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.     

Country-scale phosphorus balancing as a base for resources conservation

In order to effectively conserve the non-renewable resource phosphorus (P), flows and stocks of P must be known at national, regional and global scales. P is a key non-renewable resource because its use as fertilizer cannot be substituted posing a constraint on the global food production in the long-term. This paper presents a methodology to establish country-wide P balances that emphasises resource use. We develop a material flow analysis (MFA) model that comprises all relevant flows and stocks of P in five subsystems, seven processes and 36 material flows. For quantification, statistical data from economic and agricultural sources as well as available information about P partitioning in natural and anthropogenic processes are used. Special attention is paid to data gaps and uncertainties. The model was tested in two case studies on P management in Turkey and Austria. MFA appears to be a tool well suited for establishing country-wide P balances, provided that national statistics are well-structured and accessible. If a common approach is used for modelling P-flows and stocks, regional and national balances can be compared and linked towards larger scale P balances for an improved management of the resource.     

‘Reserves’ as a leading indicator to future mineral production

The factors which influence the size and value of mineral reserves are discussed and an example is given of a more rigorous system for measuring supplies of non-renewable resources.The extent to which reserves and resources of minerals can be used as leading indicators of future mineral production is examined and examples of the dangers of over-reliance on this factor are described.Key aspects, such as confidence limits, differences in the economic exploitability, the dynamic nature of reserves, and their variability in grade, are examined in some detail using the South African coal industry as an example.     

Mineral reserves: Projected lifetimes and security of supply

This article analyses the lifetimes of reserves of three dozen important minerals. Despite the high rate of their extraction in the past 30 years, the recorded reserves of these non-renewable materials were higher in 1981 than in 1950 and they seem to meet foreseeable demand for a long time to come, as indicated by the estimated static lifetime for each of the minerals covered. The dynamic nature of ‘reserves’ is emphasized: further exploration and scientific and technological advance will add to the present proven reserves, and at a higher price further resources will be ‘upgraded’ into commercially exploitable reserves. Apparent long-term security can be disturbed by natural disasters, political events or other factors, especially in the case of minerals whose reserves and production are highly concentrated in one country. However, any such interruption in the continuity of supply is likely to be short-lived.     

Copper in India: Present and future outlook

The availability of mineral resources plays an important role in India's national economy. Copper, one of the important non-ferrous metals, has various industrial uses and demand for it is increasing in India where the inventory and production of copper, though not comparable with developed countries, shows an impressive growth rate, particularly during the last decade. With an increasing rate of industrial production envisaged in future plans copper consumption is expected to rise. Logistic curves have been used to study the potential long-term production capability under the dynamic concept of reserves and resources, with curves drawn for various estimates of total available resources. The production figures shown are not final and are subject to change due to a number of factors. This approach merely provides a method for projecting trends in future production.     

Formulation of resource depletion index

A resource depletion index can serve as a quantitative tool to evaluate the level of depletion for natural resources. This study introduces two types of resource depletion indices, the global resource depletion index and the local resource depletion index. Global resource depletion index mainly concerns global reserves and the annual consumption rate of these resources. The local resource depletion index not only considers global reserves and their annual consumption rate, but also considers the local factors such as local reserves, local recycling rates, and local resource import characteristics. This study considers the local resource characteristics of Taiwan and develops calculations for local resource depletion indexes for the resources of cobalt, molybdenum, tungsten, copper, aluminum, lead and zinc.     

Modelling mining: Open pit copper production in British Columbia

Open pit copper mining in British Columbia is modelled to examine how different price levels affect rates of output and stocks of reserves and to consider the existence and distribution of economic rents. The model depicts the influence of different economic circumstances on production plans, for example, with respect to scale of operations and cutoff grade. To achieve this it represents a balance between the high level of abstraction which has characterized the writing of most economists and the degree of detail and complexity required of models used by operating mines. The model provides a basis for the study of the consequences of alternative forms of taxation, a subject to be pursued in subsequent articles.     

