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1 5 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

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Page 1: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

15Natural Resource and Energy

Economics

McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Page 2: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 3: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Population Growth

• Thomas Malthus (1798) predictions

• Replacement rate

• Total fertility

• Modernization

• Death rates fall

• Fertility rate falls below replacement rate

15-3

Page 4: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Source: The World Factbook, http://www.cia.gov. Data are 2009 estimates.

Total Fertility Rates, 2009Country Total Fertility

RateAustralia 1.78

Canada 1.58

China 1.79

France 1.98

Germany 1.41

Hong Kong 1.02

Italy 1.30

Japan 1.21

Russia 1.41

South Korea 1.21

Sweden 1.67

United States 2.05

15-4

Page 5: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 6: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Resource Consumption Per Person

15-6

Page 7: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 8: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Resource Consumption Per Person

15-8

Page 9: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 10: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Resource Consumption Per Person

15-10

Page 11: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Resource Consumption Per Person

15-11

Page 12: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO1

Energy Economics

15-12

Page 13: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 14: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 15: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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

Page 16: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO4

Running Out of Energy?

Oil Price per Barrelat Which the Alternative

Is Economically Viable

Alternative Fuel

$80 Biodiesel

60 U.S. corn-based ethanol

50 Shale Oil

40 Tar sands: Brazilian sugar-cane based ethanol: gas to liquids: liquids; coal-to-liquids

20 Conventional oil

Sources: Cambridge Energy Research Associates, http://www.cera.com The Economist, April 22, 2006, http://

www.economist.com.15-16

Page 17: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO4

Natural Resource Economics

• Policies for extracting resources to maximize net benefits

• Present vs. future consumption

• Present value

• Renewable resources

• Nonrenewable resources

15-17

Page 18: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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 rights15-18

Page 19: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO4

Natural Resource Economics

AB

TC = EC + UC

EC

Q0Q1Q20

First-year quantity extracted

Do

llar

s

P

UC

15-19

Page 20: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

Natural Resource Economics

LO4

TC = EC + UC0

EC

Q0Q10

First-year quantity extracted

Do

llar

s

P

UC

TC = EC + UC1

UC1

15-20

Page 21: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO5

Renewable Resources

• Elephant preservation

• Strong property rights

• Forest management

• Optimal forest harvesting

• Differences in property rights

• Variation in growth rates

15-21

Page 22: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO5

Global Perspective

Percentage Change in the Amount of Land Covered by Forests

15-22

Page 23: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO5

Optimal Forest Harvesting

15-23

Page 24: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO5

Renewable Resources

• Optimal fisheries management

• Difficult to assign property rights

• Policies to limit catch sizes

• Total allowable catch

• Individual transfer quota

15-24

Page 25: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO5

Renewable Resources

Fishery Market Value of Catch

Sea scallop $385,922,993

Lobster 360,389,768

Walleye pollock 297,460,589

Dungeness crab 227,197,666

Pacific halibut 227,120,758

Pacific cod 224,300,686

Sockeye salmon 205,363,084

White shrimp 194,132,043

Brown shrimp 175,378,324

Blue crab 128,181,534

15-25

Page 26: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

LO5

Renewable Resources

15-26

Page 27: 15 Natural Resource and Energy Economics McGraw-Hill/Irwin Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved

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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