Environmental Economics & Natural Resource Valuation

Introduction to Environmental Economics and Natural Resource Valuation

• The definition of a resource is anything from an environment used to achieve a specific objective.
• Resources include any natural and artificial substances, energy, or organisms utilized for human well-being.
• A resource's worth depends on the context it’s applied in, which can be influenced by social, economic, cultural, and technological factors.

Natural Resources

• Specific environmental attributes are what humans value.
• Natural resources enable economies to turn raw materials into finished products in production.
• The environment offers services directly to consumers.
• There are resources lacking a direct connection to the production of goods and services.
• Renewable resources can be replenished in a relatively short time.
• Flow Resources are always available but can't be stored
• They are non storable, often indivisible, and virtually inexhaustible during a human lifespan.
• Time and management are relevant to consumption rather than supply.
• Storable resources may be divisible
• Time and management is relevant to both consumption and supply
• Services are significant for humans.
• A Fund Resource has a limited supply and runs out if depleted too fast
• It can regenerate within human use timeframe
• Usage needs to stay within defined minimum and maximum limits
• Biological resources encompass the biotic environment which is crucial for production.

Non-Renewable Resources

• Natural resources, once consumed, cannot be regenerated at a rate comparable to their consumption.
• Recyclable resources can be reused through a preparation process.
• Non-recyclable resources cannot be utilized again.

Natural Resource Management

• It involves managing resources like land, water, soil, plants, and animals.
• Stewardship affects the quality of life for the current and future generations.
• A health and productivity is recognized in the landscape.
• Can be categorized by stakeholder rights:
• State Property is government owned
• Private Property is individual owned
• Common Property is collectively owned
• Non property is open access - meaning everyone has access
• Hybrid of all

Approaches to Natural Resource Management

• Top-down (command and control) approach focuses on environmental control by the government.
• Community-based natural resource management centers governance in the community.
• Adaptive management involves decision-making and actions based on continuous learning and assessing consequences.
• Precautionary approach takes proactive steps to prevent serious environmental harm.
• Integrated natural resource management improves management in a holistic way.

Resources Viewed in Terms

• Classical Economics
• Neoclassical Economics
• Ecological Economics

Classical Economics (18th - 19th century)

• Resources were believed to be available in fixed amounts
• Population growth reduces quality of life, increases competition, and may cause population decline because resources become scarce.
• The market should establish equilibrium without any government intervention
• Marginal Cost can be defined as the expense to produce an additional unit of product/service.
• Price Elasticity means an increase in price doesn't guarantee a decrease in demand.

Neoclassical Economics (19th century)

• Natural resources were seen as mere production factors
• Resources included labor, knowledge, and capital
• Capital can be either natural, human or manufactured
• Continued growth is necessary
• Replacements can be found when natural resources run out
• More material utilization for wealth creation.
• The measure of total value is found in the Gross National Product

Ecological Economics (late 20th century)

• System function and the environment.
• Acknowledges nature's support.
• Key to economic calculations is natural capital
• The ecological functions are the ecosystem services.
• Economic health, sustained without consumption growth, is a steady state economy
• Renewable and non renewable resources are different.
• Some essential aspects cannot be replaced.
• The main concern regards resources and rights

Environmental Economics

• Views the environment as a composite investment.
• The environment provides services through the economy.
• A source of resources
• A sink for waste
• Supporting life
• Provides recreation

Visions of the Future

• Models show relationships between economy, but have limits.
• Models are assumptions implicitly made
• Includes assumptions and relationships
• Explicit objectives are clearly stated

Basic Pessimist Model (Limits to Growth)

• Human activity damages the environment (negative)
• Limits to Growth (1972)
• A system developed by Professor Forrester
• A system developed by Donald Meadows
• Explains the economic and human behavior

Visions of the Future

• It can run out of resources in less than 100 years
• Solving problems doesn't guarantee success.
• Can avoid only by limiting population and pollution
• Growth with limits is dominant

Key Differences

• Basic Optimistic accounts resource limits
• Believes in technological solutions
• More optimistic is the Kahn Model

Characteristics of Resources

• Private Goods stop others, such as food you eat
• Common goods are hard to control, such as fish
• Club goods need to be entered, but using it doesn't detract from other
• Public good, such as a lighthouse don't stop others from benefiting.

Other Features Affecting Governance

• Can be located in remote places
• Can spread across boundaries like regional or administrative
• Time lag between action and reaction
• Limited monitoring action
• Managed by competing institutions
• Subject to unpredictable fluctuations.

Resource Depletion

• Resource bases are depleted
• Chemical or physical change harms human life
• Can affect air, water, and soil
• Has limits
• Can cause change or harm.

Ecosystems and Biodiversity

• Diversity allows better production.
• Diversity can help adjust to environmental change or keystone species.
• More species equal more interactions
• Ecosystems provide a safe ecosystem.
• Can sustain humans
• Impact will damage

Trade-offs

• Degradation affects trade-offs.
• A change might not be function
• If one service has to be reduces then service becomes severed.
• People gain from a multitude of resources in the ecosystem

Negatively Linked Ecosystem Services

• Changing habitat causes degradation.
• A provisioning facilitates a product
• Regulating ES will help maintain balance

Ecosystem Services Provision

• Regulating the ecosystem

Tradeoffs Involving Ecosystem Services

• "Manipulation of an ecosystem to maximize one particular service risks reducing others is bad"
• The loss is important

Trade Offs

• Agriculture impacts ecosystem
• Vegetation all play a part in the economy, like a plant or tree

Trade-Offs - Agriculture and regulating Ecosystem Services

• Agriculture helps in the economy
• Planting is like a plant in the economy
• Machine is like a machine in economy
• Plowing loses soil, and this hurts the economy
• Using pesticides also harms the ecosystem

Tradeoffs with Ecosystem Services

• Planting reduces the need for irrigation
• Organics added create good matter.