Natural resource economics: Relevance in planning and management

This article provides an overview of natural resource economics. It begins with a summary of historical and current views on resource scarcity. It then discusses economic models for optimal management of non-renewable and renewable resources at the micro and macro levels and evaluates their usefulness in planning, management and policy making.     

The measurement of resource rents: An application to Canadian nickel

Once the ‘risk’ of the industry is recognized, there are at least two sources of higher-than-normal returns to investment in mineral extraction: Ricardian rents to resources with different economic qualities and monopoly rents. An estimate of the relative importance of these sources in the Canadian nickel industry over the period 1961-74 is made and it is found that Ricardian rents and, for one firm, monopoly rents, were important.     

Wave energy vs. other energy sources: A reassessment of the economics

The large scatter in the predictions of wave energy costs, which is caused in part by the simplifications assumed by existing models, is a hindrance for the development of this promising renewable. In this context, the main objective of this paper is to reassess the cost of wave energy taking into account a number of elements that are usually overlooked, or not considered simultaneously. This analysis has been performed in relation to the European context. The direct and indirect costs of a wave farm are examined, and a value for each is presented. The levelized cost (€/MWh) of wave energy is then calculated for different scenarios in order to compare the profitability of wave energy with that of other energy sources. After that, a sensitivity analysis is carried out to identify the main parameters affecting the total cost, considering in particular the effect on the levelized cost of considering: (i) the cost reductions arising from economies of scale and technological effects; (ii) an O&M cost variable throughout the useful life of the farm; and (iii) the externalities. In sum, this work sets the basis for a thorough economic comparison of wave energy with other sources of energy.     

Uranium resource appraisal: Past trends and outlook for adequacy of supply

As uranium has practically no other industrial uses besides electricity generation, demand is determined by the requirements and stockpiling policies of electric utilities. The uranium market has experienced strong fluctuations and is currently affected by the reductions in nuclear forecasts resulting from the slowdown in electricity demand. Analysing supply/demand indicators proves, however, that in retrospect the development has been relatively smooth and it appears that oversupply is more a consequence of overly optimistic short-term expectations. In the future, especially in the long term, nuclear power policies continue to be concerned with striking a proper balance between increasing production capability and development of new reactor technologies which would be less dependent on the availability of uranium. A bounding scenario approach is applied in this article to the assessment of adequacy of supply under varying assumptions on the total installed nuclear capacity, available resource base and attainable production capability.     

Efficiency of energy delivery systems: I. An economic and energy analysis

Energy-return-on-investment (ERI) analysis is a variation of more traditional cost-benefit analyses, a variation that is particularly important in times of diminishing fuel resources. We present a simple set of procedures for ERI analysis and apply those procedures to central New York State, where there is a proposal for a new 870 MW_e coal-fired generating station. We compared the energy and dollar costs of building that facility with the costs of an alternative comprehensive regional program of insulation. The analysis showed that regional insulation was more efficient in conserving energy than the plant was in providing it by at least a factor of 4 in economic terms and by a factor of more than 15 when viewed as energy returned on energy invested.     

Uncertainty in exhaustible natural resource economics: The irreversible sunk costs of Hotelling

According to Pindyck (2007) there are three important aspects of uncertainly in environmental economics: (1) the benefits and costs of environmental policy tend to be highly non-linear, (2) environmental policy tends to involve important irreversibilities, where investment in pollution abatement can impose an irreversible, sunk cost on society, and where certain pollutants can stay in the environment forever and build up to cause even more future harm in which case investment in abatement can cause an irreversible, sunk benefit to society, and (3) environmental policy involves long time horizons and yet the discount rate society should use is uncertain for determining the net present value of costs and benefits of pollution abatement. These same uncertainties also affect non-renewable, exhaustible, natural resource economics and in particular the use of the Hotelling rule: (1) the costs, benefits and transversality conditions of using the Hotelling rule can be highly non-linear, (2) the Hotelling rule involves important sunk cost irreversibilities, which will be explained here, and (3) the Hotelling rule can involve long time horizons with uncertain discount rates. All three of these problem make it extremely difficult for a market to use in any way the Hotelling rule, yet by the sheer number of articles in non-renewable natural resource economics, one would believe that it is the basis of all resource markets. In this article, we concentrate on the sunk cost irreversibilities of using the Hotelling rule. The idea of the Hotelling rule is to optimally store a non-renewable resource, but the optimization is highly dependent on the actual reserves that are available to extract. However, reserves of underground exhaustible resources are often unobservable at the beginning stages of extraction which makes using the Hotelling Rule difficult.     

