Chapter 17. Natural Resource and Energy Economics

Chapter 17 Natural Resource and Energy EconomicsCopyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.Resource Supplies: Doom or Boom?Population increased from 1 to 7 billionStandard of living is 12 times higherConsumption of resources is much higherLO1Population GrowthThomas Malthus (1798) predictionsReplacement rateTotal fertility rateModernizationDeath rates fallFertility rate falls below replacement rateLO1Resource Consumption Per PersonIncreasing commodity demandPopulation growthRising consumption per personCommodity supply has risen faster than demandCommodity prices are fallingLO1Resource Consumption Per PersonWill resource supplies be sustainable in the future?Prospects are hopefulDemand for resources will reach a peak and decline with falling birthratesResource consumption per capita leveled off or is decreasingLO1Resource Consumption Per PersonLeveled off in the rich countriesDemand will increase in poorer countriesChallenge is to move resource supplies from their place of origin to places of needLO1Energy EconomicsLO2Efficient Electricity UseThe Challenge: Highly Variable DemandVariations in fixed costs Daily variations in demandDifferent types of generation technologyLO2Efficient Energy UseSource: United States Energy Information Administration, www.eia.doe.gov.LO2Running Out of Energy?No likelihood of running out of energyRunning out of cheap energyMultiple sources of supplyEnvironmental impactsLO3Natural Resource EconomicsPolicies for extracting resources to maximize net benefitsPresent vs. future consumptionPresent value Renewables vs. NonrenewablesRenewable natural resourcesNonrenewable natural resourcesLO4Natural Resource EconomicsOptimal Resource Management Extraction strategy to maximize stream of profitsUser costSell today, cannot sell in the futureHigher expected demand encourages less extraction todayProperty rightsLO4Renewable ResourcesElephant preservationStrong property rightsForest managementOptimal forest harvestingDifferences in property rightsVariation in growth ratesLO5Optimal Forest HarvestingLO5Renewable ResourcesOptimal fisheries managementDifficult to assign property rightsPolicies to limit catch sizesTotal allowable catch (TAC)Individual transfer quota (ITQs)LO5Is Economic Growth Bad for the Environment?Richer countries:Produce and consume moreSpend more to maintain the environmentEarn higher scores on measures of environmental quality (EPIs)