Econ674Economics of Natural Resources

and the Environment

Session 11Technological Dimensions in

Natural Resource Use

There have been numerous previous references to therole of technology in natural resource use. We alreadyhave noted the fundamental role of the laws ofthermodynamics in shaping the choice of technology.We now turn to applications of natural resources througha review of specific technologies.

There are two broad categories of technologies we wishto consider. First is those technologies that convert anexisting natural resource into useful energy. Second, isthe examination of alternative storage and conversiontechnologies.

We consider these technologies in terms of theiroperational dimensions as well as in terms of theunderlying economics that shapes the selection of anyparticular technology.

A useful way of understanding the role of technology is tolook at the evolution of natural resource use over time.The evolution of natural resource use is a function of thestate of knowledge from which economically usefulextractions can be made of natural resources, along withthe relative abundance of these resources in nature, andfor which pricing mechanisms assist in the selection ofone resource over another.

In terms of energy resources, Figure 2.1 illustrates theshift in resource use for an economy such as the U.S, butwhich provides a roadmap for what is likely to be thecase for other economies in the future.

First is the initial dependence on wood natural resources- for cooking, building, and heating. Over time,deforestation has occurred with many forest stocks,leading to resource substitution - initially toward coal,followed by petroleum, natural gas, nuclear energy, andfinally renewable technologies.

Wood is, of course, a renewable natural resource, just asare wind and solar energy. Recent advances point to anincreasing shift in resource use away from wood towardwind and solar alternatives, as numerous technologicalinnovations now coming to the market attest, e.g. windfarms to generate commercial electricity, solar panels toproduce decentralized electricity.

Regardless of the form of natural resource use, energyand materials consumption per capita increase with thelevel of income. As this occurs, economies experiencerising levels of environmental pollution, and is likely doso at an accelerated pace as long as population growthrates exceed depreciation rates of energy-using capitalstocks.

While population and income growth may determineprojected levels of energy use and environmentalemissions, as the capital stocks of energy-usingtechnologies depreciate, they tend to be replaced byhigher energy efficient technologies.

Whether the predicted energy transition in the figureabove will take place in all economies depends on therelative pricing of natural resources in the first instance,and in the second, on whether environmental pollutionexternalities have been accounted for.

At this point it is useful to examine briefly what kinds ofenergy-using technologies are now used in aneconomy, and how their conversion rates affect naturalresource use and the environment. We do so by firstlooking at fossil fuel technologies, followed by nucleartechnologies, after which we examine renewablenatural resources.

Fossil Fuel Technologies: Petroleum ResourcesFossil fuels consist of petroleum, natural gas, and coal.They constitute the principal source of energyconsumption in many economies. Once discoveredand extracted, crude oil is refined into the various formssuitable to end use. The diagram below illustrates theflows through a typical petroleum refinery.

Petroleum RefiningWithout energy and chemical additives, ordinarydistillation may not generate the proportions of usefulend-use petroleum products demanded in theeconomy. Along with crude oil availability and refiningcapacity, this is one factor that affects seasonalvariations in the pricing of refined petroleum products.

Natural Gas ResourcesFor many end-uses, natural gas is a close substitute forpetroleum. In the industrial and commercial sectors,the elasticity of substitution may be one or greater, forexample.

Natural gas is often a discovered byproduct ofpetroleum exploration, even though some explorationresults in one or the other type of deposit. Whilerefined petroleum products can be distributed throughpipelines, storage tanks, and in terms of deliveredcontainers, natural gas may required pressurization intoa liquefied natural gas form for an economicaldistribution system.

Natural Gas ResourcesNatural gas is used primarily in industrial processes aswell as in commercial and residential heating andcooking. Although liquefied natural gas technologieshave enabled some applications in transportation,notably in urban mass transit bus systems, it generallyhas not found widespread use as a substitute for refinedgasoline and diesel fuels for trucks and individualautomobiles. It does compete economically with refinedpetroleum in electricity generation, but both refinedpetroleum fuel and natural gas tend to be moreexpensive in comparison to coal, and, in several cases,in comparison to selected renewable energytechnologies.

Coal ResourcesCoal is a relatively more abundant natural resource.However, in its naturally mined state it often containsconcentrations of sulfur and other particulates that addconsiderably to environmental pollution. As a result, ithas generally not functioned widely as a source ofhousehold heating and cooking energy as it once did,and since in its solid form, it has but limited use inseveral manufacturing processes (notably as a primarynatural resource in steel refining), it has been usedincreasingly as a primary resource in the generation ofelectricity, especially in rapidly growing economies suchas China and India.

Fossil Fuel Conversion TechnologiesCoal is a relatively more abundant natural resource.However, in its naturally mined state it often containsconcentrations of sulfur and other particulates that addconsiderably to environmental pollution. As a result, ithas generally not functioned widely as a source ofhousehold heating and cooking energy as it once did,and since in its solid form, it has but limited use inseveral manufacturing processes (notably as a primarynatural resource in steel refining), it has been usedincreasingly as a primary resource in the generation ofelectricity, especially in rapidly growing economies suchas China and India.

