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1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT?

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Key Terms

u Natural Resources– Specific attributes of the environment that are

valued or have proven useful to humans [or have the potential to do so]* --G. Johnston

– Aspects of nature that can be used by humans to satisfy human wants--Hite & Mulkey

– key to human use: technology, time, accessibility, appli-cation, perception; conflicts often related to culture

u Economics– the study of the production, processing,

distribution, consumption of goods/services in an exchange system

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Key Terms (cont)

u Natural Resource Economics– application of economics to manage naturally

occurring resources for human needs/wants with efficiency as the primary goal

– efficiency may be defined in market or nonmarket terms, focused on the short or long run, relative to current or future generations, local or global in scope

– decision choices include maintaining the status quo, altering the status quo, or doing nothing with focus on relevant institutions

– evaluation always includes the costs & benefits of a decision & to whom those costs & benefits accrue

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Key Terms (cont)

u Environmental Economics vs. Natural Resources Economics (Hackett)– Environmental Economics: economic basis for

pollution problems & policy alternatives– Natural Resources Economics: problems of

managing common-pool* natural resources, determining optimal rates of extraction, & understanding resource markets

– *common-pool natural resources: difficult to exclude access, but once extracted is no longer available to others (groundwater, rivers, fisheries, public forests)

u Scarcity, Opportunity cost, economic rationality

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Why Study Natural Resource Economics?

u Natural Sciences lack commonly accepted decision process

u Economics may “assume” the problem awayu Irreversibilityu Market failureu Joint importance of economic and ecological systemsu Physical-Natural-Economic System Links

– Improves efficient functioning of system– Improves understanding about the world we live in

u Summary: Improved management of natural resources, whether for private, public or natural gain

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Classification of Natural Resources

NATURAL RESOURCES

FLOW RESOURCES

FUND RESOURCES

NONSTORABLE RESOURCES

(ENVIRONMENTALRESOURCES)

STORABLE RESOURCES

RENEWABLE RESOURCES

NONRENEWABLE RESOURCES

NONRECYCLABLE RESOURCES

RECYCLABLE RESOURCES

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Classification of Resources (continued)

1. Flow Resources (nondepletable)a. Nonstorable (sometimes called “environmental resources”)»Often indivisible»Inexhaustible (in human span of time)

»Time & management relevant only to consumption, not supply

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Nonstorable Flow Resources

Sunshine

“Weather”

Ocean Waves

Ecosystems

ScenicViews

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Classification of Resources (cont)

1. Flow Resources (cont)b. Storable (by nature, as in living

matter; by humans with technology)» May be divisible» Time & management relevant to

both to consumption & supply » The services are what are

significant for humans

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Storable Flow Resources

Solar

Wind

Wave Energy

Geothermal Energy

Hydrogen Energy WaterHydroPower

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Classification (cont.)

2. Fund Resources (stock or depletable resources)a. Exhaustible & Renewable

»Regenerative within human use time frame

»Assumes use within minimum & maximum thresholds

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Exhaustible & Renewable Fund Resources

Timber & Crops

Animals(human & nonhuman

Fish

GrazingLands

Soil & Water Quality

Forests & someUnique ecosystems

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Classification (cont.)

2. Fund Resources (cont)b. Exhaustible & Nonrenewable

»Relatively fixed stocks/fund within human use time frame

(1) Nonrecyclable--Examples: fossil-fuel energy resources (oil, natural gas, coal, peat, many “renewable” resources when thresholds violated)

(2) Recyclable--Examples: some minerals (iron, aluminum, gold, silver)

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Framing Natural Resource Issues

u Quantity & Quality of: Land, Water, Air, Energy

u Public vs. Private Management Questionu Trend of Magnitude of Problem:

– Persistent, Chronic, Cyclical, Declining, Growing?u Irreversibilityu Geographic scopeu Whose problem & who decides (ethics)?u Property rightsu Time (short vs. long run; current vs. future

generations)

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Optimism vs. Concern for Environment & Natural Resources

u Concerns– Global warming & climate impacts– Over-population & biodiversity– Soil/water quality/Mineral/energy

cost/availability– Pollution/resource shortage impacts on social

& political institutions