Forum Post: resource scarcity and energy

Mark Z. Jacobson, a Stanford professor we have often quoted, and whom we know well enough to say his research is thorough and excellent, has estimated the costs of building out renewable energies worldwide to be in the neighborhood of $100 trillion. For China, whose population is approximately one-fifth of the entire world’s, that would suggest expenditures in the neighborhood of $20 trillion. We actually think Jacobson is somewhat conservative here, and as we said before and in our book “Red Alert” he and so many others, ignore the problem of resource scarcity.

There is probably nothing more critical or important to a country or the world itself to develop in a way that does not run into a roadblock created by scarce resources. Thus, as some people bemoan (or cheer) the slow growth in China, they seem not able to see the areas of extraordinary and critical long-term progress. For example: the northwestern part of China is not known for its bustling industry, especially in the desert area known as Gansu.

And yet, Gansu, the home of about one million Chinese, has seen annual investments totally about $6 billion in wind, solar and other areas related to renewable energy. The result has been noteworthy. An area once known as a center for oil has largely replaced the now depleted wells with solar farms, wind farms and a smart grid. By 2020 the area should be more or less free of oil and largely running on renewable energies.

If you multiply the million people in Gansu by 1,500 (i.e., to arrive at the approximate total population of China of nearly 1.5 billion), you’ll see the scale at which China is hoping to build out its renewable energies: Gigawatts of wind and solar are likely to be eventually measured in four digits. If you do the math and make a few assumptions, you can see how China could easily spend $20 trillion on these efforts.

And to assume a country on its way to spending this kind of money is headed for some sort of Armageddon is just silly. Remember too that renewable energies are labor- as well as resource-intensive.

The real question comes down to longer-term shortages of copper, silver and other metals and minerals destined to become scarce. A thousand gigawatts of solar would surpass the current yearly supply of silver by several-fold. And a thousand gigawatts would be a very modest long-term goal for China. How about the rest of the world?

For example, Asia has another very large economy called Japan. Recently that country announced plans for ramping up solar energy to 3.2 gigawatts, simply a fraction of one percent of the amount of electricity they will eventually needed in Japan. But even these 3.2 gigawatts move the needle in silver, as it represents nearly 1.5 million ounces of the metal.

Is it really hard to see why we like silver, which is a crucial component in solar energy technology, or why we like copper, whose role in smart grids and hybrid cars will eventually come close to exhausting all available supplies of copper?

Gold, of course, is a different animal, but, as we’ve said so many times, how in the world can you ration scarce resources with paper money? Another sign that China “gets it” is their massive imports of gold at the same time as they are achieving the world’s highest rate of gold production internally.

China’s intention of making the Yuan the world’s major reserve currency is also evident, as recent financial reforms included liberalizing the amounts banks can pay their customers for deposits.

That China can do more than one thing at a time – i.e. liberalize their banking system while building out new energies – can also be seen from the record amounts of long term loans that took place there in the second half of May, the majority of which went to – you guessed it – renewable energy projects.

Yes, we are still betting on stocks and indeed think the U.S. market will rally, but if you want to play the game the Chinese play so well, think long term, and “long term” in this case means “think commodities”.

Clearly, this article is very much informed by my frustration with our political process. While it still may not be too late to come together and develop a world we want our children to live in, our politics are marred by mudslinging and arguments over matters that have little to do with the year after next, let alone the rest of the century. We need to get our act together pronto – and stop fighting about it.