Coal Liquefaction and GasificationTo compete more effectively with refined petroleum andnatural gas, technologies exist to convert coal into aliquid or gas form. Considerable energy is used in theconversion process with the result that the net energyefficiency tends to be less than that available throughscarce primary petroleum or natural gas resources.

Shale Oil ResourcesOne fossil fuel resource that exists in relative abundancein nature is shale oil. Crude oil is embedded in shalerock deposits and in order to extract usable fuel, someform of separation must first be undertaken prior torefining of the residual crude oil. The figure belowillustrates the general technology of how this isaccomplished.

Fossil Fuel ReservesFrom this brief overview of fossil fuel resources andtechnologies, let us now take stock of known and ultimatereserves in the world. As can be seen in the figure below,present proven reserves represent less than one percent(0.22%) of ultimately recoverable reserves. As worldconsumption of lower entropy resources such as petroleum,natural gas, and coal proceed, the economic value of suchnaturally more abundant resources as shale oil will increase.However, whether in fact such a transformation occursdepends on the relative competitiveness of non-fossil naturalresources such as nuclear and renewable natural resources,and on the technical efficiency of energy conversiontechnologies.

Nuclear Energy ResourcesCommercial nuclear energy first emerged from the discovery ofnuclear fission that was used to produce the first atomicweapons during the Second World War. During the 1950’s, theUnited States began a program of developing commercialapplications of nuclear technology, the principal form of whichhas been the use of refined uranium to produce commercialelectricity. (It also has been applied as a generating source of electricity forsubmarines, cruisers, and aircraft carriers in various navies around the world).

The key to nuclear energy resources is found in thecurve of binding energy, which portrays the density ofpotential energy in natural elements as a function of theunderlying stability. If an element contains relativelyhigh concentrations of useful energy, then the processof fission can release sufficient heat energy to generatesteam that is used to produce electricity. The curve ofbinding energy is illustrated below.

The Nuclear Fuel CycleLike coal, uranium exists as a mineral that is mined. In some countries such asNiger, it is found in sufficient quantities as to be able to supply a major proportion ofthe primary fuel used in the nuclear fuel cycle for a country such as France. (Francegenerates over 80 percent of all of its electricity consumption through commercialnuclear reactors, and most of the natural uranium is imported form such countries asNiger).

There are several steps involved in uranium refining, as illustrated below. Oneproblem is that the nuclear fuel cycle can be readily adapted for the production ofnuclear weapons, the difference being the degree of concentration of fissile materialused in weapons as opposed to a commercial nuclear reactor. This is one reasonwhy the International Energy Agency (IEA) has been created, as an instrument tohelp monitor stocks and flows of the nuclear fuel cycle in various countries. It hasnot, however, solved the problem of nuclear proliferation, except by multinationalagreements on both arms reductions, by controls universally agreed to over thenuclear fuel cycle, and by adoption of a nuclear fuel cycle inspection system. (Somecountries such as South Africa and Libya have pursued nuclear processingtechnology but have since abandoned efforts to do so while other countries such asNorth Korea and Iran have continued efforts to establish domestic capacity forcomplete nuclear fuel cycle processing capacity).

Commercial Nuclear ReactorsAll commercial nuclear reactors operate through theinsertion of enriched fuel rods into a core and throughwhose controlled rates generate heat that generatessufficient steam to operate an electric generator turbine.There are several varieties of commercial nuclearreactors shown below: light water reactors, gas cooledreactors, heavy water reactors, and breeder reactors.

Environmental Dimensionsof Exhaustible Natural Resource Use

Exhaustible resource transformations into usable end forms carryinevitable consequences on the environment. We look at some of theways they take place, which constitutes the foundation for incorporatingshadow price estimates into the evaluation of alternative investmentchoices.

Beyond wastage in extraction and refining, one major source ofenvironmental emissions is in central electricity generation technologies,shown here in the figure below, followed by estimates of various types ofenvironmental impact estimates.

Environmental Dimensionsof Nuclear Energy Consumption

ConclusionsWhether fossil or nuclear, exhaustible resources generally havelow entropy levels relative to many renewable resourcealternatives.

Higher energy conversion efficiencies can be achieved with newcapital designs, but none can eliminate entirely environmentalemissions.

Market prices and prevailing positive rates of discount create abias in favor of exhaustible natural resources over renewableones.

Correcting for various forms of market failure arising from negativeexternalities can narrow the competitive gap between exhaustibleand renewable resources. Yet market-based discount rates stillleave a significant gap in terms of potentially more rapid transitionto new forms of renewable resource technologies.

The choice of an appropriate rate of discount for natural resourcetechnologies inevitably raises the question of sustainability in themanagement of natural resources, leaving open various paths foreach society to determine what is socially optimal.