Introduction to Natural Resource Economics, Visayas State University

Introduction to Natural Resource Economics By: ALLEN GLENNIE P. LAMBERT April 16, 2021 Learning Objectives Understand the scope and importance of natural resource economics. Identify the difference between renewable and non- renewable resources....

Introduction to Natural Resource Economics By: ALLEN GLENNIE P. LAMBERT April 16, 2021 Learning Objectives Understand the scope and importance of natural resource economics. Identify the difference between renewable and non- renewable resources. Explain the concept of sustainability in natural resource use. Appreciate the role of natural resource economics in policymaking and sustainable development. What is Natural Resource Economics Natural Resource Economics Natural Economics Resource What is Natural Resource Economics Natural Resource Specific attributes of the environment that are valued to humans – G. Johnston Aspects of nature that humans can use to satisfy human wants – Hite & Mulkey Economics The study of the production, processing, distribution, and consumption of goods/services in an exchange system The study of how society chooses to allocate its scarce resources to the production of goods and services in order to satisfy unlimited wants Natural Resource Economics Natural resource economics is a branch of economics that studies the relationship between human activity and the natural world. This field explores how people use, manage, and conserve natural resources, like land, water, forests, minerals, and energy, considering their economic, environmental, and social implications. From understanding how to sustainably manage fishing stocks to analyzing the economic impact of climate change, natural resource economics offers a framework for making informed decisions about our planet's resources. What is Natural Resource Economics Branch of economics focused on the efficient use of natural resources. Balances economic growth with environmental preservation. Economics Key areas: Resource allocation, environmental policy, and Environment Society sustainability Natural Resource Economics Application of economics to manage naturally occurring resources for human needs/wants with efficiency as the primary goal. Defining Natural Resources Natural resources are materials or substances that occur in nature and can be utilized by humans for various purposes. These resources are often categorized as renewable or non- renewable, based on their ability to replenish themselves. Renewable resources, such as solar energy, wind, and forests, can be replenished naturally over time. Non-renewable resources, such as fossil fuels and minerals, are finite and deplete with usage. 1 Renewable Resources 2 Non-Renewable Resources Renewable resources are Non-renewable resources are those that can be those that are finite and replenished naturally over deplete with usage, such as time, such as solar energy, fossil fuels, minerals, and wind, water, and forests. metals. 3 Resource Management Effective resource management involves strategies to ensure the long-term availability of resources for future generations while meeting current needs. Importance of Natural Resources Economic Development Environmental Sustainability Natural resources play a vital role in economic Maintaining healthy ecosystems and development, providing raw materials for biodiversity depends on the responsible industries, energy for power generation, and and conservation of natural resources. resources for agriculture and tourism. The resources provide essential services such availability and management of natural clean air, water purification, climate resources significantly impact a nation's and pollination, which are vital for human economic growth and prosperity. being. Social Welfare Global Security Access to natural resources contributes to Natural resources can be a source of to social welfare. Resources like clean water, cooperation between nations. Ensuring water, food, and shelter are fundamental to sustainable management and equitable to human survival and well-being. Additionally, distribution of resources is crucial for Additionally, natural resources provide international stability and peaceful recreational opportunities, cultural values, and values, and aesthetic beauty, enhancing quality quality of life. Classification of Natural Flow Resources Resources Renewable Fund Resources Resources Biological Production Resources Resources Recycle Resources Non-renewable Resources Natural Non-recyclable Resources Resources Life Support Non Absorptive & Production Protective Resources System Aesthetic & recreational system Classification of Natural Flow Resources Resources Renewable Fund Resources Resources Biological Production Resources Resources Recycle Resources Non-renewable Resources Natural Non-recyclable Resources Resources Life Support Non Absorptive & Production Protective Resources System Aesthetic & recreational system Production Resources Natural resources provide economics with raw materials that are turned into goods via a process of production In economics we have the Factors of Production: Renewable and Non-Renewable type of resources Non Production Resources These are the resources that do not directly relate to the production of goods and services. Life support system, absorptive and protective system, and aesthetic and recreational system types of NP resources Types of Natural Resources (usual) Flow Resources Renewable Fund Resources Resources Biological Natural Resources Resources Recycle Non- Resources renewable Resources Non-recyclable Resources Renewable Resources Renewable resources are natural resources that can be replenished in a short period of time Example: Renewable Resources Renewable resources are natural resources that can be replenished in a short period of time Types of Renewable Resources: 1. Flow resources 2. Fund resources 3. Biological resources  Flow resources Humans have no influence on the process aside from collecting the resource. Flow resources provide clean, alternative energy. Although a flow resource has infinite flows where resources cannot be exhausted, there is no regenerative capability. Although solar energy and wind power are often referred to as renewable resources, they are appropriately known as physical resource flows. Examples: solar radiation, running water, tides, geothermal, landfill gas, biomass, and winds.  