Drivers of illegal resource extraction: An analysis of Bardia National Park,Nepal

While park-people conflicts have received worldwide attention, the extent of illegal resource extraction and the relationship with communities’ livelihoods has gained little attention in the literature. Thus this paper investigates the impact of socio-economic factors involved in illegal fuel wood and fodder extraction at Bardia National Park in Nepal. Household questionnaires, key-informant interviews and focus groups were conducted to identify different plant species used by households and explore the causes and mode of resource extraction in three buffer zone villages in the park. Altogether 50 different plants were identified by villagers that were used regularly for different livelihood purposes. Almost half of the respondents met their needs by illegally and regularly extracting resources from the park. Incentive schemes in the form of development projects were important but not sufficient in meeting the basic needs of households’ especially for such daily items such as fuel wood and fodder. The results described in this paper showed that proximity and access to resources either in the national park, the buffer zone community forest or the government forest, and impact on the livelihoods significantly influenced the likelihood of illegal resource extraction activities. Villages that differed in terms of their location to the resource base, the provision of alternative resources and influence of these on their livelihoods showed significant differences in terms of their patterns of resource extraction and use of these resources. As resource use options, resource interest, and resource extraction patterns were different between villages and dependent on circumstances specific to villages, site-specific management strategies were necessary and more influential than the enforcement of ‘one-size fits all’ policies. It is suggested that park management plans should be flexible and adaptive enough to meet site-specific contexts and to endear wider support from local communities.     

An analysis of the relationship between uncertainty-reducing exploration and resource taxation

This paper analyses the role of exploration as an uncertainty-reducing activity for a company facing resource taxation. Such exploration is of benefit, even to a risk-neutral company, because it enables a better decision to be made regarding extraction investment (Kretzer, 1994). This paper extends previous contributions to the economics of exploration in several areas which are of practical significance. First, exploration is analysed both in the context of a log-normally distributed resource deposit and of an ad valorem royalty. Second, the role of exploration in an ad valorem royalty regime is contrasted with that of a Resource Rent Tax. Finally, the relationship between exploration and resource taxation in situations of very divergent pre-exploration levels of uncertainty is considered.     

Natural resource planning: An urban prospective

The use and development of natural resources is becoming a critical concern, especially considering the economic development and stability of the world money market. The question here is one of resources as a political weapon. As resources become more scarce, it becomes necessary to make greater intensive use of resources that are presently available. One dimension that has been missing is the development of urban areas. Resources in this domain have been abused and the question now is how to incorporate these types of decisions into land-use planning to refurbish urban areas. Planning is the key to use of a resource. The world can no longer afford crisis planning. The key dimension to future success in resource problems is preventive planning.     

Behavioral externalities in natural resource production possibility frontiers: integrating biology and economics to model human-wildlife interactions

