Natural resource economics deals with the supply, demand, and allocation of the Earth's natural resources. One main objective of natural resource economics is to better understand the role of natural resources in the economy in order to develop more sustainable methods of managing those resources to ensure their availability for future generations. Resource economists study interactions between economic and natural systems, with the goal of developing a sustainable and efficient economy.http://www.uri.edu/cels/enre/ University of Rhode Island Department of Environmental and Natural Resource Economics Retrieved October-22-09
Areas of discussion Natural resource economics is a transdisciplinary field of academic research within economics that aims to address the connections and interdependence between human economies and natural ecosystems. Its focus is how to operate an economy within the ecological constraints of earth's natural resources.Encyclopedia of Earth. Article Topic: ecological economics Resource economics brings together and connects different disciplines within the natural and social sciences connected to broad areas of earth science, human economics, and natural ecosystems.Wordnet Search: Earth science Economic models must be adapted to accommodate the special features of natural resource inputs. The traditional curriculum of natural resource economics emphasized fisheries models, forestry models, and mineral extraction models (i.e. fish, trees, and ore). In recent years, however, other resources, notably air, water, the global climate, and "environmental resources" in general have become increasingly important to policy-making.
Academic and policy interest has now moved beyond simply the optimal commercial exploitation of the standard trio of resources to encompass management for other objectives. For example, natural resources more broadly have defined recreational, as well as commercial values. They may also contribute to overall social welfare levels, by their mere existence.
The economics and policy area focuses on the human aspects of environmental problems. Traditional areas of environmental and natural resource economics include welfare theory, land/location use, pollution control, resource extraction, and non-market valuation, and also resource exhaustibility,Geoffrey Heal (2008). "exhaustible resources," The New Palgrave Dictionary of Economics, 2nd Edition. Abstract sustainability, environmental management, and environmental policy. Research topics could include the environmental impacts of agriculture, transportation and urbanization, land use in poor and industrialized countries, international trade and the environment, climate change, and methodological advances in non-market valuation, to name just a few.
Hotelling's rule is a 1938 economic model of non-renewable resource management by Harold Hotelling. It shows that efficient exploitation of a nonrenewable and nonaugmentable resource would, under otherwise stable economic conditions, lead to a depletion of the resource. The rule states that this would lead to a net price or "Hotelling rent" for it that rose annually at a rate equal to the rate of interest, reflecting the increasing scarcity of the resource. Nonaugmentable resources of inorganic materials (i.e. minerals) are uncommon; most resources can be augmented by recycling and by the existence and use of substitutes for the end-use products (see below).
Vogely has stated that the development of a mineral resource occurs in five stages: (1) The current operating margin (rate of production) governed by the proportion of the reserve (resource) already depleted. (2) The intensive development margin governed by the trade-off between the rising necessary investment and quicker realization of revenue. (3) The extensive development margin in which extraction is begun of known but previously uneconomic deposits. (4) The exploration margin in which the search for new deposits (resources) is conducted and the cost per unit extracted is highly uncertain with the cost of failure having to be balanced against finding usable resources (deposits) that have marginal costs of extraction no higher than in the first three stages above. (5) The technology margin which interacts with the first four stages. The Gray-Hotelling (exhaustion) theory is a special case, since it covers only Stages 1–3 and not the far more important Stages 4 and 5.Vogely, William A. "Nonfuel Minerals and the World Economy", Chapter 15 in "The Global Possible" by Repetto, Robert, World Resources Institute Book Yale University Press
Simon has stated that the supply of natural resources is infinite (i.e. perpetual)Simon, Julian. "Can the Supply of Natural Resources Really be Infinite? Yes!", "The Ultimate Resource" 1981, Chapter 3
These conflicting views will be substantially reconciled by considering resource-related topics in depth in the next section, or at least minimized.
Furthermore, Hartwick's rule provides insight to the sustainability of welfare in an economy that uses non-renewable resources.
Perpetual resources vs. exhaustibility
Background and introduction
The perpetual resource concept is a complex one because the concept of resource is complex and changes with the advent of new technology (usually more efficient recovery), new needs, and to a lesser degree with new economics (e.g. changes in prices of the material, changes in energy costs, etc.). On the one hand, a material (and its resources) can enter a time of shortage and become a strategic and critical material (an immediate exhaustibility crisis), but on the other hand a material can go out of use, its resource can proceed to being perpetual if it was not before, and then the resource can become a paleoresource when the material goes almost completely out of use (e.g. resources of arrowhead-grade flint). Some of the complexities influencing resources of a material include the extent of recyclability, the availability of suitable substitutes for the material in its end-use products, plus some other less important factors.