Flow resources 1. Non Storable 2. Storable  Flow resources Non Storable Often indivisible Inexhaustible (in human span of time) Time and management relevant only to consumption, not supply Example: Sunshine, Weather, Ocean waves  Flow resources Storable May be divisible Time and management relevant to both consumption & supply The services are what are significant for humans Example: Solar radiation, wind, geothermal energy, wave energy , hyro power, hydrogen energy, water Fund resources Regenerative within human use time frame Assumes use within minimum and maximum thresholds Examples: Timber & Crops, Fish, Animals, Soil & Water Quality, Forests & some Unique ecosystems, Grazing lands Biological resources Biological resources refer to the living landscape, the plants, animals, and other aspects of nature that occur on farmland, forests, and other natural lands; and are important in production Biological resources Non Renewable Resources Non-renewable resources are natural resources that cannot be re-made or re-grown at a scale comparable to its consumption Example: Non Renewable Resources Non-renewable resources are natural resources that cannot be re-made or re-grown at a scale comparable to its consumption Types of Non Renewable resources: 1. Recyclable resources 2. Non recyclable resources Recyclable resources A recyclable resource is one that can be used over and over, but must first go through a process to prepare it for reuse. Example: Glass, Aluminum There is no limit to the number of times these products can be recycled Non recyclable resources Non recyclable resources are those resources that cannot be used after it has been used once Example: Soil, Coal, Mineral Oil, Natural gases Quantitative Expression of Natural Resources Nature of Flow resources Ft = Rt + St + Wt Where: Ft = Flow resource obtained within t time Rt = Consumed amount of flow resources St = Stored amount of flow resources Wt = Wasted amount of flow resources Quantitative Expression of Natural Resources Nature of Fund resources St = Ʃ(Ft – Rt – Wt) + Ft Where: St = stored fund resource at t time Ft = Fund resource at t time Rt = Consumed amount of fund resource Wt = Wasted amount of fund resources Quantitative Expression of Natural Resources Nature of Biological resources St = S0 – Ʃ(Rt – Ht) Where: St = Current biological mass S0 = Biological mass at the beginning Ht = Harvested bio mass during t time Rt = Net new addition of bio mass during t time The Concept of Sustainability Sustainability is a central concept in natural resource economics. It emphasizes the need to meet the needs of the present generation without compromising the ability of future generations to meet their own needs. Sustainability encompasses environmental, economic, and social dimensions, advocating for balanced resource utilization, equitable distribution, and long-term ecological integrity. Environmental Sustainability Economic Sustainability Social Sustainability Maintaining the health of Ensuring that economic Promoting equity, social justice, ecosystems and preserving activities are conducted in a and well-being for all members natural resources for future way that supports long-term of society. generations. growth and prosperity. Three Pillars of Sustainability Environment Sustainability Social Economic  Three Pillars of Sustainability Environment Natural Resource use Social-Environmental Environmental Management Environmental-Economic Environmental Justice Energy Efficiency Natural Resources Stewardship Biodiversity Management Economic incentives and Environmental health and safety Pollution Prevention (air, water, land, subsidies for stewardship Ecosystem service provision waste) Markets for ecosystem services Locally & Globally Eco- Socio- Eco Economic Social Sustainability Economic Economic Prosperity/ Community well-being/ Economic Growth Standard of living Education Socio- Research and Economic Development Equal Opportunity Viable livelihoods Diversity Profit Food access Cost savings Social-Economic Business Ethics Fair Trade Worker’s Rights Corporate social responsibility Sustainable Resource Management Sustainable resource management aims to use natural resources in a way that allows for their ongoing availability and minimizes negative environmental impacts. This involves a balance between economic activity and environmental conservation. Sustainable management practices include using resources efficiently, reducing waste, protecting ecosystems, and promoting biodiversity. 1 Resource Assessment Understanding the quantity, quality, and distribution of resources. 2 Planning and Management Developing strategies for sustainable extraction, use, and conservation. 3 Monitoring and Evaluation Tracking resource status, effectiveness of management practices, and adapting strategies as needed. 