1 Chapter 2 Natural Resources and the Economy An economy is a means by which a group of people provide themselves with adequate levels of material and social welfare

Life-Sustaining Resources Humans cannot live without: – Oxygen – Fresh water – Food – Proper temperature So, why are we worried about all the other things? – All the natural resources and ecosystems need to work together as a whole-earth regeneration system, to produce the oxygen, fresh water, food, and proper temperature in the atmosphere that sustains our lives 2

1. Nature and Economy Natural system can be described by – Quantitative variables: stock (acres of forest) and flow (a flow of new trees; wind speed) – Qualitative variables: features of resources (parts per million of air pollution; temperature of water) Natural resource system and natural capital – Capital in economics: a stock of human-produced artifacts (machines, buildings…) – Natural capital: nature-provided inputs; quantity and quality can be affected by human actions 3

Types of Data 4 ECO 201-Lecture 1 do

5 Land—physical space, and the natural resources under it or on it (crude oil, iron, coal, timber,…) ECO 285-Ch1

Figure 2-1, p26 – Natural resource economics: the study of the flow of natural resource products and services into an economy; arrow (a) – Environmental economics: the study of the flow of materials and energy residuals back into the nature (as a “sink” for the reception of wastes); arrow (b) – Relationship: what is taken in by the economy must eventually come out 6 First Law of Thermodynamics Matter and energy can neither be created nor destroyed Natural Resource Economics and Environmental Economics

Materials Balance Model 7 ECO324-Ch1-Slide 9 Flow of natural resources from the environment to the economy; 5 Flow of residuals from the economy to the environment; 6 & 7

Which parts of the resource world has value depends on – Technological capacities: different modes of production… – Economic, legal, & regulatory institutions: private firm, a court system, public agencies… – Demographic factors: preferences, population sizes, educational institutions… Petroleum, uranium, water 8 Page 26, the 4 th paragraph—page 37, Question 1

Conservation: the idea of using natural resources at a socially optimal rate Development: actions that transform natural resources with the intent of increasing their contribution to human welfare Preservation: putting resources aside in a state of nonuse or in a state that whatever use is allowed maintains the original resource status “The conservation of natural resources is the fundamental problem. Unless we solve that problem, it will avail us little to solve all others.” –Theodore Roosevelt (26 th President of the US; in office from 1901 to 1909) 9 Comparing Three Concepts

Mountaintop removal mining (MTR), is a form of surface mining that involves the removal of coal seams by first fully removing the overburden laying atop them, exposing the seams from above. The overburden waste is then placed back on the ridge or moved into neighboring valleys. This method differs from more traditional underground mining, where typically a narrow shaft is dug which allows miners to collect seams using various underground methods, while leaving the vast majority of the overburden undisturbed. 10 Development FYI

2. The Range of Nature Resource Values Minimal classification of natural resources: land, water, and air resources Use value: attributes of nature are being utilized – direct use: white-water rafting – indirect use: bird watching (scenic value; natural resources are simply present to the senses) Nonuse value: value expressed by human beings for the existence of natural resources – option value: reflects the willingness to preserve an option to use the environment in the future – bequest value: reflects the desire to leave a healthy ecosystem to future generations 11

Valuing Environmental Quality Two Sources of Value Total value = User value + Existence value – (1) User value is the benefit derived from physical use or access to an environmental good Direct user value— the benefit derived from directly consuming services provided by an environmental good Indirect user value—the benefit derived from indirect consumption of an environmental good – (2) Existence value is the benefit received from the continuance of an environmental good: a New Jersey resident who never intends to visit the Grand Canyon can derive satisfaction simply from knowing it exists 12 ECO324-Ch7

Use Values of Natural Resources Extractive resources: subject to some process of physical removal from their natural surrounding – Examples: mining ores, harvesting timber, fishing, hunting – Natural resource products: physical resources removed from nature and made available for use Nonextractive resources: yield valuable services without being removed from their natural setting – resource-based recreation (backpacking, boating) – ecosystem protection 13

3. Modeling Resource Use and Charge The basic formula: S 1 = S 0 – Q 0 + ΔS S 1 : amount of resource available in period 1 S 0 : amount of resource available in period 0 (or, at the beginning of the present period) Q 0 : amount of resource used in period 0 ΔS: increment to the resource in period 0 14

a. Nonrenewable Resources Formula: S 1 = S 0 – Q 0 since ΔS = 0 (there is no replenishment or increment of the resource), for a known deposit 15 A coal mine in Wyoming. Coal, produced over millions of years, is an inherently finite and non-renewable resource on a human time scale.

b. Recyclable Resources Formula: S 1 = S 0 – Q 0 + α Q 0 Certain nonrenewable resources may be recyclable. A portion ( α ) of the resource used in period 0 can be recycled back to add to the available supply in period 1 16

c. Renewable Resources S 1 = S 0 – Q 0 + ΔS Timber (or fisheries): the amount of wood in year 1 = what existed at the beginning of period 0 – what was harvested during period 0 + biological growth increment of the timber in period 0 that was not harvested S 1 = ΔS A free-flowing river (nonaccumulating–it flows by and it is gone; annual replenishment does not add to preexisting quantity) 17 Reading: page 32, the last paragraph—land resources!!!

Reversibility of Natural Resources A natural resource is reversible if it is possible that S 1 > S 0 Most renewable resources are reversible Utilization of a nonrenewable resource is irreversible, at least as long as we talk about a particular deposit 18