Four obstacles to further economic growth
- The depletion of important resources including fossil fuels and minerals;
- The proliferation of environmental impacts arising from both the extraction and use of resources (including the burning of fossil fuels)--leading to snowballing costs from both these impacts and the efforts to clean them up;
- Financial disruptions due to the inability of our existing monetary, banking, and investment systems to adjust to both resource scarcity and soaring environmental costs
- The inability of these same systems (in the context of a shrinking economy) to cope with the enormous piles of government and private debt that have been generated over the past couple of decades and that will apparently continue to be generated.
Despite the tendency of financial commentators to focus only on the last two of these four obstacles, it is possible to point to literally thousands of events in recent years that illustrate how all four are interacting, and are hitting home with ever more force. For example, consider just one such event:
The Deepwater Horizon oil catastrophe of 2010 in the Gulf of Mexico
The fact that BP was drilling for oil in deep water in the Gulf of Mexico illustrates a global trend: while the world is not in danger of running out of oil anytime soon, there is very little new oil to be found in onshore areas where drilling is cheap. Those areas have already been explored and their rich pools of hydrocarbons are being depleted. According to the International Energy Agency, by 2020 almost 40% of world oil production will come from deepwater regions. So even though it's hard, dangerous, and expensive to operate a drilling rig in a mile or two of ocean water, that is, increasingly, what the oil industry must do if it is to continue supplying its product. That means the cost of oil must continue to go up.
Obviously the environmental costs of the Deepwater Horizon blowout and spill were ruinous. Neither the U.S. nor the oil industry can afford another accident of that magnitude. So, in 2010 the Obama administration instituted a deepwater drilling moratorium in the Gulf of Mexico while preparing new drilling regulations. Similarly, other nations began revising their own deepwater oil exploration guidelines. This will no doubt make future blowout disasters less likely , but these new guidelines will add greatly to the cost of doing business and to the already high cost of oil.
The Deepwater Horizon incident also illustrates to some degree the cumulative and adverse effects of depletion and environmental damage upon financial institutions and the economy generally: Insurance companies have been forced to raise premiums on deepwater drilling operations, and impacts to regional fisheries have hit the Gulf Coast economy hard. While economic costs to the Gulf region were partly made up for by payments from BP, those payments forced the company to reorganize, and resulted in lower stock values and returns to investors. BP's financial woes in turn impacted British pension funds that were invested in the company.
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