Introduction to resource economics
Origins of the sustainability problem
Lectures in resource economics
Spring 2004, Part 1
G.B. Asheim, nat.res. 1, updated 21.01.2004
1
Structure of the course
„
Part I: Sustainability (Lectures 1–3) GBA
Origins of the sustainability problem
Intergenerational ethics in a resource context
Concepts of sustainability
„
Part II: Natural resource exploitation
(Lectures 4–10) OB
„
Part III: Green Accounting (Lectures 11–12) GBA
„
Part IV: Hydropower (Lectures 13–14) FF
G.B. Asheim, nat.res. 1, updated 21.01.2004
2
Three themes
„
Efficiency
„
Optimality
„
Sustainability Just transfers to future generations
Non-wastefulness
Why need not markets allocate natural
resources in a non-wasteful manner?
Non-wasteful and just distribution
Why need not markets distribute natural
resources in a just manner?
Do markets conserve “sufficient” natural
resources for the future?
G.B. Asheim, nat.res. 1, updated 21.01.2004
3
1
Economic analysis of efficiency and optimality
„
First welfare theorem
A perfectly competitive equilibrium is efficient
(Why need not a market equilibrium with
resources be perfectly competitive?)
„
Second welfare theorem
An optimal allocation can be implemented as a
perfectly competitive equilibrium through
redistribution of initial endowments.
(How can “initial endowments” be
restributed — and among whom?)
G.B. Asheim, nat.res. 1, updated 21.01.2004
4
Special issues
„
Time Many natural resources are stock resources.
Natural resource economics is concerned with
the management of these stocks through time.
Hence, we will be concerned with intertemporal
competitive equilibria.
„
Market and resources
Property rights may not be assigned for natural resources. Market prices may not be available for natural
resources, or fail to allocate the resources efficiency.
A case for governmental intervention.
Scarcity prices may have to be calculated.
G.B. Asheim, nat.res. 1, updated 21.01.2004
5
Classification of natural resources
„
Renewable resources Biotic, plant and animal
populations. Have the ability to grow in size
over time, through biological reproduction.
„
Non-renewable resources Abiotic stocks of minerals.
Does not have the ability to grow in size over time.
„
Stock resources Plant and animal populations and
mineral deposits. Have the characteristics that today’s
use has implication for tomorrow’s availability.
„
Flow resources Solar radiation, and the power of
wind, of tides, and of flowing water.
G.B. Asheim, nat.res. 1, updated 21.01.2004
6
2
Classification of natural resources (cont.)
„
Natural vs. environmental resources
Natural resources are resources that can extracted.
Perman et al. use the term “environmental resources” to include
not only natural resources, but also
□ the quality of natural basins of air and water (threatened by pollution),
□ the availability of environmental amenities (e.g. natural beauty and recreation),
□ the general functioning of the natural environment (e.g. resilience, biodiversity).
A course in Environmental Economics treats environmental
resources that cannot be classified as natural resources.
„
Exhaustible or depletable resources
May not be useful terms since even renewable
resources can be exhausted or depleted.
G.B. Asheim, nat.res. 1, updated 21.01.2004
7
Sustainability
„
What is it?
„
Why are we concerned? Modern technology enables
Present well-being can be shared by future generations.
the present generation to destroy the resource base.
„
Why should we care?
„
How can we tell? Does market information indicate
„
What can we do about it? What rules for sustainable
Positive net productivity
means negative costs of transfer to the future.
whether development is sustainable?
resource management can we implement?
G.B. Asheim, nat.res. 1, updated 21.01.2004
Sustainability:
„
8
Why are we concerned?
Two opposite effects of technological progress:
1. Extracted resources are used more productively.
2. Increased productivity in resource extraction.
The last effect means that by means of modern technology the
present generation is able to destroy the resource base. The
potential problem is aggravated by an increasing population.
„
What governs resource extr. in a market economy?
Are natural resources extracted in a non-wasteful manner?
Do future generations have claims to the present resource stocks?
„
What determines whether technological progress
… increases productivity in the use of extracted resources, or
… increases productivity in the extraction of natural resources?
G.B. Asheim, nat.res. 1, updated 21.01.2004
9
3
Sustainability: Why are we concerned? (cont)
What is the resource base?
„ Stocks of non-renewable resources
▫ Fossil fuels (non-recyclable)
▫ Other minerals (recyclable)
„
Stocks of living ecosystems
„
Other renewable resources
▫ Fish, forests, etc.
▫ Waste assimilation capacity
▫ Reserves of biodiversity
▫ Hydropower
▫ Amenity
▫ Hydrological and climatological services
▫ Access to clean air and water
G.B. Asheim, nat.res. 1, updated 21.01.2004
10
Sustainability: Why are we concerned? (cont)
Ecological principles
„ The materials balance principle
Material can neither be created nor destroyed
„
The second law of thermodynamics
‘Entropy’ is a measure of unavailable energy
Entropy is increasing in a closed system since energy cannot be
converted from one form to another with 100 % efficiency.
The world is an open system due to solar radiation.
„
Resilience and stability
▫ Resilience: Ability of an ecosystem
to maintain its organization and functions following a shock.
▫ Stability: Ability of a population to return to
equilibrium levels following a shock.
G.B. Asheim, nat.res. 1, updated 21.01.2004
11
Sustainability: Why are we concerned? (cont)
Does economic growth lead to increased
natural resource extraction?
„
▫ Incr. population and incr. per capita well-being contributes to greater
use of material (leading to greater resource input and waste disposal).
▫ By changing the composition of consumption well-being may be
derived from “lighter” and “cleaner” goods.
„
Does economic growth lead to deterioration of
the natural environment?
▫ The Environmental Kuznets Curve:
Environmental damage increases with economic growth up to
some level and then decreases. Why? What is the evidence?
G.B. Asheim, nat.res. 1, updated 21.01.2004
12
4