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

Key Terms Natural Resources Economics 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 Economics the study of the production, processing, distribution, consumption of goods/services in an exchange system

Key Terms (cont) 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

Key Terms (cont) 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) Scarcity, Opportunity cost, economic rationality

Why Study Natural Resource Economics? Natural Sciences lack commonly accepted decision process Economics may “assume” the problem away Irreversibility Market failure Joint importance of economic and ecological systems Physical-Natural-Economic System Links Improves efficient functioning of system Improves understanding about the world we live in Summary: Improved management of natural resources, whether for private, public or natural gain

Classification of Natural Resources FLOW RESOURCES FUND RESOURCES NONSTORABLE RESOURCES (ENVIRONMENTAL RESOURCES) RENEWABLE RESOURCES NONRENEWABLE RESOURCES STORABLE RESOURCES RECYCLABLE RESOURCES NONRECYCLABLE RESOURCES

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

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

Classification of Resources (cont) 1. Flow Resources (cont) 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

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

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

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

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)

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

Optimism vs. Concern for Environment & Natural Resources Concerns Global warming & climate impacts Over-population & biodiversity Soil/water quality/Mineral/energy cost/availability Pollution/resource shortage impacts on social & political institutions