Exploration and discovery of Australia's copper,nickel, lead and zinc resources 1976–2005

Examination of copper, nickel, lead and zinc (base metals) exploration expenditure and discovery in Australia over the period 1976–2005 reveals some significant trends. Australia's base metal resource inventory grew substantially as a consequence of successful exploration over the period, both through addition of resources at known deposits and new discoveries, notably a small number of very large deposits that underpin the resource base. In 2005, Australia had the world's largest economic demonstrated resources (EDR) of nickel, lead and zinc, and the second largest EDR of copper. Growth in nickel resources has been especially strong owing to discovery of large laterite resources in the late 1990s. Resource life, in average terms based on current EDR and production, is approximately 30 years for lead and zinc, 40 years for nickel sulphide (120 years for all nickel EDR) and 50 years for copper. Despite this success, major increases in production over the period (copper, nickel and zinc output increasing 3–4 fold, lead output doubling) and a fall in discovery rates during much of the 1990s means that resource life for lead and zinc is lower and nickel sulphide comparable now to that in 1976; only the resource life of copper has grown substantially over the period. Current published ore reserves are sufficient for at least 15 years operations at current production levels, but only a small number of the largest deposits currently being mined are likely to still be in production in 20 years. However, several mines have substantial inferred resources that may allow production beyond current mine reserves and there is a substantial number of undeveloped deposits that may provide the foundation for extended or new mining operations. The discovery record is strongly cyclical with resource growth for all the base metals punctuated by the discovery of giant (world-class) deposits each decade: these underpin current and future production. Recent higher metal prices and renewed interest in base metals, especially nickel, has reversed a 10 year decline in base metal exploration attended by reduced rates of discovery and resulted in record expenditure, new nickel, copper and zinc discoveries, and increased resources at a number of existing deposits, notably the Olympic Dam copper–uranium–gold deposit. With the exception of the Prominent Hill copper–gold and West Musgrave nickel–copper deposits, most of the recent discoveries, especially zinc (-lead) deposits, are of small tonnage (some of high grade). Nevertheless, these new discoveries have helped stimulate further exploration and also highlight the potential for further discoveries in little-explored provinces, especially those under regolith and shallow sedimentary cover.     

Assessing the social impacts of extensive resource use activities

Extensive forms of resource use are rarely subject to detailed environmental and social assessment. This paper outlines a potential methodology for assessment of the social impacts of extensive resource use activities based on the Pressure-State-Impact-Response (PSIR) model of integrated indicator development. It then tests this methodology through a case study of changed water flow regimes in Central Queensland's Fitzroy River catchment. While resource degradation associated with interruptions to flow was expected to force all resource users to face higher costs and greater uncertainty, negative social impacts were particularly concentrated among vulnerable groups and downstream industries. Extension of the PSIR framework and methodology proved useful in linking social and biophysical research and would thus appear to offer some potential as a model for incorporating social concerns within natural resource decision making.     

Valuing regional geoscientific data acquisition programmes: addressing issues of quantification,uncertainty and risk

Geological surveys worldwide are involved with research in support of sustainable mineral resource development.The socio-economic benefits to be derived from these activities, however, continue to raise organisational and government sector questions. Fundamental questions include whether or not the resources committed are appropriate and in economic balance with the total benefits to be derived. Another question concerns the degree to which such services should be funded by the community at large. These questions in turn raise important issues regarding the role and cost of geological surveys, the impact of their services, and how they should maximise community benefit from their activities and expertise. To assess the value of geoscientific information,standard valuation processes need to be modified. This paper reports on a methodology designed to quantify the 'worth' of programmes upgrading regional geoscientific infrastructure. An interdisciplinary approach is used to measure the impact of geoscientific information using quantitative resource assessment, computer-based mineral potential modelling, statistical analysis and risk quantification to model decision-processes and assess the impact of additional data. These modelling stages are used to address problems of complexity,uncertainty and credibility in the valuation of geoscientific data. A case study demonstrates the application of the methodology to generate a dollar value for current regional data upgrade programmes in the Geological Survey of Queensland. The results obtained are used for strategic planning of future data acquisition programmes aimed at supporting mineral resource management and stimulating effective exploration activity.     

