea, but that would require a water pipeline that transports water overa distance of 249 km, and through mountains 2.700 m high.

However the majority of people living in water-instability are living in countries withinadequate capital to build water desalination plants, and/or too far from the sea to be ableto provide water using these plants or have no access to the sea at all. These countries aremainly the African countries (East Africa, Sahrawi Arab Republic), and also Pakistan andUzbekistan. These countries are facing more and more severe water shortages, that will justbe escalated by the growing population and economy, declining fossil water reserves andclimate change (the latter will be discussed later). These countries will start to experiencevery severe draughts that will culminate into chronic and lasting famines starting in the nearfuture.

b) Peak fertilizer

Fertilizers can be divided into 2 major groups, phosphorus and nitrate fertilizers.

Phosphorus fertilizer predominantly comes from superphosphate, while nitrate fertilizer ismade using crude oil and natural gas, thus its supplies and prices are closely related tooil/gas production and peak oil/gas. At first we will analyze the situation of phosphorus, thennitrate.

Phosphorus

According to USGS estimates, there have been 71 billion tonnes of recoverablephosphorus in 2012, and annual production was 0,19 million tons in 2011 and rapidlygrowing. Several analysts have estimated that phosphorus production will peak in 2030, andthen current reserves will be depleted in 50-100 years. As a big contrast, the Fertilizer


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Development Center in 2010 has reported that phosphorus reserves are still available forseveral hundred years. This enormous difference has reasons similar to the estimation ofremaining copper reserves.

The depletion time of 50 to 100 years has been probably calculated using thecurrently known proven reserves, however this is not adequate knowledge. Similarly tocopper, phosphorus is a very abundant mineral that makes up 0,1% of the Earth crust,meaning that there are 30 quintillion ( 3 x 10 19) tons of phosphorus reserves, that wouldtheoretically be enough for millions of years. However current mining is utilized using amuch higher concentration of phosphorus. Therefore it is possible to mine a practicallyinfinite amount of phosphorus, however the return on investment will be decliningconsiderable, while the price of phosphorus will be increasing. Similarly to freshwater in theArab world - which is also an unlimited resource, provided adequate investment phosphorus will probably already reach a peak some time in the future, however it will notexperience the rapid and radical decline that for example oil and natural gas.

Also similarly to copper, phosphorus can be recycled, thus in the future it might evenbecome to utilize it in a closed system where nearly all phosphorus will be coming fromrecycling. In the past, phosphorus from coming from manure and guano, which has created aclosed system this system could be used in the future using a much more advanced form ofwaste management.

However, just like in the case of every previously mentioned resource, the decline of

high concentration phosphorus deposits will lead to extreme increase in prices, that will hitthe poorest countries the most and the richest the least.

Oil and natural gas

Oil and natural gas are used in agriculture for 2 reasons; one is the fuel reason, thususage for transportation and electricity generation; the other is ammonia productionthrough the Haber process. The former has already been discussed in the beginning of thispaper, and we will explain the latter now.

In ammonia production, fossil fuel (mainly natural gas) is used as a cheap source ofhydrogen. Currently around 3- 5% of the worlds na tural gas consumption is used up in theHaber process to produce 450-500 million tons of nitrate fertilizers, which feeds one third ofthe Earths population. However this will have to change as natural gas production will beginto decline in the near future, will be required for electricity generation, and will extremelyincrease in price. Currently the main alternatives to it are water and waste.

As an alternative hydrogen source, the more than obvious choice would be gaining itfrom water using electrolysis. This has been used before, for example in Norway where the

Vemork hydroelectric plant has been generating ammonia from water and air using itssurplus electricity from 1911 to 1971, and Iceland is also mainly using water and surplus


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electricity to produce ammonia for fertilizer production. However it has the commonproblem: this whole conversion from natural to water requires a lot of capital input for thenew facilities and also an increase in electricity production that in the given case has to begreen energy which is again more money. Alternatively the usage of a special form of

thermal electrolysis can be applied using nuclear power plants (solid oxide electrolysis cellsand temperature above 800C).

And at the end, the new nitrate fertilizer will be much more expensive than thecurrent one. This will mean that the countries that are already plagued by chronic foodshortages (Africa and South Asia) will not be able to utilize it. In contrast Europe could gothrough this conversion without any major problem due to already started green projectsand the already very high energy prices, while nations like France, Norway, Sweden,Switzerland and Russia can even gain from it due to the very high amount of nuclear andhydroelectric energy in the said countries.

There is also another alternative, or to be more accurate, the same alternative like inthe case of phosphorus, and that is waste management. Waste water often has a highconcentration of ammonia, which would cause problems if released to the environment that means that it has to be denitrified anyway, which could provide humanity with asustainable source of nitrate fertilizer.

c) Climate change

One of the greatest challenge of the agricultural sector this century will be climatechange. The Intergovernmental Panel on Climate Change in 2007 has reported that duringthe 21 st century global temperature is likely to rise by 1,1C to 6,4C, depending on variousemission scenarios. Considering that coal usage is increasing and becoming dirtier, whiledue to the depletion of current oil reserves, production will more and more shift to theexploitation of oil sands and shale oil, emissions are likely to increase considerably. To thisend we accept the IPCCs projections for the agriculture of 2080 which forecasts an increaseof at least 3C (although our estimation would be rather at least 5C by accepting the worstcase emission scenario and exponential deterioration due to the releasing of methane from

melting permafrost).