4 Adaptive Management Continuously learning from experiences and adjusting management practices based on new knowledge. Scarcity in Natural Resource Economics Scarcity is a fundamental concept in natural resource economics. Resources are often limited compared to the demands placed upon them, leading to competition and the need for efficient allocation. Scarcity can arise from both physical limitations and economic factors, influencing resource prices, consumption patterns, and the development of substitutes. Physical Scarcity Economic Scarcity Limited availability of a resource due to its natural Limited availability of a resource relative to the distribution, geological formation, or depletion demand for it, leading to competition and price rates. fluctuations. The Economy-Environment Relationship The economy and the environment are inextricably intertwined. Economic activities often rely on natural resources and generate environmental impacts. Natural resource economics studies this relationship, examining how economic decisions affect the environment and how environmental changes can impact economic well-being. The field aims to foster sustainable development that balances economic growth with environmental protection. Resource Extraction Economic activities, such as mining, logging, and fishing, extract natural resources from the environment. Production and Consumption Natural resources are used as inputs in production processes and are consumed by individuals and businesses. Environmental Impacts Economic activities can generate waste, pollution, and habitat destruction, affecting the environment. Environmental Regulation Policies and regulations are implemented to mitigate environmental damage and promote sustainable practices. Property Rights and Resource Management Property Rights Resource Management Well-defined property rights Clear property rights can prevent encourage individuals and overuse and depletion of resources, businesses to invest in resource leading to more sustainable resource conservation and management. management practices. When property rights are unclear or Strong property rights can also poorly enforced, it can lead to facilitate market-based solutions for resource overuse and depletion, as resource allocation, such as trading individuals lack incentives to permits or carbon credits, which can conserve resources for future use. incentivize efficient resource use. The government plays a role in Effective resource management defining and enforcing property rights requires collaboration between to ensure that resources are government agencies, communities, managed in a responsible and and private actors to ensure that sustainable way. resources are used sustainably and that the benefits are distributed fairly. Externalities and Market Failures Negative Externalities Positive Externalities Market failures occur when market forces fail to Another market failure involves positive reflect the true costs or benefits of resource externalities, where the actions of one party use. One type of market failure is negative benefit others without receiving compensation. externalities, where the actions of one party For example, planting trees can improve air impose costs on others who are not involved in quality and provide habitat for wildlife, benefiting the transaction. For instance, pollution from the broader community without the tree planter industrial activities can harm the environment receiving direct payment for these benefits. and human health, but the polluter does not bear the full cost of their actions. Government Intervention Sustainable Development Government intervention is often needed to By addressing market failures and promoting address market failures. Policies such as taxes, sustainable resource management, subsidies, regulations, and tradable permits can governments and businesses can create a be used to internalize externalities, provide more sustainable path for economic incentives for sustainable behavior, and development that balances economic growth promote efficient resource allocation. with environmental protection and social equity. Valuation of Natural Resources 1 Economic Value 2 Non-market Value Natural resources have both direct Indirect economic value, often referred and indirect economic value. Direct to as non-market value, encompasses economic value stems from the the benefits that natural resources resources' use in production, provide beyond their direct use. For consumption, or trade. For example, instance, a forest provides ecosystem timber has direct value as a building services such as carbon sequestration, material. air purification, and water filtration, which are not reflected in market prices. 3 Valuation Methods 4 Decision-making Various methods are used to Economic valuation of natural estimate the economic value of resources is essential for informed natural resources, including market- decision-making regarding resource based approaches, hedonic pricing, allocation, environmental policy, and and contingent valuation. These project planning. Understanding the full methods aim to capture the full value of resources can help guide economic value of resources, investments in conservation efforts, including their direct and indirect promote sustainable development, and benefits. ensure that natural assets are not undervalued. The Tragedy of the Commons The tragedy of the commons is a concept that describes the depletion of a shared resource when individuals act in their own self-interest without considering the long-term