Asian Consumption is a Grave Threat

By Chandran Nair
CNBC: Energy Opportunities

Peak oil is a frequently mentioned subject whenever energy comes up as a topic at global business forums. The generated discussions generally do not, as one might expect, focus on the measures that businesses and the world need to take to prepare themselves for the moment when the oil inevitably runs out.

Rather these forums focus on, simply put, what businesses can do to drill more oil while they still can. Almost all discussions explain in some way that the market can play a critical role in ensuring that no crisis will be experienced, but only if it is allowed to allocate resources without governments getting in the way. 

This is sadly a false narrative that is being perpetuated by an incestuous group of parties all with vested interests, including the media. It has been regurgitated so often as to become a comforting conventional wisdom many are excessively eager to accept. 

The real world however will need a much more radical and intellectually honest approach to the energy challenges of the 21stcentury. This conventional wisdom needs to be challenged, and its main premise, that there is no need for restraint, is false. The region that needs to debunk this myth and do it quickly is Asia.

Why does Asia need to carve its own development strategy around energy issues? 

The simple answer is its large population: There will be five billion Asians by 2050, and with this comes energy consumption on a scale never witnessed before. At the beginning of the 21st century, the Asia-Pacific region has overtaken the rest of the world to become the single largest user of natural resources. The region’s share of total primary energy supply grew from 20.5 percent of the world’s total to more than 35 percent over the last 35 years and will reach 50 percent by 2028 on current trends.

These billions should not and cannot aspire to use fossil fuels like Americans or even the slightly more parsimonious Europeans.

Putting the world’s consumption-driven problems to scale, a recent study by the United Nations Environment Programme (UNEP) in September this year concluded that for Asia to carry on its current trajectory requires “…per capita resource consumption of ‘materials’ in the region, such as construction minerals and fuels … to be around 80 per cent less than today if sustainable development is to be achieved”.

Our current dilemma: if the world continues to discuss the finite amount of fossil fuels whilst under pricing fossil fuels to feed unrestrained growth, the environmental, social and political consequences to follow will be catastrophic.

If energy is the juice that drives growth, which in the western economic model is in turn based on promoting relentless consumption, then Asia must find other paths. The region must deviate from ‘the Washington consensus’ and put resource management at the center of all its policies. Thus on the energy front Asian governments must make living within constraints the cornerstone of their development strategy and of human progress.

There are three core principles that Asia must adopt in order to avert the looming possibility of an energy and environmental crisis. The first principle is the fact that because resources are constrained economic activity must be subservient to maintaining the vitality of resources. The two historical assumptions at the heart of Western economic orthodoxy, that resources are limitless (or can be overcome by technology) and that these resources can be fully exploited to serve economic growth needs (and justified because it therefore furthers human progress) are simply false and must be rejected.

One leading reason for rampant consumption is that energy is grossly underpriced, because businesses (and by extension consumers) do not factor in the externalized costs. Thus the second principle Asian governments must adopt is that resources must be re-priced and productivity efforts should be focused on resources and not people.

Perhaps most critical is the third policy tenet, which is that collective welfare must take priority over individual rights. Asian states must recast their central role from protecting individuals to protecting natural capital and ecological services. In essence, Asian governments will need to play a far greater role than in America or Europe in the management of both the macro economy and personal consumption choices, especially when concerning our dwindling energy supply. This will inevitably involve very sensitive political choices about individual rights, as well as policies that will encounter major resistance from powerful business interests. Asian states will thus need to set (sometimes very harsh) resource limits and have the tools to ensure that society respects these limits. Asian governments must stress that owning a car is not a human right.

Asia needs to lead the way in addressing the world’s unsustainable usage of energy. If it does not, we need to accept that the threat of climate change and other looming environmental challenges will only get worse. We will live in an increasingly uninhabitable world. Asian governments must start now. They will be held accountable and responsible, not just by their citizens, but by the world at large. The start of a more honest discussion in the west will surely aid in this process.