1 WHAT IS NATURAL RESOURCE ECONOMICS WHY IS

1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT? Larry D. Sanders Dept. of Ag Economics Oklahoma State University 1

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, application, perception; conflicts often related to culture u Economics – the study of the production, processing, distribution, consumption of goods/services in an exchange system 2

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 3 decision & to whom those costs & benefits accrue

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 4

Special: Break for cartoon! u Sometimes some folks go to extremes to get our attention! 5

Why Study Natural Resource Economics? u Natural Sciences lack commonly accepted decision process u Economics may “assume” the problem away u Irreversibility u Market failure u Joint importance of economic and ecological systems u 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 6

Classification of Natural Resources NATURAL RESOURCES FLOW RESOURCES NONSTORABLE RESOURCES (ENVIRONMENTAL RESOURCES) STORABLE RESOURCES FUND RESOURCES RENEWABLE RESOURCES NONRECYCLABLE RESOURCES 7

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 8

Nonstorable Flow Resources Scenic Views Ocean Waves Sunshine “Weather” Ecosystems 9

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 10

Storable Flow Resources Wind Solar Geothermal Energy Hydro Power Wave Energy Hydrogen Energy Water 11

Classification (cont. ) 2. Fund Resources (stock or depletable resources) a. Exhaustible & Renewable » Regenerative within human use time frame » Assumes use within minimum & maximum thresholds 12

Exhaustible & Renewable Fund Resources Timber & Crops Fish Animals (human & nonhuman Soil & Water Quality Grazing Lands Forests & some Unique ecosystems 13

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) 14

Natural Resource Examples FLOW RESOURCES NONSTORABLE FUND RESOURCE RENEWABLE NONRENEWABLE nonrecyclable 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 15

Framing Natural Resource Issues u Quantity & Quality of: Land, Water, Air, Energy u Public vs. Private Management Question u Trend of Magnitude of Problem: – Persistent, Chronic, Cyclical, Declining, Growing? u Irreversibility u Geographic scope u Whose problem & who decides (ethics)? u Property rights u Time (short vs. long run; current vs. future generations) 16

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 u Optimism – Legislative progress – Toxic release rates down – US competitiveness 17

References for Lesson 1 Hackett text Hite, J. C. , & W. D. Mulkey. Natural Resource Economics : An Introductory Textbook, draft unpublished text. Johnston, G. M. , D. Freshwater & P. Favero (editors). Natural Resource and Environmental Policy Analysis: Cases in Applied Economics, Westview Press, Boulder, 1988. Kahn, J. R. The Economic Approach to Environmental and Natural Resources, second edition, 1998. Sanders, various notes 18