Basic Economic Concepts With Respect to Resource Conservation

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Basic Economic Concepts With Respect to Resource
Conservation
GEOL 3000 Class 3 Winter 1999
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ResourcesOurs for the taking?

• Many resources are seen as free goods, with only
  the costs of obtaining, transporting and
  processing them paid for by consumers, e.g.
  minerals, water, forest products.
• Often resource costs are directly or indirectly
  subsidized (e.g. logging in national forests).
• Resource users may not pay anything to society
  for the actual raw materials nor for the
  environmental impacts that might occur in
  obtaining them or in using them.

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Resources and economic wealth.

• The standard measures for economic wealth of a
  nation are the Gross Domestic Product (GDP) or
  Gross National Product (GNP) - the total value of
  all goods and services.
• GDP is misleading when it comes to natural
  resources conservation and our environment.
• The use of the GDP and growth in GDP is very
  counter-indicative of environmental health and
  resource security

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GDP - the hidden picture.

• Current GDP will be higher and will grow faster
  when we over-exploit resources.
• GDP will increase if we damage our environment
  and then attempt to clean it up/restore it.
• GDP will accelerate the faster we use renewable
  and non-renewable resources, even if this is
  unsustainable in the long term.

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Resource conservation and GDP

• Resource conservation will generally reduce GDP
  or slow its growth because goods and services
  will not be produced/used and damages will be
  avoided.
• Our GDP/capita was 20,716 (26,977 PPP) in 1995
  (in 1987 ) and has increased an average of 1.9
  per year since 1960 (from 10,707).
• This means that our nation now uses 94 more
  goods and services per person than we did in 1960
  (twice as many things).

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The cost of resources

• Many resources have a price well below their true
  social cost because of environmental
  externalities paid for by everyone and/or third
  parties.
• Full-cost pricing (sometimes called social
  pricing) tries to internalize all costs
  associated with the use of a particular resource
  by charging a correct price for those resources.
• Governments can impose taxes, require
  expenditures, or eliminate subsidies that lead to
  the creation of externalities.

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Full-cost pricing

• Big business and individual consumers often
  resist full-cost pricing.
• Their fears are that many prices would increase,
  many wasteful or harmful producers would go out
  of business, jobs would be lost, lifestyles would
  change, profits would fall.
• Many governments are unwilling to change their
  tax and spending structures and/or unable to
  draft legislation that will conserve damaging or
  critical resources.

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Resourceswho pays the bill?

• We, or our descendents will pay tomorrow - we
  defer the costs to the future to clean up
  polluted groundwater, reverse/suffer the impacts
  of global warming, etc.
• We pay through taxes - e.g. that pay for EPA
  programs, government clean-ups, etc.
• We pay through third-party costs to individuals
  (health care costs, etc.) or to society (lost
  revenues, early deaths of workers, etc.).

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True valuation of resources

• Placing market values on externalities and
  relating to them to individual goods and services
  is difficult since no market places/prices exist
  and many effects are cumulative.
• Attempts have been made to do this (e.g. work of
  Herman Daly and his ISEW, the Swedish tax-system,
  the polluter-pays-principle, etc.).

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What is the true value of a resource?

• Natural resources have lots of different values
  associated with them.
• Use values - what we get from using them now.
• Non-use values - their value if left in place
  (quite a complex concept - includes their natural
  service function, future value, avoided
  environmental damage, etc.)
• It is important to establish their net worth -
  the full/social cost (i.e. benefits-costs)

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How can we value a resource?

• There are lots of imperfect but useful methods
  that resource economists use to place values on
  natural resources.
• Market prices.
• Willingness to pay/contingent valuation
• Proxy values.
• Replacement costs.
• Defensive expenditures.