Global Natural Resources Conclave (GNRC)

TERI Background Paper: Global Natural Resources Conclave

APRIL 5 & 6, 2017 TAJ PALACE, NEW DELHI

TERI Background Paper

Introduction

Wealth of a nation depends on natural resources (both renewable and non-renewable) and ecosystem services provided by nature to human society (for instance, filtering of air by trees, pollination of plants by bees, absorption of flood waters by plains and wetlands). These resources and services are required not only for meeting our basic needs, but also for fulfilling our aspirations for a better quality of life, attaining higher standards of living, increasing our comfort levels and in general for economic and social well-being. Like our labor force, machines and tools, finance and knowledge, our natural resources are an asset. The United Nations Environment Program (UNEP) has rightfully explained that “much as an investor will use financial capital to generate profits, a stock of forest or fish will provide a future flow of timber or food, which if used sustainably will provide long-term benefits to people.”1

The three crucial characteristics of natural resources which make them distinct and significant are their exhaustibility, uneven distribution and externalities linked to their extraction and use. Out of the many definitions that try to elaborate on natural resources, one widely accepted definition is found in Thematic Strategy on the Sustainable Use of Natural Resources of the European Union, published in 20052, where natural resources are defined as:

  • Raw materials such as minerals, biomass, and biological resources
  • Environmental media such as air, water, and soil
  • Flow resources such as wind, geothermal, tidal, and solar energy
  • Space (land area)

The strong economic growth witnessed by countries across the globe over the last few decades has lifted more than half a billion of its people out of poverty and has raised living standards. But this socio-economic progress was achieved at environmental cost due to unsustainable and often inequitable economic growth patterns. Rapid urbanization and industrialization involving intensive use of resources has accelerated the degradation of natural capital and led to increased waste generation and emissions. With many key natural resources and ecosystems services already scarce or under pressure, achieving sustained economic growth will require absolute decoupling of the production of goods and services from their environmental impacts. This means consuming environmental resources in a sustainable manner – whether by improving the efficiency of resource consumption or by adopting new production techniques and product designs that reduce resource use.

Extractive resources fostering economic growth and promoting sustainable development

GNRC_Extractive resources

The extractive industries-oil, gas and minerals, in particular, have witnessed significant growth in the recent times. This can be attributed to the rise in commodity prices over the last decade, advances in exploration technologies, increasing mobility of production factors, closer linkages among countries and regions, and greater political stability in many countries with untapped resource wealth. According to one estimate, no less than 50 African nations are either producing or exploring for oil3. New discoveries of gas along the eastern coastline of the African continent could be the largest the world has seen in the last decade4. According to a recent assessment of the UNEP-International Resource Panel (2016), the extraction of primary materials increased by a factor of three during the past four decades from 24 billion tonnes in 1970 to 70 billion tonnes in 2010. The extraction of both, biomass and fossil fuels has doubled, while extraction of metal ores has tripled and the extraction of non-metal minerals has nearly quadrupled during the period.

Resource management is extremely important, particularly for countries in transition which are commonly characterized by imperfectly or unevenly developed legislation and governance structures, compounded by short-term economic pressures to draw on natural resources unsustainably. Government could act as an enabler for promoting sustainable development of natural resources by facilitating the development of property rights and markets; remove subsidies that hamper sustainable resource use; reduce resource degradation and enhance the provision of environmental services; improve the management of publicly owned natural resources; reduce pollution by natural-resource-based industries; dealing with information shortfalls; and address distributive implications of natural resource management policies5.

When managed prudently, resource investments and the vast revenues they generate can sustain development efforts and make a lasting positive impact on the life of citizens. The extractive sector has the potential to generate further benefits to the economy beyond the direct contribution of revenues, through its links to other sectors. It can act as a catalyst for job creation, poverty reduction, and lead to establishment of forward and backward linkages. These resources are much needed to build industry, act as a lever for infrastructure development (such as roads, railways, water and power), and can open up opportunities in new industries, including agricultural exports and tourism.

Restoring and maintaining the health of these resources by incorporating resource efficiency is a key element of sustainable development. The recycling and reuse of secondary raw materials offer the potential to stabilize raw material supply for industry. Also, enhancing resource efficiency and developing a secondary raw material management sector has the potential to create many green jobs. Moreover, efficient use of resources often has substantial economic benefits. By reducing ever more expensive extraction of primary materials, businesses can reduce their costs of production. At the same time, many secondary materials have great economic value as they can be sold and reused, for example, during production of cars and electronic equipment. In sum, through the use of environmentally sound technologies and processes, the overall footprint of consumption and production can be reduced and negative side effects on society mitigated. It is also important to focus on resource intensity and to identify transformational ways to de-intensify and achieve the same or better outcomes using fewer resources.

