natural resource and energy...

15Natural Resource and Energy

Economics

LO1

Resource Supplies: Doom or Boom?

• Population increased from 1 to 6.8 billion

• Standard of living is 12 times higher• Consumption of resources is much

higher

15-2

LO1

Population Growth

• Thomas Malthus (1798) predictions• Replacement rate• Total fertility• Modernization

• Death rates fall• Fertility rate falls below

replacement rate

15-3

LO1

Source: The World Factbook, http://www.cia.gov. Data are 2009 estimates.

Total Fertility Rates, 2009Total Fertility

RateCountry

1.21South Korea1.67Sweden

1.98France1.41Germany1.02Hong Kong1.30Italy1.21Japan1.41Russia

2.05United States

1.79China1.58Canada1.78Australia

15-4

LO1

Resource Consumption Per Person

• Increasing commodity demand• Population growth• Rising consumption per person• Commodity supply has risen faster

than demand• Commodity prices are falling

15-5

LO1


15-6

LO1

• Will resource supplies be sustainable in the future?

• Prospects are hopeful• Demand for resources will reach a

peak and decline with falling birthrates

• Resource consumption per capita leveled off or is decreasing


15-7

LO1


15-8

LO1

• Leveled off in the rich countries• Demand will increase in poorer

countries• Challenge is to move resource

supplies from their place of origin to places of need


15-9

LO1


15-10

LO1


15-11

LO1

Energy Economics

15-12

LO2

Efficient Energy Use

• Achieve efficiency in business conditions with:

•Variations in fixed costs •Daily variations in demand•Different types of generation technology

15-13

LO2

Efficient Energy Use

Source: United States Energy Information Administration, http://www.eia.doe.gov.

U.S. Energy Generated

Coal, 48.30%Nuclear, 19.20%

Hydroelectric, 6.50%

Petroleum, 1.10%

Natural gas, 21.40%

Other, 0.60%

Renewables, 2.90%

15-14

LO3

Running Out of Energy?

• Will run out of oil or cheap energy• Lack of energy is not a concern

• Alternative sources• Externalities

15-15

LO4

Running Out of Energy?

Oil Price per Barrelat Which the Alternative

Is Economically Viable

Alternative Fuel

$80 Biodiesel60 U.S. corn-based ethanol50 Shale Oil40 Tar sands: Brazilian sugar-cane based

ethanol: gas to liquids: liquids; coal-to-liquids20 Conventional oil

Sources: Cambridge Energy Research Associates, http://www.cera.com The Economist, April 22, 2006,

http://www.economist.com.15-16

LO4

Natural Resource Economics

• Policies for extracting resources to maximize net benefits

• Present vs. future consumption• Present value

• Renewable resources • Nonrenewable resources

15-17

LO4


• Nonrenewable resources• Oil, coal, and metals• Extraction strategy to maximize

stream of profits• User cost

• Sell today, cannot sell in the future• Higher expected demand

encourages less extraction today• Property rights

15-18

LO4


Q20

First-year quantity extracted

Dol

lars P

15-19

ECA

Q0

TC = EC + UC

B

Q1

UC

LO4


Q20


Dol

lars P

15-19

AECEC

A

Q0

TC = EC + UC

B

Q1

UC


LO4

EC

0


Dol

lars

P

UC

15-20

TC = EC + UC0

Q0

TC = EC + UC1

Q1

UC1

LO5

Renewable Resources

• Elephant preservation• Strong property rights

• Forest management• Optimal forest harvesting

• Differences in property rights• Variation in growth rates

15-21

LO5

Global PerspectivePercentage Change in the Amount of Land

Covered by Forests

15-22

LO5

Optimal Forest Harvesting

15-23

LO5

Renewable Resources

• Optimal fisheries management• Difficult to assign property rights• Policies to limit catch sizes

• Total allowable catch• Individual transfer quota

15-24

LO5

Renewable Resources

175,378,324Brown shrimp128,181,534Blue crab

194,132,043White shrimp205,363,084Sockeye salmon224,300,686Pacific cod227,120,758Pacific halibut227,197,666Dungeness crab297,460,589Walleye pollock360,389,768Lobster$385,922,993Sea scallop

Market Value of Catch

Fishery

15-25

LO5

Renewable Resources

15-26

Economic Growth & the Environment

A Growing Economy• Richer countries:• Produce and consume more• Spend more to maintain the

environment• Earn higher scores on measures of

environmental quality (EPIs)

15-27

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