Chapter 17

Natural Resource and

Energy Economics

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 Resource Supplies: Doom or Boom?

• Population increased from 1 to 7 billion

• Standard of living is 12 times higher
• Consumption of resources is much higher

LO1 17-2
 Population Growth

• Thomas Malthus (1798) predictions

• Replacement rate
• Total fertility rate
• Modernization
• Death rates fall
• Fertility rate falls below replacement rate

LO1 17-3
 Total Fertility Rates, 2012
Country Total Fertility Rate
Australia 1.77
Canada 1.59
China 1.55
France 2.08
Germany 1.41
Hong Kong 1.09
Italy 1.40
Japan 1.39
Russia 1.61
South Korea 1.23
Sweden 1.67
United States 2.06

LO1
Source: The World Factbook, www.cia.gov. Data are 2012 estimates. 17-4
 Resource Consumption Per Person

• Increasing commodity demand

• Population growth
• Rising consumption per person
• Commodity supply has risen faster than
demand
• Commodity prices are falling

LO1 17-5
 Resource Consumption Per Person

LO1 17-6
 Resource Consumption Per Person

• 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

LO1 17-7
 Resource Consumption Per Person

LO1 17-8
 Resource Consumption Per Person

• 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

LO1 17-9
 Resource Consumption Per Person

LO1 17-10
 Resource Consumption Per Person

LO1 17-11
 Energy Economics

LO2 17-12
 Efficient Electricity Use

• The Challenge: Highly Variable Demand

• Variations in fixed costs
• Daily variations in demand
• Different types of generation technology

LO2 17-13
 Efficient Energy Use

LO2 Source: United States Energy Information Administration, www.eia.doe.gov. 17-14

 Running Out of Energy?

• No likelihood of running out of energy

• Running out of cheap energy
• Multiple sources of supply
• Environmental impacts

LO3 17-15
 Running Out of Energy?

Sources: Cambridge Energy Research Associates, www.cera.com; The Economist, April 22, 2006,
www.economist.com.
LO3 17-16
 Natural Resource Economics

• Policies for extracting resources to maximize

net benefits
• Present vs. future consumption
• Present value
• Renewables vs. Nonrenewables
• Renewable natural resources
• Nonrenewable natural resources

LO4 17-17
 Natural Resource Economics

• Optimal Resource Management

• Extraction strategy to maximize stream of
profits
• User cost
• Sell today, cannot sell in the future
• Higher expected demand encourages less
extraction today
• Property rights
LO4 17-18
 Natural Resource Economics

TC = EC + UC

EC
B A
Dollars

UC

0 Q2 Q1 Q0

First-year quantity extracted

LO4 17-19
 Natural Resource Economics

TC = EC + UC1

TC = EC + UC0
Dollars

EC

UC

0 Q1 Q0

First-year quantity extracted

LO4 17-20
 Renewable Resources

• Elephant preservation
• Strong property rights
• Forest management
• Optimal forest harvesting
• Differences in property rights
• Variation in growth rates

LO5 17-21
 Global Perspective

LO5 17-22
 Optimal Forest Harvesting

LO5 17-23
 Renewable Resources

• Optimal fisheries management

• Difficult to assign property rights
• Policies to limit catch sizes
• Total allowable catch (TAC)
• Individual transfer quota (ITQs)

LO5 17-24
 Renewable Resources
Fishery Market Value of Catch
Sea scallop $455,693,743
Lobster 399,476,190
Walleye pollock 282,399,223
Sockeye salmon 278,646,491
Pacific halibut 206,958,364
White shrimp 191,608,324
Blue crab 189,784,233
Pacific cod 146,940,754
Brown shrimp 144,592,574
Dungeness crab 140,443,133

LO5 17-25
 Renewable Resources

LO5 17-26
 Is Economic Growth Bad for the
Environment?
• Richer countries:
• Produce and consume more
• Spend more to maintain the environment
• Earn higher scores on measures of
environmental quality (EPIs)

17-27