The Federal Government suddenly became compellingly interested in resource issues on December 7, 1941, shortly after which Japan cut the U.S. off from tin and rubber and made some other materials, such as tungsten, very difficult to obtain. This was the worst case for resource availability, becoming a strategic and critical material. After the war a government stockpile of strategic and critical materials was set up, having around 100 different materials that were purchased for cash or obtained by trading off U.S. agricultural commodities for them. In the longer term, scarcity of tin later led to completely substituting aluminum foil for tin foil and polymer lined steel cans and aseptic packaging substituting for tin electroplated steel cans.
Resources change over time with technology and economics; more efficient recovery leads to a drop in the ore grade needed. The average grade of the copper ore processed has dropped from 4.0% copper in 1900 to 1.63% in 1920, 1.20% in 1940, 0.73% in 1960, 0.47% in 1980, and 0.44% in 2000."Domestic Reserves vis-a-vis Resources","Congressional Handbook on U.S. Materials Import Dependency" House Committee on Banking, Finance & Urban Affairs, September 1981, pp. 19-21
Cobalt had been in an iffy supply status ever since the Belgian Congo (world's only significant source of cobalt) was given a hasty independence in 1960 and the cobalt-producing province seceded as Katanga, followed by several wars and insurgencies, local government removals, railroads destroyed, and nationalizations. This was topped off by an invasion of the province by Katangan rebels in 1978 that disrupted supply and transportation and caused the cobalt price to briefly triple. While the cobalt supply was disrupted and the price shot up, nickel and other substitutes were pressed into service.U.S. Bureau of Mines, 1978-79 Minerals Yearbook, "Cobalt" and "The Mineral Industry of Zaire" chapters, Vol. I pp. 249-258, Vol. III pp. 1061-1066
Following this, the idea of a "Resource War" by the Soviets became popular. Rather than the chaos that resulted from the Zairean cobalt situation, this would be planned, a strategy designed to destroy economic activity outside the Soviet bloc by the acquisition of vital resources by noneconomic means (military?) outside the Soviet bloc (Third World?), then withholding these minerals from the West."THE RESOURCES WAR", "Congressional Handbook on U.S. Materials Import Dependency" House Committee on Banking, Finance, and Urban Affairs, September 1981, pp. 160-174
An important way of getting around a cobalt situation or a "Resource War" situation is to use substitutes for a material in its end-uses. Some criteria for a satisfactory substitute are (1) ready availability domestically in adequate quantities or availability from contiguous nations, or possibly from overseas allies, (2) possessing physical and chemical properties, performance, and longevity comparable to the material of first choice, (3) well-established and known behavior and properties particularly as a component in exotic alloys, and (4) an ability for processing and fabrication with minimal changes in existing technology, capital plant, and processing and fabricating facilities. Some suggested substitutions were alunite for bauxite to make alumina, molybdenum and/or nickel for cobalt, and aluminum alloy automobile radiators for copper alloy automobile radiators."SUBSTITUTION", "Congressional Handbook on U.S. Material Import Dependency" House Committee on Banking, Finance, and Urban Affairs, September 1981, pp. 242-254 Materials can be eliminated without material substitutes, for example by using discharges of high tension electricity to shape hard objects that were formerly shaped by mineral abrasives, giving superior performance at lower cost,Charles W. Merrill "Mineral Obsolescence and Substitution" "Mining Engineering", AIME, Society of Mining Engineers, September 1964, pp. 55-59 or by using computers/satellites to replace copper wire (land lines).
An important way of replacing a resource is by synthesis, for example, industrial diamonds and many kinds of graphite, although a certain kind of graphite could be almost replaced by a recycled product. Most graphite is synthetic, for example, graphite electrodes, graphite fiber, graphite shapes (machined or unmachined), and graphite powder.
Another way of replacing or extending a resource is by recycling the material desired from scrap or waste. This depends on whether or not the material is dissipated or is available as a no longer usable durable product. Reclamation of the durable product depends on its resistance to chemical and physical breakdown, quantities available, price of availability, and the ease of extraction from the original product.Peter T. Flawn. "Mineral Resources (Geology, Engineering, Economics, Politics, Law)" Rand McNally, Chicago, 1966, pp. 374-378 For example, bismuth in stomach medicine is hopelessly scattered (dissipated) and therefore impossible to recover, while bismuth alloys can be easily recovered and recycled. A good example where recycling makes a big difference is the resource availability situation for graphite, where flake graphite can be recovered from a renewable resource called kish, a steelmaking waste created when carbon separates out as graphite within the kish from the molten metal along with slag. After it is cold, the kish can be processed.P. D. Laverty, L. J. Nicks, and L. A. Walters "Recovery of Flake Graphite from Steelmaking Kish", U.S. Bureau of Mines RI9512, 1994, 23 p.