What resource scarcity could mean for your finances

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All information is correct as at 31 December 2021 unless otherwise stated.

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Resource scarcity is an inevitable consequence of a rapidly growing world population with burgeoning wealth and a rapacious appetite for consumption.

There are around 7.8 billion people on the planet. By 2050, that’s expected to swell to 9.7 billion. The lion’s share of that growth is expected to come from countries where we’ve seen the rise of the middle classes and soaring spending.

In order to keep pace with current levels of consumption, we’d need the resources contained in 1.7 Earths. So as our appetite increases, it’s going to put natural resources under even more pressure. Our energy needs are expected to rise 50% by 2030, piling the pressure on a sector that’s already struggling. And while that’s worrying enough on its own, it’s also going to hit us financially.

The energy crisis – a sign of things to come?

The energy crisis we’re currently wading through has been the result of a perfect storm. To some extent it would be difficult to imagine this exact set of circumstances happening again, but the underlying forces remain and are set to endure and intensify.

The crisis was sparked by shortages of coal and gas, caused by a horrible combination of forces, which then sent prices soaring, with gas hitting a record high in December – three times higher than a year earlier. Shortages of fossil fuels aren’t likely to cease in the future either. To keep within the agreed global warming limit of 2°C, around two thirds of fossil fuels have to stay in the ground.

In the long run, capacity might be filled by renewables. But at the current rate, there could be a gap between the demise of fossil fuels and the rise of reliable renewables. The International Energy Agency warns that renewables aren’t currently on track to pick up the slack by 2050.

Even once renewables dominate, it will remain subject to fluctuations depending on natural phenomena. This year’s crisis was exacerbated by low wind speeds at offshore wind farms in the North Sea. This dramatically reduced energy production of offshore wind turbines and triggered rampant demand for oil.

Until storage technology and capacity moves on, we need back-ups to support renewables. Hydrogen could fit the bill, but much of hydrogen production currently relies on gas, increasing our reliance on this specific fossil fuel. It means we’re likely to live through many more horrible spikes in energy prices in the years to come.

The impact of an energy crisis

The current crisis has dramatically altered the sector, precipitating the collapse of 26 companies in the past four months, and forcing Ofgem to consult on changes to the price cap regime. It means that not only can we expect the price cap to rise to as much as £2,000 when the cap is reviewed in April, energy companies could have more freedom to hike charges in any future crisis too.

And rising energy prices don’t just affect heating and eating. The runaway cost of oil means the expense of filling up at the forecourt has also rocketed. It hit a record high of 145.8 pence per litre in November. It has since fallen back slightly, but remains eye-wateringly high.

And these hikes feed into everything we buy. The global energy shortage caused electricity rationing in China, which hit manufacturing of goods destined for shelves in the UK. At the same time, every mile that any of these goods travelled was hit by the rising cost of fuel. The huge rise in the price of gas meant the closure of fertiliser factories, which hit CO2 production – causing major issues for food and drink manufacturers.

An energy crisis is something with incredibly far-reaching implications for our finances, and it’s far from the only resource shortage we face.

The importance of water and food production

On a global basis, there’s also a real risk to water. Rising populations and demand for more water-intensive food means water needs will rise 50% by 2030, while droughts, heatwaves and pollution mean less of it to go around.

It seems ridiculous to consider that the UK could ever run short of water. However, the Environment Agency has long warned that we face enormous challenges, due in large part to a rising population and climate change.

By 2050, the UK is expected to have another 12 million people. We currently use less water for farming than elsewhere in the world, but climate change could mean more need for irrigation. The Environment Agency is calling for more investment in water storage, transport and tackling leakage to avoid water shortages. It’s warned this might well mean higher bills.

Not only that, but the rain we do get falls in the wrong places. The west of the country and the highlands get plenty of rain, but London gets just 106 days of rainfall a year. So, we face the challenge of ensuring water supplies end up where they’re needed. This again will come at a cost to water companies, which will end up hitting bill payers.

One major drain on water resources – and energy – is food production, which also faces potential scarcity issues. We’re expected to be eating 35% more food by 2030, and the types of food required by increasingly wealthy populations – including meat and oils – will mean more energy and water use. Competition for scarce resources will push up the price of production.

Meanwhile, climate change will take its toll. Rising temperatures, droughts in some areas and floods in others have hit farming across the world. UK farmers have faced enormous challenges, but food isn’t just a UK issue. We import just under half of the food we eat, so global changes affect us too.

We saw the cost of food spike in 2008, sparked by another perfect storm of crop failures, rising demand and increasing fuel prices. We might be seeing the first hints of it happening again now. Although food bills are currently only up 2.5% in a year, there have been real spikes in specific segments. There’s been a 14.5% rise in the price of margarine, a 9.1% rise for ice cream and 7.3% for crisps. Correct as at 15 December 2021.

And while the soaring price of crisps might not feel like a financial calamity just yet, we can’t underestimate the potential impact of rising food costs. Back in 2008 it was a major factor in a wave of unrest that hit 30 countries. And should it lead to more unrest in future, not only will it have far-reaching consequences for the countries affected, but it could affect global supply chains, which would feed into yet more hikes.

It's not all doom and gloom

On the face of it, there’s not much to look forward to here, as resource scarcity fuels price rises across the board. However, there’s always hope.

In the year 2000, just over 9% of our electricity was being produced by renewable sources. We might never have dreamed that advances would mean renewables would account for almost 22% of our electricity needs 20 years later.

These slightly depressing forecasts don’t take into account the potential for more developments. Ones that could power a step change in demand or supply that eases these pressures and avoids new and more worrying drains on our own resources.

It also moves us on from a focus on shopping around to get the best deals on everything from energy to food, to a new focus on how much we use. For those in really difficult circumstances, this involves horrible choices about heating and eating. But for most, this forces us to prioritise behaviours that are better for both our pockets and for the environment.

Energy efficiency might well involve an initial outlay in many cases, on A-rated appliances and insulation. However, an awful lot can be achieved in terms of energy efficiency, water conservation and a reduction in food waste by changing our habits. Over time, new efficient habits will become second nature, helping us cut costs and conserve these scarce resources without any major lifestyle changes.

This article isn’t personal advice. If you’re not sure whether something is right for you, you should ask for financial advice.