Resource Scarcity and Climate Change

By Francis David M. Labador

First Published in Business World (3/10/2014)

“Going green” has rapidly become the new norm for the industries of tomorrow.

This mindset — coupled with initiatives and policies that focus on climate change, resource scarcity, and increased consumer, industry and political interests — is putting pressure on businesses to evolve from traditional technologies to more innovative ones. In this environment, it is inevitable that clean technologies (cleantech) on efficient resource consumption, renewable energy, biofuels, information technology, waste reduction and management, among others, will lead to a paradigm shift in business practices.

Much of these and other activities are premised on the expectation that demand for food, water, and energy will grow by approximately 35%, 40%, and 50%, respectively, while climate change will worsen the outlook for the availability of these critical resources. These were the figures reported in the Global Trends 2030: Alternative Worlds report published by the National Intelligence Council in 2012. It mainly attributes the increase in demand to the increase in global population and the consumption patterns of an expanding middle class.

In the Philippines, many of us were thrilled to see our country enter the demographic and mid-income “sweet spot” window, as announced by government economic experts. They anticipate that our country will hit the “sweet spot” within the next six years, and in 2019, per capita gross domestic product would reach $6,000. However, this newfound purchasing power may have unfavorable effects on the demand for goods and commodities, and its prices.

On the demand for energy, for instance, many industry groups are concerned that the increasing household and industry electricity consumption, driven by the growth in the economy, could eventually lead to a power crisis. The recent widespread power failure in Mindanao is quite ominous. The energy supply could be eroded further by delays and oppositions to several power infrastructure projects. The Philippine Independent Power Producers Association believes that Luzon, which accounts for about three-quarters of the country’s total capacity, will require additional 3,280 megawatts (MW) by 2017 – which is double the government’s estimate. This is a potential risk that could disrupt the power supply and otherwise cause prices to shoot up, affecting businesses, industries and consumers and eventually undermining our fast growing economy.

Around the world, almost every government has included addressing resource scarcity and climate change in their agenda. Some noteworthy achievements in the energy sector are China’s clean energy and efficiency initiatives, Saudi Arabia’s solar development plan, and Brazil’s efforts to promote wind and biofuels.
For its part, the Philippines has enacted several laws and policies and established a clean technology fund investment plan focusing on energy and transport, to tackle resource efficiency issues. Our government — focusing primarily on energy — spearheads most of the cleantech initiatives and projects which the business sector has already begun to embrace. Backed with fiscal and non-fiscal incentives under the Renewable Energy (RE) Act of 2008 and the subsidies under the feed-in-tariff program established in 2012, we have seen the spur of investments in the RE business. As of December 31, 2013, the Department of Energy (DOE) has already awarded 479 projects under the RE Law. In addition, the National Renewable Energy Program set a target of reaching 15,304 MW of installed renewables capacity by 2030. Clearly, our government is embarking on cleantech as a viable alternative to address the growing demand for energy, with the private sector playing a key role in providing investments and expertise to aid its success.

Resource scarcity and climate change bring in new risks for businesses. According to Cleantech Matters (a global cleantech insights and trends report by Ernst & Young [E&Y]), businesses are exposed to the following key business risks:

• Energy expenditures are becoming a growing share of operational costs as fossil fuel-based energy prices increase and price fluctuations in traditional energy sources impact the bottom line.

• The Fukushima disaster in Japan and political turmoil in the Middle East highlight energy availability risks.

• Increased consumer focus on sustainability is changing how industry leadership is being defined.

• Long-term carbon penalties and license-to-operate risks arise as governments focus on energy efficiency and environmental objectives.

• The new reality of the resource-constrained, low-carbon economy changes the basis of competitive advantage.

Further, the largest global corporations are meeting the challenge of transitioning to a low-carbon and resource-efficient economy through proactive energy strategies. Global corporate energy strategies are based on improving energy efficiency to mitigate energy cost hikes, increasing use of renewable energy and growing energy self-generation.

To address these risks, local companies are currently reviewing their supply chains, reducing carbon emissions and adopting green technologies. Most notably, many companies have already started utilizing RE as a feasible strategy to achieve self-sufficiency for its energy needs. The DOE website mentions 31 energy generation projects awarded under RE Law for “own-use” by companies. Playing on the strength of the Philippines as an agricultural country, these companies turned mostly to biomass as feedstock for energy self-generation.

While more and more corporations view cleantech as the key strategy to address resource efficiency, spending on the technology is expected to surge, driving further growth in this US$170-billion industry. The industry grew 18% in 2013, which is indicative of the growing focus of businesses on cleantech, as detailed in E&Y’s Cleantech Industry Performance Report. Many companies also view this spending as part of their sustainability efforts to drive competitive advantage.

A recent study by A.T. Kearney called “Green” Winners — The Performance of Sustainability – reports that the stock prices of companies committed to sustainability outperformed their industry averages by 15%. This indicates that companies’ efforts toward resource efficiency and sustainability is now a growing factor in determining their business performance.

Globally, every business will be affected by the growing world population, rising consumption and a deteriorating supply of natural resources. To remain competitive, businesses should assess how these factors can impact their operations by asking questions such as:

• Does your business rely heavily on scarce resources?

• Do you understand the effects of climate change on your business?

• Have you assessed if there are impending regulatory changes that are likely to impact your business?

• Are you monitoring/analyzing trends in your industry and its effects?

• Have you determined what the available clean technologies are and their impact in terms of operational efficiency and cost reduction? Will adoption of these technologies give your company a competitive advantage?

• Have you considered fast-rising costs and any other industry trends in your investments analysis for these technologies?

• Is your supply chain directly affected by scarcity of resources? Have you implemented strategies to address abrupt price increases or supply problems?

• Have you been able to capitalize on incentives and stimulus spending on cleantech offered by a number of jurisdictions, as a growth opportunity?

Winning the competitive global business race requires the members of the C-suite to be mindful of the turns that lie ahead. Utmost care and precise timing is needed to manage future steps so as to retain business momentum. Insight into how scarce resources and climate change will impact operations, balanced by the necessary foresight to see where businesses and industries are heading, will be crucial to determining the winners in the future.

Francis David M. Labador is a senior director of SGV & Co.

This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinion expressed above are those of the author and do not necessarily represent the views of SGV & Co.