Production possibility modeling has been applied to a variety of wildlife management issues. Although it has seen only limited employment in modeling human-wildlife output decisions, it can be expected that the theory's use in this area will increase as human interactions with and impacts on wildlife become more frequent. At present, most models applying production possibility theory to wildlife production can be characterized in that wildlife output quantities are determined by physically quantifiable functions representing rivalrous resources. When the theory is applied to human-wildlife interactions, it may not be sufficient to model the production tradeoffs using only physical constraints. As wildlife are known to respond to human presence, it could be expected that human activity may appear in wildlife production functions as an externality. Behavioral externalities are revealed by an output's response to the presence of another output and can result in a loss of concavity of the production possibilities frontier. Ignoring the potential of a behavioral externality can result in an unexpected and inefficient output allocation that may compromise a wildlife population's well-being. Behavioral externalities can be included in PPF models in a number of ways, including the use of data or cumulative effects modeling. While identifying that behavioral externalities exist and incorporating them into a model is important, correctly interpreting their implications will be critical to improve the efficiency of natural resource management. Behavioral externalities may cause a loss of concavity anywhere along a PPF that may compel managerial decisions that are inconsistent with multiple use doctrines. Convex PPFs may result when wildlife species are extremely sensitive to any level of human activity. It may be possible to improve the PPF's concavity by reducing the strength of the behavioral effect. Any change in the PPF that increases the convexity of the production set could offer natural resource managers additional opportunities to optimally provide multiple natural resource outputs. Techniques that minimize the effect could focus on either the human or wildlife outputs, or both. Methods could focus on reducing the externality itself through changing the production of the offending output or to reduce the impact of the externality through a change in the production of the affected output. Managers unfamiliar with PPF modeling can employ PPF thinking by recognizing that every decision involves tradeoffs and that sometimes these tradeoffs are unnecessary negative impacts that could be mitigated without compromising the resource.     

South African gold mining taxation : An example of a resource rent tax

Theoretically, a resource rent tax is neutral in that it does not influence the allocation of resources. However, the application of such fundamental principles in the tax formula of the South African gold mining industry negates the neutrality principle. A progressive element in the tax rate encourages mining of submarginal ores - leads to misallocation of resources. However, it substantially reduces the financial risks of a mining company engaged in the extraction of a commodity characterized by price volability, such as gold, and permits economies of scale in mining and encourages conservation of a non-renewable resource. As long as prices increase faster than costs, the advantages of this system probably exceed the disadvantages. The choice of the threshold rate in such a tax system is critical. If it is too high it will encourage mining of submarginal ores, and if too low it does not recognize the peculiar risks of gold mining investments.     

Mineral economics: Overview of a discipline

Mineral economics is the academic discipline that investigates and promotes understanding of economic and policy issues associated with the production and use of mineral commodities. While its origins can be traced back at least 200 years to the writings of David Ricardo and other early Classical economists, it emerged as a separate academic field only after World War II and then primarily in the United States. As a separate academic discipline, its roots are found in mining schools that needed to consider the milieu in which minerals are sold. While geologists, mining engineers, and others with technical backgrounds were largely responsible for creating the first stand-alone mineral-economics programs, ultimately trained economists became participants as well. Moreover, even after the rise of mineral-economics departments, most of the research in the field continued and continues to be carried out in other academic units, including traditional economic departments and engineering schools, as well as in government agencies, nonprofit research organizations, consulting firms, and international organizations.     

Feeding fossil fuels to the soil: An analysis of energy embedded and technological learning in the fertilizer industry

In this paper, we assess energy demand due to fertilizer consumption in the period 1961–2001. Based on historical trends of gross energy requirements, we calculated that in 2001, global energy embedded in fertilizer consumption amounted to 3660 PJ, which represents about 1% of the global energy demand. Total energy demand has increased at an average rate of 3.8% p.a. Drivers behind the trend are rising fertilizer consumption and a shift towards more energy intensive fertilizers. Our results show that despite significant energy efficiency improvements in fertilizer manufacture (with exception of phosphate fertilizer in the last 20 years) improvements in energy efficiency have not been sufficient to offset growing energy demand due to rising fertilizer consumption. Furthermore, we found that specific energy consumption of ammonia and urea developed in close concordance with the learning curve model, showing progress ratios of 71% for ammonia production and 88% for urea. This suggests an alternative approach for including technological change in energy intensive industries in middle and long-term models dealing with energy consumption and CO₂ emissions, while few learning curves exist for energy efficiency of end use technologies.     