Natural Resources – Indian context

Natural resources

In the development model followed by India, natural resources play a crucial role in achieving the objective of poverty reduction through rapid expansion of high-end knowledge-intensive services and manufacturing sector. Coal has been the critical backbone of India’s energy infrastructure and will continue to be the major source of energy in the near future as well even during transition to renewable sources of energy. Apart from coal, oil and gas sector also play a major role for enhancing the economy of the country as it is amongst the six core industries in India. India is the world’s largest producer of sheet mica, third largest producer of iron ore and fifth largest producer of bauxite in the world.

The post-liberalization phase in India has seen the dominance of service sector led growth and contribution of manufacturing sector remained mostly stagnant (less than 20 percent to India’s GDP). The country has not been able to utilize its rich natural resource endowment (of iron, coal, mineral oil, manganese, bauxite, chromite, copper, tungsten, gypsum, lime­stone, and mica) to full potential to boost growth and strengthen the economy as has been achieved by its neighbor China whose manufacturing sector has contributed around 30% to GDP over last three decades. According to a study by Ernst &Young6, India has explored only 7-9% of mineral resource in comparison to 100% geophysical and geochemical surveys in countries like Australia. The Indian mining sector grew at a CAGR of 7.3 per cent in the last decade compared to 22 per cent in China for the same period, and its contribution to the GDP has been around 2-3 percent.

India’s spending on exploration projects is at 0.3 per cent of the global spend (compared to 19 per cent for Canada and 12 per cent for Australia). Exploration in India is mostly restricted to a depth of 50 to 100 metre vs. as deep as 300 metre in countries such as Australia7. Potential areas of exploration include gold, diamond, copper, lead, nickel, cobalt, molybdenum, lithium, silver, platinum group of metals, rare earths, rock phosphate etc. An estimated 75% of India’s sedimentary basins have yet to be adequately explored. Of the 26 known sedimentary basins in the country, only seven are currently producing oil and gas. Investing in domestic oil and natural gas exploration is a long-term solution that will help quench India’s growing energy demands, smartly8. With these vast resources lying unexplored, there is a need for enhanced focus on survey and exploration to develop the available resources for utilization in infrastructure, capital goods and industries.

The major problem faced by India is unavailability of suitable technology and state of art equipment, lack of experienced geoscientists and efficient policy mechanisms to drive mining and mineral exploration. The National Mineral Policy has advocated both the auction of “fully prospected” mineral deposits and the encouragement of exploration under a risk-reward system to incentivize the use of technology for locating deeper mineral occurrences. MMDR (Amendment) Act 20159 provides these mineral concessions on the basis of bidding wherever the data is adequate for the purpose for the prospecting stage or mining stage, as the case may be. The country thus offers good opportunities for mining exploration & development companies to be a part of the Indian growth story for the next decade.

In the context of global trade in natural resources that has increased over the year, India, despite of availability of many natural resources, is a net importer of natural resources to meet its domestic development need and is vulnerable to supply/price fluctuations. Several important industries, critical to India’s national security, renewable energy mission, electronics, consumer durables, clean technology etc. are dependent on the imported minerals / metals. This supports the need to ensure access to raw materials in world markets by entering into bilateral agreements with countries, to secure supply for both the short term and long term. To foster sustainable supply of raw materials from Indian sources, there is a need to create an environment where the domestic producers are encouraged to produce these metals. Emphasis needs to be given to the co-production of by-product metals from base metal ores through process R&D so that the country’s need for technology metals and energy critical metals are met from domestic resources. Value addition in the mineral sector also needs to be encouraged through latest techniques of beneficiation, calibration, blending, sizing, concentration, pelletisation, purification and general customization of the product10.

India has abundant, untapped renewable energy resources, including a large land mass that receives among the highest solar irradiation in the world, a long coastline and high wind velocities that provide ample opportunities for both land-based and offshore wind farms, significant annual production of biomass, and numerous rivers and waterways that have potential for hydropower.

To increase the supply of energy from renewable sources will need access to certain key metals. Wind energy, which forms the biggest part of India’s renewable energy supply, in its state-of-the-art wind turbines with direct-drive permanent-magnet generators, requires about 550 kg of permanent magnets or 150 kg of neodymium (a rare earth material) per MW11. Other renewable energy technologies also consume highly specialized materials, such as photovoltaic cells. A study conducted by the Fraunhofer Institute suggests that some raw materials used in solar power technologies could become scarce compared to their demand in future scenarios, due to their limited recycling possibilities among other reasons12.

