The End of Doom (9 page)

For example, if a person chooses to redo her kitchen, then she can't afford to jet off to a ski vacation. Demand and supply ensure that there is no shortage of cabinets or hotel rooms in Aspen. A shortage occurs when cabinets or hotel rooms are not available at any price. This generally occurs when governments push the price of a good or service below the cost of supplying them to consumers. Older Americans may remember how shortages of all kinds broke out in the 1970s when President Richard Nixon imposed wage and price controls. “Scarcity leads to shortage when water managers fail to balance supply and demand,” notes Zetland.

“Scarcity and shortage are the same for water as they are for other goods—except that most other goods are traded in markets in which rising and falling prices balance supply and demand to prevent shortages,” explains Zetland. Nearly every good is scarce, but in market economies, shortages for most goods rarely occur. The chief problem with water is that it is mostly supplied by government agencies or government-sanctioned monopolies whose prices are purposely held below the actual costs of supplying water. This is essentially a system of government price controls and the predictable result is a shortage. “Underpricing (or zero pricing in some cases) has sustained overuse: if markets delivered Porsche cars at give-away prices, they too would be in short supply,” observes the United Nations Development Program's 2006
Summary Human Development Report 2006—Beyond Scarcity: Power, Poverty and the Global Water Crisis
.

Zetland also notes, “The supply of water on the planet is fixed, but useful supplies are not.” Unfortunately, the useful supplies are being badly misallocated. The good news is that between 1990 and 2010, over 2 billion people gained access to improved drinking water sources, such as piped supplies and protected wells. Nevertheless, some 780 million still do not have access to safe water, and as a consequence, 3,000 children die every day of preventable diarrheal diseases. Even now, 3.6 billion people—about half the world's population—still do not have access to water piped to their homes, compounds, or yards.

Claims that the world is running out of water are wrong, but it is true that foolish policies are creating and exacerbating shortages. For example, irrigation for agriculture is the biggest use for water in most of the world. Unfortunately, nearly every country subsidizes water for their farmers, thus encouraging them to overuse the resource. In the United States, resource economist Delworth Gardner, a professor emeritus at Brigham Young University, once calculated that the total cost to society of a typical federal irrigation project is $400 per acre-foot of water (an acre-foot is the amount of water it takes to cover one acre to a depth of one foot). The market value of the water ranges from $50 to $100 per acre-foot, but farmers usually pay the Bureau of Reclamation about $20 to $30. In other words, US farmers are often paying less than a tenth of the cost of supplying them with water. If water prices reflected the actual costs of supplying it, then farmers would be encouraged to conserve water by shifting to less thirsty crops or from furrow irrigation to drip irrigation. So the first step toward addressing water shortages is for governments to stop subsidizing people to waste it.

Although unraveling the current mess will be politically difficult, clearly the next step would be to allocate secure property rights in water to people who can then sell and trade water in markets much like any other good. Let's say that water supplies are allocated initially to farmers. If cities and businesses had a higher demand for water, they could then bargain with the farmer owners for secure supplies and both sides would benefit. Even better from the point of view of conservationists, water could be purchased from farmers so that it could be left in streams to protect and nurture fish and other riparian wildlife. In this way, markets make it easier to allocate water to its highest best use and for farmers to earn new income.

Can markets adequately provide safe drinking water, even to poor people? First, the plain fact is that governments and government monopolies, especially in developing countries, have been terrible at supplying water to their citizens.

In his 2006 monograph
Water for Sale: How Business and the Market Can Resolve the World's Water Crisis,
economic analyst Fredrik Segerfeldt from the Swedish think tank Timbro makes the case that water privatization can go a long way toward quenching the thirst of the poor. Segerfeldt points out that public water systems in developing countries generally supply politically connected wealthy and middle-class people, whereas the poor are not hooked up to municipal water mains. Segerfeldt cites one study of fifteen countries that found that in the poorest quarters of their populations, 80 percent of the people were not hooked up to water mains. Of course, the poor don't just die of thirst; they just pay more—generally a lot more—for their water.

