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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 21stcentury, 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 considering measures for replenishment. Simple market forces dictate that a decrease in availability causes scarcity and in return an increase in prices. This has been manifested in terms of an increase in price volatility in the last decade from 30% to 70%, with the frequency of price change increasing. It was noted that annual 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 towards sustainability and minimizing their use of resources. For example, Mahindra has committed to achieving 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 national level inventory of resources used in the country across sectors and value-chains can be undertaken and its value determined. It is important to consider the relation between scarcity and choice, while assessing 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 next successful crop.

Mitigating price volatility requires a collaboration between government, industry and academia. The private sector needs to practice stewardship, in order to add value to resource efficiency, while the government needs to work towards sufficiency. While efficiency of resources deals with its productivity, sufficiency deals with raising the bar at the lower limit of the spectrum, to ensure access.

Experts shared examples of several innovations that increase 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, which 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 definition of sustainable development in terms of price volatility, which lead to an interesting discussion. According to the experts, an environmentalist would define it as a way to live and let others species live (not how businesses prosper). However, an economist would define it as ‘if we so use material, human and other capitals such that at the end of the process, 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 planet, we have not yet achieved it.

The need of the hour is to figure out a way to live a healthy, happy, and equitable life, while keeping natural capital intact or minimizing its depletion. Instead of pricing resources, it is necessary to determine the price of storing all the waste that is being generated. We have to change the way we do business today, to maintain a larger focus on societal sustainability, rather than business sustainability. To measure the performance of companies, their economy as well as their ecological footprint should be taken into consideration. It is essential that the government simplifies the process of approvals and frames policies effectively to promote research in energy technologies. Payment 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 commercial 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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