1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT? AGEC 3503 SPRING 2006

1. 1. WHAT IS NATURAL RESOURCE ECONOMICS & WHY IS IT IMPORTANT?AGEC 3503SPRING 2006 Larry D. Sanders Dept. of Ag Economics Oklahoma State University

2. INTRODUCTION • Purpose: • to understand the concept of natural resource economics and its relevance • Learning Objectives: 1. Introduce the course & how it is to be administered 2. Define key terms. 3. Understand the purpose of studying environmental & natural resource economics. 4. Understand the classification of resources.

3. INTRODUCTION • Natural Resource Economics Syllabus • Purpose • Evaluation • Schedule • Importance of Student Activity

4. Instructor/Philosophy • Personal/Professional Background • Teaching Philosophy • Student Info

5. “Anxiety Test” • “The ultimate test of a set of economic ideas. . . is whether it illuminates the anxieties of the time. Does it explain problems that people find urgent? Does it bear on the current criticism of economic performance? . . . Does it bear upon the issues of political debate? For these, though many have always preferred to believe otherwise, do not ignite spontaneously or emerge maliciously from the mouths of agitators to afflict the comfortable.” --John Kenneth Galbraith, Economics & the Public Purpose, 1973 [bold italics added by instructor]

6. Where to get more information • Syllabus • Sources • Hackett • ERS-USDA AH722 • Handouts • Supplementary Readings • Govt. Documents--Library • Congress, Legislature, St/Fed Agencies • Electronic sources (note biased vs. objective sources) • “Experts”

7. Team Exercise • Instructor assigns teams • Each team identify top 3 natural resource/environmental issues in 5 years • Be prepared to briefly explain each issue

8. Key Terms • Natural Resources • Specific attributes of the environment that are valued or have proven useful to humans [or have the potential to do so]* --G. Johnston • Aspects of nature that can be used by humans to satisfy human wants--Hite & Mulkey • key to human use: technology, time, accessibility, appli-cation, perception; conflicts often related to culture • Economics • the study of the production, processing, distribution, consumption of goods/services in an exchange system

9. Key Terms (cont) • Natural Resource Economics • application of economics to manage naturally occurring resources for human needs/wants with efficiency as the primary goal • efficiency may be defined in market or nonmarket terms, focused on the short or long run, relative to current or future generations, local or global in scope • decision choices include maintaining the status quo, altering the status quo, or doing nothing with focus on relevant institutions • evaluation always includes the costs & benefits of a decision & to whom those costs & benefits accrue

10. Key Terms (cont) • Environmental Economics vs. Natural Resources Economics (Hackett) • Environmental Economics: economic basis for pollution problems & policy alternatives • Natural Resources Economics: problems of managing common-pool* natural resources, determining optimal rates of extraction, & understanding resource markets • *common-pool natural resources: difficult to exclude access, but once extracted is no longer available to others (groundwater, rivers, fisheries, public forests) • Scarcity, Opportunity cost, economic rationality

11. Special: Break for cartoon! • Sometimes some folks go to extremes to get our attention!

12. Why Study Natural Resource Economics? • Natural Sciences lack commonly accepted decision process • Economics may “assume” the problem away • Irreversibility • Market failure • Joint importance of economic and ecological systems • Physical-Natural-Economic System Links • Improves efficient functioning of system • Improves understanding about the world we live in • Summary: Improved management of natural resources, whether for private, public or natural gain

13. Classification of Natural Resources NATURAL RESOURCES FLOW RESOURCES FUND RESOURCES NONSTORABLE RESOURCES (ENVIRONMENTAL RESOURCES) RENEWABLE RESOURCES NONRENEWABLE RESOURCES STORABLE RESOURCES RECYCLABLE RESOURCES NONRECYCLABLE RESOURCES

14. Classification of Resources (continued) 1. Flow Resources (nondepletable) a. Nonstorable (sometimes called “environmental resources”) • Often indivisible • Inexhaustible (in human span of time) • Time & management relevant only to consumption, not supply

15. Nonstorable Flow Resources Scenic Views Ocean Waves Sunshine “Weather” Ecosystems

16. Classification of Resources (cont) 1. Flow Resources (cont) • Storable (by nature, as in living matter; by humans with technology) • May be divisible • Time & management relevant to both to consumption & supply • The services are what are significant for humans

17. Storable Flow Resources Geothermal Energy Wind Wave Energy Solar Hydro Power Water Hydrogen Energy

18. Classification (cont.) 2. Fund Resources (stock or depletable resources) a. Exhaustible & Renewable • Regenerative within human use time frame • Assumes use within minimum & maximum thresholds

19. Exhaustible & Renewable Fund Resources Timber & Crops Fish Animals (human & nonhuman Soil & Water Quality Grazing Lands Forests & some Unique ecosystems

20. Classification (cont.) 2. Fund Resources (cont) b. Exhaustible & Nonrenewable • Relatively fixed stocks/fund within human use time frame (1) Nonrecyclable--Examples: fossil-fuel energy resources (oil, natural gas, coal, peat, many “renewable” resources when thresholds violated) (2) Recyclable--Examples: some minerals (iron, aluminum, gold, silver)

21. Natural Resource Examples FLOW RESOURCESFUND RESOURCE NONSTORABLE STORABLERENEWABLENONRENEWABLE nonrecyc.recyclable 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

22. Framing Natural Resource Issues • Quantity & Quality of: Land, Water, Air, Energy • Public vs. Private Management Question • Trend of Magnitude of Problem: • Persistent, Chronic, Cyclical, Declining, Growing? • Irreversibility • Geographic scope • Whose problem & who decides (ethics)? • Property rights • Time (short vs. long run; current vs. future generations)

23. Optimism vs. Concern for Environment & Natural Resources • Concerns • Global warming & climate impacts • Over-population & biodiversity • Soil/water quality/Mineral/energy cost/availability • Pollution/resource shortage impacts on social & political institutions • Optimism • Legislative progress • Toxic release rates down • US competitiveness

24. References for Lesson 1 Hackett text Hite, J.C., & W. D. Mulkey. Natural Resource Economics : An Introductory Textbook, draft unpublished text. Johnston, G.M., D. Freshwater & P. Favero (editors). Natural Resource and Environmental Policy Analysis: Cases in Applied Economics, Westview Press, Boulder, 1988. Kahn, J.R. The Economic Approach to Environmental and Natural Resources, second edition, 1998. Sanders, various notes

25. L1: Homework • Read Ch. 1, Hackett (10-12 Jan) • Do Problem #1, p. 16 (12 Jan) –5 points • Refer to “Internet Links” (12 Jan) –5 points • Select 2 links • Briefly review, including • Content • Bias or objectivity • Likely use of material