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
Resource Consumption Per Person
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
Resource Consumption Per Person
15-7
LO1
Resource Consumption Per Person
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
Resource Consumption Per Person
15-9
LO1
Resource Consumption Per Person
15-10
LO1
Resource Consumption Per Person
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
Natural Resource Economics
• 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
Natural Resource Economics
Q20
First-year quantity extracted
Dol
lars P
15-19
ECA
Q0
TC = EC + UC
B
Q1
UC
LO4
Natural Resource Economics
Q20
First-year quantity extracted
Dol
lars P
15-19
ECA
Q0
TC = EC + UC
B
Q1
UC
LO4
Natural Resource Economics
Q20
First-year quantity extracted
Dol
lars P
15-19
AECEC
A
Q0
TC = EC + UC
B
Q1
UC
Natural Resource Economics
LO4
EC
0
First-year quantity extracted
Dol
lars
P
UC
15-20
TC = EC + UC0
Q0
TC = EC + UC1
Q1
UC1
Natural Resource Economics
LO4
EC
0
First-year quantity extracted
Dol
lars
P
UC
15-20
TC = EC + UC0
Q0
TC = EC + UC1
Q1
UC1
Natural Resource Economics
LO4
EC
0
First-year quantity extracted
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
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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