Managing Resources in the Face of Shortage
Up until now access to resources has seldom been a problem. Most of the things that companies need in order to run production and everything people need on a daily basis have been abundant, or the price has been high enough to keep demand at a level that could be met by supply. Unfortunately, this is not likely to be the case in the near future.
Experts on oil supply, such as International Energy Agency and a number of retired oil geologists and professors, warn that oil production may start to decline already in 2019, which is likely to impose a new type of challenge on politicians and business managers. Oil is the raw material that is used in the largest number of industrial applications and petroleum is used in order to fuel 99 per cent of road and sea transports, and for all air transportation.
The transformation to renewable fuels and a reduced dependence on oil overall has only just started. In my book, Circular Business Models, I argue that the transformation of the present linear flows to circular production and transport systems may be possible, but that it requires very large investments and extremely strong programme management.
Circular production systems are designed to use substantially fewer resources and to circulate renewable resources several times before they turn to waste. Circular business models extend product life and offer customers the ability to share, instead of the need for each person to own their particular unit of a product. Circular economic flows also involve an increasing share of locally and regionally produced goods and transportation using fossil free vehicles and fuels.
However, the transformation that lies ahead of us is immense. We use 95 million barrels of oil every day on a global basis. If stacked it would only take five days to reach the moon. Once oil production goes into decline the annual reduction is expected to amount to 1.5 per cent in the first few years and more per year as the process continues. No biological fuel can replace oil and hydrogen, which may be used to fuel cars via fuel cells, requires three times as much electricity in order to produce hydrogen to drive a car a certain distance as needs to be used in order to fuel an electric car. In order to produce electricity to fuel the German car fleet using electric vehicles, the power equivalent of 20 nuclear plants has to be used. In order to fuel the same fleet using hydrogen there would be a need for 60 nuclear plants, or the equivalent in wind or solar power. This and many other basic facts remain to be discovered by decision makers all over the world.
The challenge that will be facing business managers in the years following Peak Oil and for many years after will be to understand the new situation and make the right decisions under very difficult circumstances. Due to the assumptions that economic growth can continue indefinitely, that circular production and transportation flows can save the world at almost no expense of resources and cost, and that transformation can be driven on a small scale, while at the same time traditional economic growth remains the engine of the global economy; very little analysis has been made of a situation that is diametrically different from the current economic order. Few business managers have realized the implications of resource shortages and started to implement measures to reduce their companies’ resource consumption. Thus, few companies are prepared for this new scenario and there are only a very small number of books to guide managers in their decision making. Due to the lack of analysis and preparations, there will be an abundance of misguided conclusions and questionable advice.
The bad news is that transformation will not start automatically as soon as oil prices start to increase and companies, because of the immature state of the circular technologies that are available, are likely to have to carry most of the cost of the transformation and manage it as best they can. Regardless of what has been said up until now, the transformation needs to be managed and very large investments will become necessary in order to drive transformation forward. There are examples of projects and change programmes throughout history by which businesses, countries and coalitions of nations have made extraordinary achievements in very short spaces of time, but the first requirement in order to initiate change, is an awareness of the need and it is likely that business managers will need to take the lead in spreading awareness of this global predicament.
Over the next few years there is a need to learn from earlier examples of business transformation and build co-operation between companies in different countries in order to develop, finance, and organize the business systems that can take humanity into the future. Building the support for the necessary measures will not be easy and it will require large amounts of information and persuasion to teach people to think, act, and, above all, consume, in resource-efficient ways. First and foremost, companies need to transform operations so that they can produce and distribute goods and services using substantially fewer resources. And for all this to become even remotely possible, politicians need to become aware of the challenges and start transformation programmes that pave the way for as smooth a transformation as possible. In total this amounts to a very large transformation challenge. A number of key insights are offered in Circular Business Models, which is one of the few books that take the magnitude and complexity of the challenge as its starting point.
Mats Larsson, author of Circular Business Models, has worked for 20 years as a business consultant and is the founder of the Global Energy Transformation Institute. He is an expert in business strategy, innovations and entrepreneurship, and has worked extensively both with large companies and individual entrepreneurs in several technology and business areas. Most recently he has worked with large scale energy systems transformation.