“Contractors often drive tankers to poor districts, selling water by the can, in which case the very poorest of the world's inhabitants are already exposed to market forces but on very unfair terms, because water obtained like this is on average twelve times more expensive than water from regular water mains, and often still more expensive than that,” notes Segerfeldt. A survey of major cities in developing countries found that the poor in Lagos, Nigeria, pay 4 to 10 times more for their water than people who are hooked up to water mains do; in Karachi, Pakistan, they pay 28 to 83 times more; in Jakarta, Indonesia, 4 to 60 times; and in Lima, Peru, 17 times more. Essentially, the rich get cheap tap water while the poor pay the moral equivalent of Perrier prices.

Some countries have now turned to the private sector and multinational companies for help in providing their thirsty poor citizens with water. Privatization can mean selling entire water supply and treatment systems to private owners; long-term leases of water supply systems; or contracts to manage public water systems. In practical terms, the usual arrangement is a long-term lease. So far, only 3 percent of the poor in developing countries get their water from private-sector water systems. However, these initial projects have provoked an outcry by anti-privatization activists around the world against a “global water grab” by giant corporations.

Segerfeldt shows that even imperfect privatization efforts have already successfully connected millions of poor people to relatively inexpensive water where government-funded efforts have failed. For example, before privatization in 1989, only 20 percent of urban dwellers in the African nation of Guinea had access to safe drinking water; by 2001, 70 percent did. The price of piped water increased from 15 cents per cubic meter to almost $1, but as Segerfeldt correctly notes, “before privatization the majority of Guineans had no access to mains water at all. They do now. And for these people, the cost of water has fallen drastically. The moral issue, then, is whether it was worth raising the price for the minority of people already connected before privatization in order to reach the 70 percent connected today.” In Cartagena, Colombia, privatization boosted the number of people receiving piped water by 27 percent. Even the controversial privatization in Buenos Aires saw the number of households connected to piped water rise by 3 million; 85 percent of the new customers lived in the poor suburbs of the city. Segerfeldt cites other successful privatizations in Gabon, Cambodia, Indonesia, and Morocco.

Oddly, the freshwater chapter in the IPCC 2014
Adaptation
report fails to mention markets or prices as a way to manage water scarcity. The report does, however, note: “Barriers to adaptation in the freshwater sector include lack of human and institutional capacity, lack of financial resources, lack of awareness, and lack of communication.” Markets and prices are precisely the institutions that increase the capacity to manage scarce resources, provide financing, increase awareness, and enhance communication. It is sadly the case that there is a general tendency on the part of governments and activists to fiercely resist markets and property rights as ways to protect and control resources and environmental amenities until public mismanagement finally provokes a crisis. But as we've seen, such crises have been and will continue to be resolved by adopting the institutions of the market.

Peak Everything Redux

Back in 1972, the computer modelers for
The Limits to Growth
calculated 42 years ago that known world copper reserves would be entirely depleted in 36 years, lead in 26 years, mercury in 13 years, natural gas in 38 years, petroleum in 31 years, silver in 16 years, tin in 17 years, tungsten in 40 years, and zinc in 23 years. In other words, most of these nonrenewable resources would be entirely used up before the end of the twentieth century.

Being sensible folks and desiring to be conservative in their predictions, they recognized that it was very likely that undiscovered reserves would be found and that technological improvements in extracting resources would occur. So just to be generous, they made the same depletion calculations with known reserves increased fivefold. At exponential consumption rates that they expected to unfold, they calculated after a gratuitous fivefold increase in resources there would
now
be only 15 years of aluminum left, 8 years of copper, 1 year of mercury, 9 years of natural gas, 10 years of petroleum, 2 years of silver, 21 years of tin, and 10 years of zinc.

As noted earlier, the recent general increase in commodity prices spurred on by rising demand during the current economic super-cycle has called forth screeds warning of “the race for what's left” and “peak everything.” Are the depletionists right this time? Not really.

