Barry Field, University of Massachusetts—Amherst

1. Natural Resource Economics: An Introduction (2nd edition) Barry Field, University of Massachusetts—Amherst Ph.D. from University of California at Berkeley in 1967

2. FYI Why this book? • “A comprehensive, well-written text that has appeal in many undergraduate programs.” —Timothy Considine, Penn State University • “Very readable and informative… not so quantitative… extensive coverage of topics…” • “…written in nontechnical terms…a clear connection between natural resource uses and the economy.” • “a nice balance of theoretical principles and policy analysis.”

3. FYI An email from Dr. Barry Field • From: Barry Field [mailto:field@isenberg.umass.edu] Sent:Thursday, August 23, 2012 6:00 AMTo: Xiaobing ZhaoSubject: RE: Bing's questions about Natural Resource Economics textbook

4. FYI Professor Zhao Thanks for your message. I have been on vacation and out of touch… The course here is being taught by my colleague John Stranlund… I remember Cheryl Brown quite well, though it seems quite a long time ago. Good luck with your course.   Barry Field * Dr. Cheryl Brown was on Bing’s dissertation committee back to West Virginia University. She earned her B.S. from University of Massachusetts, Amherst in 1990, and Ph.D. from University of California, Berkeley in 1997. http://www.umass.edu/resec/faculty/field/index.shtml

5. FYI Table 4. Top Graduate Programs in Agricultural Economics by Field Field and School B. Resource and Environmental Economics (n=17) Maryland UC-Berkeley UC-Davis Oregon State Source: Ranking M.S. and Ph.D. Programs in Agricultural Economics–Spring 2004, Gregory M. Perry Maryland uses Barry’s text for AREC 453: Natural Resources and Public Policy!

6. SECTION I Introduction Chapter 1 Important Issues in Natural Resource Economics

7. 1. Natural Resource Adequacy • The longest-running issue—will future supplies be sufficient to support the economic needs of generations? • In history: • before the industrial revolution: wood and water • the industrial revolution: coal • the 1970s energy crisis: petroleum • today: nonrenewable resources (petroleum, coal, and natural gas)

8. Will Resource Scarcity Undermine Economic Growth? • Pessimists: • Thomas Malthus, An Essay on Population, London, 1798: population growth would inevitably outstrip the ability of nature to provide sustenance in ever-increasing amounts • Donella Meadows et al., The Limits to Growth, New York , 1972: scarcity along with pollution would lead to output declines beginning in the 21st century (1766 -1864) (1941-2001)

9. “When asked if we have enough time to prevent catastrophe, she'd always say that we have exactly enough time—starting now.”

10. Optimists: • Scarcities will surely occur in the future • But human beings have the capacity to overcome scarcities by finding substitutes and by controlling population growth

11. Long-Run Price Changes • Resource economists examine the historical paths of resource prices • Rising prices signal increasing scarcity • Prices have historically decreased due to technological change

12. Natural Resource Substitution • To mitigate scarcity • Figure 1-1 (p6): substitution among energy forms in the U.S. from 1949-2005 • Oil: 37% of total consumption to 43% • Natural gas: 16% to 24% • Coal: 37% to 24% • Renewables: 10% to 9% • Energy substitution: renewable energy for nonrenewable forms

13. Reading Global Warming • Sunlight hits earth’s surface, radiates back into atmosphere, where its absorption by GHGs heats atmosphere and warms earth’s surface • Somewhat like a greenhouse that allows sunlight through the glass but prevents the heated air from escaping back outside, thus “greenhouse effect” • Primary GHGs is carbon dioxide (CO2) • Accumulating CO2 is linked to fossil fuel combustionand deforestation • Combustion of natural gas emits 30% less carbon dioxide than oil, and 45% less carbon dioxide than coal. ECO324-Ch13

14. 2. Socially Optimal Rates of Resource Use • Criteria • Social efficiency: the maximum of net benefits accrued by members of a society • Sustainability: maintaining or augmenting some valued index of human or ecosystem welfare • Irreversibility (not reversible): avoid it; avoid the destruction of unique natural resources • Fairness: actions impact people in equitable ways

15. 3. Natural Resource Policy: Moving Toward the Optimum • Natural resource misuse can arise from: • The difficulties that prevent private markets from functioning effectively (ocean fisheries: an open-access resource) • Misguided public policy and regulation (Federal energy subsidies) • New types of property rights help solve certain problems • individual transferable quotas (ITOs), a closed-access system based on private property rights for fisheries

16. Reading ECO324-Ch2-Slide 36

17. Reading Policy Options to Prevent Overconsumption of Common Resources • regulate use of the resource • impose a corrective tax to internalize the externality • example: hunting & fishing licenses, entrance fees for congested national parks • auction off permits allowing use of the resource • example: spectrum auctions by the U.S. Federal Communications Commission • if the resource is land, convert to a private good by dividing and selling parcels to individuals Greg Mankiw: Microeconomics, Chapter 11: Public Goods and Common Resources

18. 4. Natural Resource Accounting • Conventional GDP • does not allow for natural resource depletion or depreciation in natural resource capital • does not measure non-market goods and services • Natural Resource Accounting • Involves estimating the non-market value of ecosystem services: scenic values, support for outdoor recreation, biodiversity preservation……

19. 5. Benefit-Cost Analysis in Natural Resource Economics • The Endangered Species Act (ESA) in 1973: to protect no matter what the cost • B/C: developed to evaluate federal water projects • Should be applied to all natural resource and environmental decisions in the public sector • Applicability and accuracy Please read Exhibit 1-4 on page 16!

20. 6. Land-Use Issues • For housing, work locations, roads, farms, parks, wilderness areas…. • Decisions are made through private land markets and public oversight • To preserve agricultural land uses: development rights purchase • Public authority purchases the right to develop from the farmers, leaving them with the remaining rights on their land and the freedom to farm the land FYI: Exhibit 1-5, p17

21. 7. International Natural Resource Issues Issue #1: • Developing countries rely on natural resource capital (endowments) for economic growth • the Middle East: oil • South America and Asia: timber • Africa: minerals • China: coal • Mongolia: copper and gold Please read Exhibit 1-6 on page 20!

22. FYI Geologist David Bond exploring Altan Rio Minerals’ Chandman-Yol copper-gold project in western Mongolia, BY MATTHEW KEEVIL, May 11, 2012

23. Resource rents: the difference between what a resource is worth in the market and what it costs to extract, transport, and process it • the net value of a resource prior to extraction (p248) • What it would be worth if somehow an extra unit of the resource could be added to the deposit (p175) • Rent seeking: competition by the various parties to appropriate larger share of the rents arising from natural resource extraction

24. Reading Labor: wages & salaries Capital: interest Land: rent Entrepreneurship: profit value added by a firm = factor payments by that firm $200 – $25 = $110 + $10 + $15 + $40 200 = 25 + 110 + 10 + 15 + 40 200 = 160 + 40 250 = 160 + 40 + 50 ECO285-Ch6-Slide 36

25. Issue #2: • Conflict among countries over access to particular natural resources • Surface water resources • Productive fisheries • Deep-sea minerals • Undersea petroleum deposits • Possible solutions • Bilateral treaties (for the Pacific salmon between Canada and the US) • Multilateral agreements (the regional seas treaties)