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Mitigating price volatility of resources

Natural capital is a term used to denote everything that helps to sustain life. In the 21 st century, consumer expectations are higher , leading to larger and more wasteful consumption patterns . The rampant usage of resources and its degradation over time means we’re dipping into the trust fund of natural capital and are depleting its stock, without consider ing measures for replenishment. Simple market forces dictate that a decrease in availability causes scarcity and in return an incr ease in prices . This has been manifested in terms of an increas e in price vo latilit y i n the last decade from 30% to 70%, with the f requency of price change increasing . It was noted that a nnual contracting used to be a measure of stability and used to contain price volatility , but it is ineffective today .

Experts feel that a world driven by capitalism will not survive for long, but it is heartening to note that we are in a state of transition. Several major companies are now working tow ards sustainability and minimizing their use of resources. For example, Mahindra has committed to achiev ing carbon neutrality and is working to become water positive by saving twelve times the water they use . Similarly, Coke has said that by 2020, it plans to replenish all the water that they have sourced from the water tables.

Economists across the globe agree that there isn’t a single measure that can comprehensively mitigate price volatility, but there exists a plethora of solutions that can work in tandem to mitigate the problem . We need to look at sustainability from the point of view of asset management, rather than a flow perspective. A n at ional level inventor y of resources used in the country across sectors and value - chains can be undertaken and its value determined. It is imp ortant to consider th e relation between scarcity and choice , while assess ing the value of a resource . For example , it is necessary to take into account the price of droughts, famines, etc. into the pricing of the ne xt successful crop.

Mitigating price volatility requires a c ollaboration between governmen t, industry and academia . The p rivate sector need s to practice stewardship, in order to add value to resource efficiency , while the government needs to work towards sufficiency. While e fficiency of resource s deals with its productivity, sufficiency deals with raising the bar at the lower limit of the spectrum , to ensure access.

Ex perts shared examples of several innovations that increa se resource efficiency. Steel is the greenest among carbon, polymers, and composites, but hasn’t been marketed as such. In fact, a better quality of steel is being used today, wh ich uses less raw material and also makes cars lighter, making it a win - win situation for both the industry and the environment. Similarly, as opposed to conventional cement that is very water - intensive , the use of a new type of cement was discussed , that does not require water at all.

EVPL raised a question on the defini tion of sustainable development in terms of price volatility , which lead to an interesting discussion . According to the experts, an e nvironmentalist would define it as a way to live and let others species live (n ot how businesses prosper) . However, an economist would define it as ‘ if we so use material, h u man and other capitals such that at the end of the proces s, we have well - being and leave something for the next generation to have the chance for the same opportunity for well - being ’ . They concluded that no matter how we define sustainability, as a country or a p lanet, we have not yet achieved it.

The need of the hour is to figure out a way to live a h e althy, happy, and equitable life, while k eep ing natural capital intact or minimizing its depletion. Instead of pricing resources, i t is necessary to determine the p rice of storing all the waste that is being generated . We have to chan ge the way we do business today, to maintain a larger focus on s ocietal sustainability , rather than business sustainability . To measure the performance of compani es , their economy as we ll as their ecological footprint should be taken into consideration. It is essential that the government simplifies the process of approvals and frame s policies effectively to promote research in energy technologies . P a yment may be gathered in the form of rent or royalties for units of extraction and the accumulated funds may be used to invest in renewable energy. There should also be c ommercial mechanisms to purchase renewable power and finance energy storage .

Content by Natasha DLima

About the CLUB OF ROME

The Club of Rome was founded in 1968 as an informal association of independent leading personalities from politics, business and science, men and women who are long-term thinkers interested in contributing in a systemic interdisciplinary and holistic manner to a better world.


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