Resolution of an uncertain closed-loop logistics model: An application to fuzzy linear programs with risk analysis

With the urgency of global warming, green supply chain management, logistics in particular, has drawn the attention of researchers. Although there are closed-loop green logistics models in the literature, most of them do not consider the uncertain environment in general terms. In this study, a generalized model is proposed where the uncertainty is expressed by fuzzy numbers. An interval programming model is proposed by the defined means and mean square imprecision index obtained from the integrated information of all the level cuts of fuzzy numbers. The resolution for interval programming is based on the decision maker (DM)’s preference. The resulting solution provides useful information on the expected solutions under a confidence level containing a degree of risk. The results suggest that the more optimistic the DM is, the better is the resulting solution. However, a higher risk of violation of the resource constraints is also present. By defining this probable risk, a solution procedure was developed with numerical illustrations. This provides a DM trade-off mechanism between logistic cost and the risk.     

Does salt marsh fertilization enhance shellfish production? An application of flow analysis

The method of flow analysis, which is similar to economic input-output analysis, is presented as a means of making flow models of ecological systems more useful to environmental managers. This paper considers as an illustration the extent to which nitrogen fertilizer added toSpartina salt marsh sediments can enhance shellfish growth. Nitrogen flow models of both the Barataria Bay salt marsh complex of coastal Louisiana and the Sippewissett Marsh of western Cape Cod are analyzed. The analysis shows the transfer of added nitrogen to shellfish growth viaSpartina growth, decomposition, and detrital feeding to be considerably less efficient than its transfer toSpartina growth itself. These results are similar for both marsh systems, despite their great physical differences and despite the inclusion of considerably more microbial processing of nitrogen in the Barataria Bay model than in the Sippewissett models. The results suggest that the most efficient mechanism by which added nitrogen could enhance shellfish growth in salt marshes may have to bypass the route through theSpartina life cycle.     

Environmental impacts of different food waste resource technologies and the effects of energy mix

The environmental impacts of food waste management strategies and the effects of energy mix were evaluated using a life cycle assessment model, EASEWASTE. Three different strategies involving landfill, composting and combined digestion and composting as core technologies were investigated. The results indicate that the landfilling of food waste has an obvious impact on global warming, although the power recovery from landfill gas counteracts some of this. Food waste composting causes serious acidification (68.0 PE) and nutrient enrichment (76.9 PE) because of NH₃ and SO₂ emissions during decomposition. Using compost on farmland, which can marginally reduce global warming (−1.7 PE), acidification (−0.8 PE), and ecotoxicity and human toxicity through fertilizer substitution, also leads to nutrient enrichment as neutralization of emissions from N loss (27.6 PE) and substitution (−12.8 PE). A combined digestion and composting technology lessens the effects of acidification (−12.2 PE), nutrient enrichment (−5.7 PE), and global warming (−7.9 PE) mainly because energy is recovered efficiently, which decreases emissions including SO₂, Hg, NO_x, and fossil CO₂ during normal energy production. The change of energy mix by introducing more clean energy, which has marginal effects on the performance of composting strategy, results in apparently more loading to acidification and nutrient enrichment in the other two strategies. These are mainly because the recovered energy can avoid fewer emissions than before due to the lower background values in power generation. These results provide quantitative evidence for technical selection and pollution control in food waste management.     

Influence of manure application on surface energy and snow cover: field experiments

