Economics of Natural Resources and the Environment. Exhaustible Resources. Joana Vaz Pais

Transcription

1 Economics of Natural Resources and the Environment Exhaustible Resources Joana Vaz Pais.

2 Joana Vaz Pais Off

3 Program References Lecture 1

4 Program Sustainable 1. Definitions 2. Historical perspective 3. Main questions II. Hotelling s Rules 1. Perfect competition 2. Costs of extraction 3. Monopoly 4. The effects of changing parameters: discount rate, demand, stock of the resource, 5. Uncertainty 6. Backstop technology III. Further developments and applications 7. The economic measure of scarcity 8. Applications

5 Program References Lecture 1

6 References Sustainable 1. Conrad, J., Resource Economics, Cambridge University Press (1999) 2. Dasgupta, P. and G. Heal, Economic Theory and Exhaustible Resources, Cambridge: Cambridge Economic Handbooks (1979) 3. Faucheux, S. and J.-F. Noël, Economia dos recursos naturais e do meio ambiente. Lisboa: Instituto Piaget (1995) 4. Howe, C., Natural Resource Economics, John Wiley and Sons (1979) 5. Pearce, D. and R. Turner, Economics of Natural Resources and the Environment, Harvester Wheatsheaf (1990) 6. Rees, J., Natural Resources: Allocation, Economics and Policy (2nd Edition), Routledge (1990) 7. Tietenberg, T., Environmental and Natural Resource Economics (7th Edition), Addison Wesley (2005)

7 References Sustainable Webpage:

8 Program Bibliography Lecture 1

9 Economics of Natural Resources and the Environment Exhaustible Resources Lecture 1 Joana Vaz Pais.

10 Lecture Plan A. Definitions B. Historical perspective C. Main questions

11 Definitions: Economics Economics: study of how society allocates scarce resources Resource economics: study of how society allocates scarce natural resources; e.g.: stocks of fish, stands of trees, water, oil, Environmental economics: concerned with the way wastes are disposed of and the resulting quality of air, water, and soil, conservation of natural environments, and biodiversity

12 Definitions: Natural Resources Def (Howe, 1979): naturally occurring resources and systems that are useful to humans or could be under plausible technological, economic, and social circumstances Def (Rees, 1985): natural resources meet two conditions: Availability of techniques that enable extraction Resulting goods and services have a demand Major classes (Howe, 1979): Agricultural land Forest land and its products and services Natural land areas preserved for esthetic, recreational, or scientific purposes Fresh and salt water fisheries Mineral resources, including mineral fuels and nonfuels Nonmineral energy sources of solar, tidal, wind, and geothermal systems Water resources Waste-assimilative capacities of all parts of the environment

13 Definitions: Natural Resources Natural resource commodities Types of natural resource stocks: Renewable: display a significant rate of growth or renewal on a relevant economic time scale; e.g.: solar, wind, tidal energy, air, forests, fisheries, Nonrenewable; e.g.: oil, coal, natural gas, copper, iron, silver, some plant and animal species, Natural resources must be thought of in terms of (i) stocks thought to exist and (ii) flow of natural resource commodities or services being produced from these stocks

14 Definitions: Natural Resources Resources and reserves: The McKelvey diagram is a graphical classification of mineral resources according to economic viability and certainty of existence. Used by the U.S. Bureau of Mines and the U.S. Geological Survey in their definitions of mineral resources and reserves

15 Definitions Increasing certainty Identified Resources Undiscovered Resources Increasing degree of economic feasibility Economically viable Economically unviable Demonstrated Measured Indicated Reserves Inferred Probability range Hypothetical Speculative Resources

16 Historical Perspective Classical point of view: Malthus ( ): An Essay on the Principle of Population ; increasing population vs fixed supply of agricultural land will result in starvation Ricardo ( ): diminishing quality of natural resources will prevent population growth, despite technological progress that enhances productivity John Stuart Mill ( ): technological progress slows down because needs will become satisfied H. Hotelling: The Economics of Exhaustible Resources, 1931, JPE, 39,2

17 Historical Perspective The 60 s and 70 s; two points of view: 1. The pessimistic point of view: Nonrenewable resources exist Growing rate of extraction Growing demand 2. The optimistic point of view: the stock varies due to changes in Technology: allows for exploiting new reserves at lower costs Market mechanism: diminishing returns lead to a price increase Substitution

18 Main questions How should nonrenewable resources be extracted over time? Is complete exhaustion (ever) optimal? Is it ever optimal to abandon a mine or a well with extractable reserves? Does the time path of extraction by a price-taking firm differ from that of a monopolist? How do changes in some parameters (the discount rate, stocks, demand, ) affect optimal extraction over time?