The countries that are the hardest hit are those that are the closest to the Equator,and the largest effect of the climate change will be taken on countries with the largestrelative agricultural sector and the highest population growth. Or in summary: the currentlypoorest countries will suffer the most, while the currently richest countries will even gainfrom it. The International Center for Trade and Sustainable Development has prepared aresearch paper with projections for the year 2080 with the medium scenario of 3Cincrease, here are the tables:


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As it can be seen on the table, nearly every tropical country will lose by climate

change, and even with the maximum amount of carbon fertilization, the only winner will beKenya with a meagre 8,8% increase, while Vietnam and the Democratic Republic of Congowould barely retain their current output. ICTSD has already compiled a projection as tomitigate these negative effects their projections demand a 71-103 billion dollar per yearfor the 2010-2020 period and $201 billion per annum onward so far the pledged mitigationfinance per year is only $12 billion, and it is unlikely to grow considerable as the West is alsofacing its own problems (even though continues to spend over $1 trillion on the military peryear, and this amount is growing fast).

The ICTSD, ICPP and the International Rice Research Institute (IRRI) have allconducted an analysis into the subject, and so we would like to present the region-specificanalysis here:

-Africa: as mentioned above and in the table, Africa will be suffering from veryextensive crop failure everywhere (10-60%), and it is unlikely that it will be mitigated.Combining this with overpopulation, desertification and the potentially arising political

problems (migration of nomad tribes, food riots, civil wars), it can be concluded that Africa


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will be facing a catastrophic century stemmed by continuous famine and draught. A deathtoll of several tens of millions per year can be expected.

-Asia: IPCC has estimated that by the middle of the century, crop yields in East andSoutheast Asia are likely to increase by 20%, while in South Asia decrease by 30%. On theother hand, the IRRI has estimated that in the region the yield of rice, the most importantfood plant in the region, will decline by 20% for every degree Celsius of temperatureincrease, and that rice will completely become sterile over the temperature of 35C. Withtemperature increase expected between 2C and 6C, rice crop failure of 30 to 80% could beexpected in a region where population is likely to increase by a billion.

-Australia and New Zealand: production of agriculture and forestry is likely to declinein the Southern and Eastern parts of Australia and in the Eastern part of New Zealand.However in the Western and Southern parts of New Zealand and close to major rivers, crops

are likely to increase.

-Europe: crop yield is projected to decline all over Southern Europe, while increase inNorthern Europe. Forest productivity is expected to decline in Central and Eastern Europe.

-North America: it is expected that aggregate yield of rain-fed crops will increase by5-10%, but this will differ greatly by region. Warm states and regions with already highlyutilized water sources likely to experience a decline. According a research paper by MichaelGreenstone and Olivier Deschenes, agriculture profits are likely to increase by $1,1 billion, ora 3,4% increase in profit, with variations from -$1,8 billion to $4 billion (-5,6% to 12,4%), sothe USA in general is likely to win a little with according to their projections too. The onlyextreme is California, where agricultural profit is likely to decline by -$2,4 billion, or 50% ofcurrent profit.

-Latin America: agricultural productivity is likely to decrease in dry regions andslightly increase in temperate regions, leading to slightly higher food insecurity than today.

-Arctic region: the clear and probably only winner real winner of climate change isthe arctic region. The arctic region will see an increase in agriculture and forestry due to the

warming of the region and the melting of the nutrient-rich permafrost.

Thus it can be concluded again that the regions in the most dire need of food willbe those that experience the largest crop failure, while those countries with already a highproduction and large export most notably Canada and Russia will experience a hugesurge in [potential] production.


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d) Summary

The exact same thing can be said about the changes in food supply as about resourcedepletion that it will hurt the poor much more than the rich. However in the case of food,this difference is even more striking than in the case of resource depletion.

Due to climate change, the continent of Africa, South, East and Southeast Asia willhave to face drastic crop failures in the upcoming decades, while these regions have thefastest growing population. Given that world population really grows up to ~12 billion by2050 as predicted, while food production also declines according to prediction, this couldlead tens of millions of people starving to death by year. Currently there are around 900million people in hunger, and approximately 15 million children starve to death per year(havent found any statistics for overall deaths by hunger). Using a linear model: with apopulation of 12 billion, and with the majority of Africa and Asia threatened by starvation,we can estimate (more like guess) that 4-6 billion people will be extremely food insecure;applying the 15/900 ratio, this means 70-100 million children starving to death per year. Thisrate, however, is close to impossible it is more likely that population growth will stop aftera few decades and then get reversed, exactly because of starvation, and probably by thewidespread application of one-child policy. However if population really increases to 12billion and the massive decline in agriculture comes after this, then the largest famine of thehistory of mankind begin with really 100 million people starving to death by year.

This will be contrasted by North America which will actually experience a growth in

crop yield, especially Canada where arable land could potentially increase several times ifthe previously permafrost territory is utilized. In Europe, agricultural production willprobably stagnate, while European companies will be making a huge profit exportingfertilizers. And the biggest winner will probably be Russia where the frontier of arable landwill be constantly moving northward, while the warming of the climate increases crop yield.The most serious threat to Russia will be the decline in precipitation, however it may bemitigated by gradually moving the utilized lands northward.

The Free Market and Sustainable Development

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