Application of manure to frozen and/or snow-covered soils of high-latitude, continental climate regions is associated with enhanced P losses to surface water bodies, but the practice is an essential part of most animal farming systems in these regions. Field experiments of the fates of winter-applied manure P are so difficult as to make them essentially impractical, so a mechanistic, modeling approach is required. Central to a mechanistic understanding of manure P snow-melt runoff is knowledge of snowpack disappearance (ablation) as affected by manure application. The objective of this study was to learn how solid manure applied to snow-covered fields modulates the surface energy balance and thereby snow cover ablation. Manure landspreading experiments were conducted in Arlington, WI during the winters of 1998 and 1999. Solid dairy manure was applied on top of snow at a rate of 70 Mg ha(-1) in 1998, and at 45 and 100 Mg ha(-1) in 1999. Results showed that the manure retarded melt, in proportion to the rate applied. The low-albedo manure increased absorption of shortwave radiation compared with snow, but this extra energy was lost in longwave radiation and turbulent flux of sensible and latent heat. These losses result in significant attenuation of melt peaks, retarding snowmelt. Lower snowmelt rates beneath manure may allow more infiltration of meltwater compared with bare snow. This infiltration and attenuated snowmelt runoff may partially mitigate the enhanced likelihood of P runoff from unincorporated winter-spread manure.     

The economics of land application of fresh and composted broiler litter with an environmental constraint

Land application of broiler litter is a common disposal method due to its value as a fertiliser substitute, but presents potential environmental problems because of nutrient runoff. Composting has been suggested as an alternative due to the formation of more stable organic components. The land application of fresh and composted broiler litter are compared as alternative disposal methods. The costs of land application of broiler litter are dominated by spreading because of low nutrient densities relative to commercial fertilisers. Composting broiler litter before land application appears to be substantially less economically attractive than land application of fresh broiler litter because of high costs of production and higher spreading costs due to even lower nutrient density. However, when environmental constraints are placed on the phosphorus concentration from hayfield runoff, composting becomes a more attractive alternative. Composting becomes more viable as the land base for application becomes smaller relative to broiler production; as alternative disposal costs for litter become higher; and as environmental constraints become stricter.     

Assessing the sustainability of forest management: An application of multi-criteria decision analysis to community forests in northern Ethiopia

Continuous deterioration of the natural resource base has become a serious threat to both the ecological systems and economic production in Ethiopia. Many of these problems have been attributed directly or indirectly to the rapid dwindling of the country's forest cover which is associated with unsustainable forest use and management. Closing community woodlands from human and livestock intervention to promote natural regeneration of forests has been one of the environmental restoration strategies pursued in the degraded highland areas of northern Ethiopia. However, local pressure to use reforested community lands for economic benefit has become a major threat to forest sustainability.Using locally identified sets of criteria and indicators for sustainable community forest management, this paper applies a multi-criteria decision analysis tool to evaluate forest management problems in the northern province of Tigray, Ethiopia. Three MCA methods – ranking, pair-wise comparison, and scoring – were used in evaluating the sets of criteria and indicators and alternative forest management scenarios.Results from the study indicate a number of noteworthy points: 1) MCA techniques both for identifying local level sustainability criteria and indicators and evaluating management schemes in a participatory decision environment appear to be effective tools to address local resource management problems; 2) Evaluated against the selected sets of criteria and indicators, the current forest management regime in the study area is not on a sustainable path; 3) Acquainting local people with adequate environmental knowledge and raising local awareness about the long-term consequences of environmental degradation ranked first among the set of sustainability criteria; and 4) In order to harmonize both environmental and economic objectives, the present ‘ecological-biased’ forest management regime needs to be substituted by an appropriate holistic scheme that takes into account stakeholders' multiple preferences and priority rankings.     

Value of information analysis: the state of application

The value of information (VoI) is a decision analytic method for quantifying the potential benefit of additional information in the face of uncertainty. This paper reviews the prevalence of VoI applications reported in the peer-reviewed literature from the years 1990–2011. We categorize papers’ applications across the types of uncertainties considered, modeling choices, and contexts of social importance (such as health care and environmental science). We obtain and analyze statistics on the range of applications and identify trends and patterns in them, and conclude with an interpretation of what these mean for researchers and practitioners as they pursue new efforts. Key results include a substantial increase over the last 20 years in published papers utilizing VoI, particularly in the medical field. Nineteen trends in VoI applications from the period of 1990–2000 to 2001–2011 were found to be at least weakly significant. Beyond simple trends, some characteristics of VoI usage depend on the area of application, and in some cases, certain sets of characteristics tend to be found together.