India’s manufacturing sector has the potential to touch US$ 1 trillion by 2025 and account for 25-30 per cent of the country’s GDP and create up to 90 million domestic jobs by 202513. To tap this potential, one of the biggest initiatives that the Government of India has launched is the “Make in India” campaign with the objective to facilitate investment, foster innovation, enhance skill development, protect intellectual property and develop the manufacturing infrastructure in the country. Make in India initiative is providing impetus to various sectors including mining, manufacturing and energy to enhance investment, strengthen the manufacturing base and promote research and development. The assured availability and proximity of mineral resources will play an important role in giving a competitive edge to Indian industry for the success of Make in India.

India needs to craft an integrated roadmap for mining, production and usage of its natural resources. Even though India has undergone industrialization thus far with limited consideration of resource efficiency and secondary raw material management issues, there is still scope for transformational change in how resources are accessed, made into products, used and recycled within the different sectors. India can utilize resources most efficiently and unlock the potential of secondary resources with a greater focus on resource efficiency and secondary raw material management issues in policy planning and implementation at all stages of the product lifecycle. At political level, the growing attention on improving resource efficiency not only reflects concerns over resource dependency and security, but also environmental impacts, notably climate change, growing degradation of ecosystem, etc. India has also taken initiative for trickling down of the benefits to people and areas affected by mining operations and address the social and environmental concerns. The MMDR (Amendment) Act 2015, provided for the creation of a District Mineral Foundation as an enabling provision in all mineral bearing districts where an amount equivalent to the royalty collected from mines has to be deposited by the lessees.

Global Conclave on Natural Resources

A forum of open dialogue is required to facilitate a healthy business climate for all stakeholders involved in the natural resources sector, both in India and those globally who are looking to invest in India.

References

[1] UNEP (2012). Natural Capital Declaration (Signed at Rio 20 Event). United Nations Environment Programme. Available at http://www.naturalcapitaldeclaration.org/the-declaration/

[2] E C (2005). Thematic strategy on the sustainable use of natural resources. COM (2005) 670 final. European Commission, Brussels.

[3] The Economist (2012). Africa, oil & the west: show us the money. September 1st 2012. Available at  http://www.economist.com/node/21561886

[4] Gismatullin E & Paton J (2012), Africa Gas Rush Imperils $100 Billion in Australian LNG, BLOOMBERG (Apr. 30, 2012), Available at http://www.bloomberg.com/news/2012-08-29/africa-gas-rush-imperils-100- billion-in-australian-lng.html.

[5] OECD (2011). The economic significance of natural resources: Key points for reformers in Eastern Europe, Caucasus and Central Asia. Organization for Economic Co-operation and development. Available at http://www.oecd.org/env/outreach/2011_AB_Economic significance of NR in EECCA_ENG.pdf

[6] Ernst & Young (2011). Over 90 percent of mineral resources of India unexplored: EY report.  Available at http://www.ey.com/in/en/newsroom/news-releases/over-90-percent-of-mineral-resources-in-india-unexplored--ernst-and-young-report

[7] GoI (2011).  Unlocking the potential of the Indian minerals sector; Strategy Paper for the Ministry of Mines, Government of India.  Available at http://mines.nic.in/writereaddata/UploadFile/Strategy Paper for Ministry of Mines.pdf

[8] Quartz India. Reducing India’s dependence on foreign oil and gas. Sponsor Content Bulletin by GE. Available at https://qz.com/241614/reducing-indias-dependence-on-foreign-oil-and-gas/

[9] Minerals and Mines (Development and Regulation) (Amendment) Act 2015, Government of India. Available at http://mines.nic.in/writereaddata/ Contentlinks/f4e1c21aedc74ff8ad0d58788f9a 01b3.pdf, last accessed on June 2, 2015.

[10] Vijay Kumar S and Ganeshan S (2015).  Moving forward with a world-class mineral policy for national mineral security. Based on the discussion paper of the same title published by TERI in June 2015 with contributions from Srivastava N. Mining India Summit: Emerging policy Environment, September 2015, organized by the Associated Chambers of Commerce and Industry of India. New Delhi

[11] Kleijn R, van der Voet E (2010): Resource constraints in a hydrogen economy based on renewable energy sources: An exploration. In: Renewable and Sustainable Energy Reviews. Elsevier Ltd. Vol. 14, No.9, pp. 2784–2795

[12] Angerer G, L. Erdmann, F. Marscheider-Weidemann, A. Lullmann, M. Scharp, V. Handke and M. Marwede (2009). Raw materials for emerging technologies. Fraunhofer Institute for Systems and Innovation Research, Germany.

[13] http://www.ibef.org/industry/manufacturing-sector-india.aspx

Entry by invitation only