consequences. In the absence of effective management, each individual may overuse the resource, leading to its degradation and eventual exhaustion. This concept highlights the importance of collective action and responsible resource management to prevent overexploitation. Reso urce Individual Incentive C o llective O utco m e Fish Stock M axim ize ind ivid ual D ep letio n o f fish sto ck Pastureland G raze m o re cattle Overgrazing and land degradation C lean A ir Pollute to reduce A ir p o llutio n and production costs p ro b lem s Case Study: The Tragedy of the Overfishing is a classic example of the tragedy of the commons. As fish stocks decline, individual fishermen have an incentive to increase their catch to maintain their income. However, this collective behavior can lead to the depletion of the fish population, threatening the long-term sustainability of the fishery. This case study highlights the need for effective regulations and collaborative management to prevent overexploitation and ensure the long-term viability of shared resources. Depleted Fish Stocks Increased Fishing Effort Overfishing can lead to the decline or even As fish stocks decline, fishermen often increase collapse of fish populations. their fishing effort to maintain catches. Management Regulations Collaborative Management Quotas, fishing seasons, and other regulations Fishermen, scientists, and policymakers are implemented to manage fish stocks. collaborate to develop sustainable fishing practices. Case Studies in Natural Resource Economics W ater M anag em ent Forest Conservation O il and G as Fisheries Management M anag em ent Studies examine the C ase stud ies analyze the Research focuses on the effectiveness of water allocation eco no m ic b enefits o f fo rest economic impacts of oil and gas C ase stud ies evaluate the policies and the economic co nservatio n and evaluate gas extraction on local effectiveness o f fisheries impacts of water scarcity on d ifferent fo rest communities, environmental reg ulatio ns and exp lo re the different regions and strateg ies, includ ing sustainability, and the challeng es o f m anag ing fish communities. lo g g ing and eco to urism. effectiveness of resource rent sto cks sustainab ly, taking rent taxes. acco unt eco lo g ical and facto rs. Role of Natural Resource Economics in Policy Natural resource economics plays a crucial role in informing policy decisions related to the use, management, and conservation of natural resources. Economists conduct research, analyze data, and develop models to evaluate the economic, environmental, and social impacts of various policies. This information helps policymakers make informed decisions about resource allocation, pricing, regulation, and investment in sustainable technologies. Renewable Energy Policies Environmental Regulation Biodiversity Conservation Incentives, subsidies, and regulations to Policies to protect air, water, and land Policies to protect and manage ecosystems, promote the development and use of quality, and to mitigate pollution and waste. habitats, and endangered species. renewable energy sources. Policy Instruments for Natural Resource Management Carbon Pricing Ecosystem Services Valuation Resource Quotas Carbon pricing mechanisms, such as carbon Ecosystem services valuation aims to quantify Resource quotas are limits on the amount of taxes or cap-and-trade systems, aim to the economic benefits provided by natural a particular resource that can be extracted or reduce greenhouse gas emissions by placing ecosystems, such as carbon sequestration, harvested. This can help prevent a price on carbon emissions. This creates pollination, and water purification. This overexploitation and ensure the sustainability financial incentives for businesses and information can be used to justify investments of fisheries, timber resources, and other individuals to adopt cleaner technologies and in conservation efforts, promote sustainable natural resources. reduce their carbon footprint. land use practices, and demonstrate the value of healthy ecosystems. Key Takeaways Natural resource economics provides a framework for understanding the complex relationship between human activities and the natural world. It emphasizes the importance of sustainability, scarcity, and the need for effective resource management to ensure the long-term availability of resources for future generations. By incorporating economic principles into environmental decision- making, natural resource economics plays a crucial role in promoting sustainable development and protecting our planet for future generations. 1 Sustainability 2 Scarcity Meeting the needs of the present Limited availability of resources without compromising the ability relative to demand, leading to of future generations to meet their competition and the need for own needs. efficient allocation. 3 Resource Management 4 Policy Strategies to ensure the long-term Natural resource economics availability of resources while informs policy decisions about minimizing negative resource use, management, and environmental impacts. conservation. Conclusion and Key Takeaways Resource Management is Sustaining Resources for Cooperation is Essential Complex Future Generations Natural resource economics offers a Effective management of natural Interdisciplinary collaboration and robust framework for understanding resource resources is crucial for ensuring policy instruments are key to achieving scarcity, market failures, and policy economic prosperity and environmental sustainable resource use. solutions. sustainability. THANK YOU VERY MUCH!