A METHODOLOGY FOR EVALUATING DEVELOPMENT-ENVIRONMENTAL CONFLICTS ON WILD AND SCENIC RIVERS1

ABSTRACT: A methodology is developed for examining the environmental and developmental conflicts inherent in the classification process of a wild river. The Salmon River in Idaho is used as an example of the methodology. The steps were: 1. a resource inventory, 2. an evaluation methodology, and 3. an economic comparison of resource use tradeoffs. Alternatives for the Salmon were examined, following generally the procedures outlined in the United States Water Resources Council's Establishment of Principles and Standards for Planning Water and Related Land Resources Final comparisons showed that hydroelectric development had greater net benefits than outdoor recreation at up to a three percent recreation growth rate. When recreation use grew at a faster rate, recreation had a considerable margin of net benefits in its favor.     

On technical change in the elasticities of resource inputs

This article analyses growth of an economy where the substitutability between non-renewable and renewable resource inputs changes over time. We allow for exogenous technical change in the elasticity of substitution (EoS) between these two types of resources as well as for biased factor-augmenting technical change. Our main results are: (1) sustained technical change in the EoS is enough to overcome resource constraints; (2) productivity-enhancing technical change is most beneficial when directed to the resource which is currently most important for production; (3) the speed of productivity-enhancing technical change is crucial for its usefulness to overcome resource constraints; (4) sustainability depends critically on the type of technical change.     

A normative strategy for sustainable resource choice and recycling

A normative strategy is proposed for resource choice and recycling to meet the criterion of sustainability, defined as near constancy of natural resources. In this strategy resource choice should be fitted to the fate of products and product wastes, with geochemically scarce virtually non-renewable resources being reserved for uses that allow for nearly 100% recycling and negligible loss of irretrievable material and material deterioration. Sustainable recycling is argued to be strongly dependent on product design that slows loss of quality by products and materials. Recycling processes should aim at quality conservation by cascading. Non-product and recycling outputs should match with required inputs into the economy. Finally technologies should be employed that prevent the build-up of contaminants in products. Examples are given of the ways in which elements of this normative strategy may be implemented. Internalisation of currently external costs will strongly favour the proposed strategy.     

Exergy losses during recycling and the resource efficiency of product systems

Recycling materials have always some degree of contamination. The presence of contaminations in the recycling streams causes a shift in the original composition of the materials to recycle. As a consequence, their quality may decrease with each recycling step. Additionally, lower quality resources are produced from resource streams that had initially a higher quality. These quality losses cannot be measured by mass balances, as the quality degradation cannot be translated by mass measures alone. To account all losses caused by recycling contaminations, all downstream recycling processes required to bring the materials back to the resource cycles must be included. This article describes a method to calculate the exergy content and exergy losses of metal solutions during recovery and recycling. The losses attributed to recycling, namely the material losses, the contamination losses with other metals, and the consequent need for dilution can be used as indicators of the quality loss of materials and of the efficiency of resource use in product systems. Therefore, exergy is proposed here as a measure of the efficiency of resources use.     