Mineral reserves are generally defined as ores that now are economically and technically practical to extract, while resources are ores for which reasonable prospects exist for eventual economic extraction. Based on current consumption rates, the US Geological Survey in its
2014 Mineral Commodity Summaries
report estimates that the world has 108 years of reserves of bauxite, which is used to produce aluminum. The USGS further estimates that total bauxite resources amount to 75 billion tons, which would last as much as 290 years at current rates of production. Similarly, at current consumption rates, known copper reserves will last 41 years. The USGS estimates known resources of copper at about 1.8 billion tons and total resources, including undiscovered deposits, at 3.1 billion tons. This suggests that at current rates of production there is a 105-year to 182-year supply of copper. Known lead reserves will last 16 years, although the USGS estimates that lead resources equal 2 billion tons and that would mean a supply lasting somewhat more than 370 years.

Mercury reserves are enough to last another 53 years, but the USGS notes, “The declining consumption of mercury, except for small-scale gold mining, indicates that these resources are sufficient for another century or more of use.” Current silver, tin, tungsten, and zinc reserves will respectively last 20, 20, 49, and 19 years more. While not making a formal estimate, the USGS notes that world tin resources “if developed, could sustain recent annual production rates well into the future.” Zinc resources would last 141 years.

During the last decade the price of steel has escalated. Does this signal imminent depletion? The USGS reports that known world iron ore reserves are 170 billion tons and world resources amount to 800 billion tons. In 2013, the world mined about 3 billion tons of ore. This implies that at current rates of production known iron ore reserves and resources would last 57 years and 667 years, respectively. Other metals are used to harden iron into steel, including chromium and manganese, both of which have also experienced an increase in their prices. With regard to chromium, the USGS simply notes: “World resources are greater than 12 billion tons of shipping-grade chromite [chromium ore], sufficient to meet conceivable demand for centuries.” Known reserves of manganese amount to 570 million tons, of which 17 million were mined in 2013. This suggests that known reserves could supply world demand for 33 years. The USGS just states that “land-based manganese resources are large.”

Why does the horizon of known mineral reserves never go out further than a few decades? Basically because miners and technologists do not find it worthwhile to discover new sources and develop new production techniques until markets signal that they are needed. How this process evolves is encapsulated by the 2014 USGS report, which notes: “In 1970, identified and undiscovered world copper resources were estimated to contain 1.6 billion metric tons of copper, with reserves of about 280 million metric tons of copper. Since then, almost 460 million metric tons of copper have been produced worldwide, but world copper reserves in 2013 were estimated to be 690 million metric tons of copper, more than double those in 1970, despite the depletion by mining of more than the original estimated reserves.”

Ever More Peaks

Based on USGS data, stocks of industrially important metals do not seem to be in imminent short supply, but are we on the verge of running out of other critical nonrenewable resources? General commodity price increases generated by the current economic super-cycle has certainly drawn a lot of would-be diviners of disastrous depletion into the public square.

Consider recent alarms about “peak fertilizer.” In the 1840s German chemist Justus von Liebig became the “father of the fertilizer industry” when he discovered that applying nitrogen, phosphorus, and potash to crops boosted yields. Soon farmers began spreading phosphorus-rich imported guano, obtained from the ancient congealed droppings of seabirds found on deserted oceanic islands, on their fields. Now phosphorus and potash (potassium oxide) are mined.

In their April 20, 2010, article “Peak Phosphorus,” in the journal
Foreign Policy,
James Elser and Stuart White warned that there may be only enough phosphorus to satisfy agricultural demands for the next thirty to forty years. Failing to meet the challenge of peak phosphorus would mean, they argued, that “humanity faces a Malthusian trap of widespread famine on a scale that we have not yet experienced.” In 2012, famed financier Jeremy Grantham joined the peak phosphorus parade and added peak potash to the cavalcade in a column published in the science journal
Nature
. “There is the impending shortage of two fertilizers: phosphorus (phosphate) and potassium (potash). These two elements cannot be made, cannot be substituted, are necessary to grow all life forms, and are mined and depleted. It's a scary set of statements,” warned Grantham. “What happens when these fertilizers run out is a question I can't get satisfactorily answered and, believe me, I have tried.”