Assessing the long-run availability of copper

This study questions recent research [Gordon, R.B., Bertram, M., Graedel, T.E., 2006. Metal stocks and sustainability. Proc. Natl. Acad. USA 103(5), 1209–1214] that concludes that the world is likely to experience a growing scarcity of copper over this century. In particular, it focuses on the methodology used in this work that assumes the usable copper contained in the earth is a fixed amount. While the fixed-stock paradigm is intuitively appealing—after all the earth is finite so the amount of any commodity it contains must also be finite—and used with some frequency by others as well to assess long-run trends in the availability of non-renewable mineral resources, it is flawed and can lead to overly pessimistic as well as overly optimistic expectations. A more useful and appropriate approach, the opportunity-cost paradigm, assesses long-run trends in availability by real prices or alternative measures of what society has to give up or sacrifice to obtain another ton of copper or barrel of oil. This approach indicates that copper could conceivably become less scarce by the end of the century. Whether this will be the case or whether copper will be more scarce, however, depends on a number of factors, including the future course of technological change, whose influence no one can predict with any degree of certainty decades in advance.     

Copper, Cobalt, Nickel and Manganese Availability from Land-based Endowments A Perspective

Estimates of land-based demonstrated resources of cobalt, copper, manganese, and nickel would indicate adequate supply for many years to come based on current levels of annual consumption. However, when these resource estimates are disaggregated, much of this resource is found to occur in a limited number of producing mines. Almost all of the cobalt in these resources coexists with either nickel or copper, and as such, will be available only to the degree extraction of these two metals from existing mines is economical. Finally, current projections of excess capacity in existing mines for all four metals, coupled with additional inferred resources at these mines and yet to be exploited resources in known economical deposits, would lead one to conclude that, from this perspective, the mining of sea bed nodules is not likely to occur until well into the next century.     

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.     

中国盾叶薯蓣资源现状及保护对策

论述了我国盾叶薯蓣的野生资源现状、人工种植生产现状、资源濒危原因及应采取的保护对策.指出:我国现有盾叶薯蓣野生资源蕴藏量估计在200万kg左右,资源数量已大为下降,然而年需求量却高达2亿kg以上,供需矛盾十分突出.造成资源濒危的主要原因是利用过度、生境及种质资源被破坏、家种者皂素含量低且质量差而不能大批量用于皂素生产.建议在采取有效保护野生资源的同时,尽快建立全国性良种繁育基地,按GAP要求建立我国现代化、规模化、规范化的高产优质药材原料生产基地,从根本上解决当前盾叶薯蓣资源保护与利用的矛盾.     

Using the multiple capitals framework to connect indicators of regional cumulative impacts of mining and pastoralism in the Murray Darling Basin,Australia

It is commonly recognized that there are constraints to successful regional-scale assessment and monitoring of cumulative impacts because of challenges in the selection of coherent and measurable indicators of the effects. It has also been sensibly declared that the connections between components in a region are as important as the state of the elements themselves. These have previously been termed “linked” cumulative impacts/effects. These connections can be difficult to discern because of a complicated set of interactions and unexpected linkages. In this paper we diagnose that a significant cause of these constraints is the selection of indicators without due regard for their inter-relationships in the formulation of the indicator set. The paper examines whether the common “forms of capital”, i.e., natural (renewable and non-renewable), manufactured, social, human and financial capitals, framework is a potential organizing structure. We examine a large region in western NSW Australia where the predominant production systems are mining and grazing for production of wool, beef and lamb. Production in both is driven by consumption of a non-renewable resource, i.e., ore for mining and topsoil for grazing, the latter on the basis that loss rate estimates far exceed soil formation rates. We propose that the challenge of identifying connections of components within and between capital stores can be approached by explicitly separating stores of capital and the flows of capital between stores and between elements within stores, so-called capital fluxes. We attempt to acquire data from public sources for both capital stores and fluxes. The question of whether these data are a sufficient base for regional assessment, with particular reference to connections, is discussed. The well-described challenge of a comparative common currency for stores and fluxes is also discussed. We conclude that the data acquisition is relatively successful for stores and fluxes. A number of linked impacts are identified and discussed. The potential use of money as the common currency for stores and fluxes of capital is considered. The basic proposition is that replacement or preservation costs be used for this. We conclude that the study is sufficiently positive to consider further research in fully-coupled models of capital stores and fluxes.     

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.