Natural Resource Economics

Introduction to natural Resources

• Natural resources - resources that exist in
nature without any human effort.
• This includes all valued characteristics such as
magnetic, gravitational, and electrical
properties and forces.
• On earth it includes; sunlight, atmosphere,
 water, land (including all minerals) , air  along
with all vegetation and animal life that
naturally exists.
• A natural resource may exist –
• as a separate entity such as fresh
water, and air,
• as well as a living organism such as a
fish,
• or it may exist in an alternate form
which must be processed to obtain
the resource such as metal ores, 
petroleum, and most forms of energy.
• Some natural resources : sunlight and air, can be
found everywhere, - known as ubiquitous
resources.
• However, most resources only occur in small
sporadic areas, - referred to as localized
resources.
• very few resources are considered inexhaustible
(will not run out in foreseeable future) – solar
radiation, geothermal energy, and air (though
access to clean air may not be).
• The vast majority of resources are theoretically
exhaustible, => they have a finite quantity and
can be depleted if managed improperly.
 Types of Natural Resources
• There are various methods of categorizing
natural resources,
• these include source of origin, stage of
development, and by their renewability.
• On the basis of origin, natural resources may
be divided into:
• Biotic — obtained from the biosphere 
(living and organic material), such
as forests and animals, and the materials that
can be obtained from them => fossil
fuels such as coal and petroleum 
• Abiotic – that come from non-living, non-
organic material, e.g.  land, fresh water, air
 and heavy metals including ores such as gold
, iron, copper, silver, etc.
• Considering their stage of development:
• Potential resources — that exist in a region and may be used in
the future. For ex., petroleum occurs with sedimentary rocks in
various regions, but until the time it is actually drilled out and
put into use, it remains a potential resource.
• Actual resources — that have been surveyed, their quantity and
quality determined and are being used in present times. The
development of an actual resource, such as wood processing
 depends upon the technology available and the cost involved.
• Reserve resources — The part of an actual resource which can
be developed profitably in the future is called a reserve
resource.
• Stock resources — Stock resources are those that have been
surveyed but cannot be used by organisms due to lack of
technology. For example: hydrogen.
• On the basis of renewability:
• Renewable resources — Renewable resources can be
replenished naturally.
• Some of these resources, like sunlight, air, wind, water,
etc., are continuously available and their quantity is
not noticeably affected by human consumption.
• Though many renewable resources do not have such a
rapid recovery rate, these resources are susceptible to
depletion by over-use.
• Resources from a human use perspective are classified
as renewable only so long as the rate of
replenishment/recovery exceeds that of the rate of
consumption.
• Non-renewable resources – Non-renewable
resources either form slowly or do not naturally
form in the environment.
• Minerals are the most common resource included
in this category.
• By the human perspective, resources are non-
renewable when their rate of consumption exceeds
the rate of replenishment/recovery; a good
example of this are fossil fuels, which are in this
category because their rate of formation is
extremely slow (potentially millions of years),
meaning they are considered non-renewable.
• Some resources actually naturally deplete in
amount without human interference,
• the most notable of these being radio-active
elements such as uranium, which naturally
decay into heavy metals.
• Of these, the metallic minerals can be re-used
by recycling them, but coal and petroleum
cannot be recycled.
 Property Right
• Property rights:
 relates to the right to use and own a resource or
economic good
 Refers to a bundle of entitlements defining the
owner’s rights, privileges, and limitations for use
of the resources
• Resources can be owned by (and hence be the
property of) individuals, associations or
governments.
• Property rights can be viewed as an
attribute of an economic good.
• This attribute has four broad components:
1. the right to use the good
2. the right to earn income from the good
3. the right to transfer the good to others
4. the right to enforce property rights
 Property-rights regimes
• Property rights (ownership) are classified into
four types based on:
• Who has the right of access to the resource
• Who will decide limitations on level of
extraction
1. Open-access property
2. Public property
3. Common property
4. Private property
Open-access property
• not 'owned' by anyone.
• non-excludable but may be rival
• not managed by anyone, and access to it is not
controlled
• no constraint on anyone using it
• individuals and groups take whatever resources
they seek from a particular environment
• Examples : the upper atmosphere (navigable
airspace) or ocean fisheries (navigable
waterways).
Open-access property may exist
• because ownership has never been established,
granted, by laws within a particular country,
• or because no effective controls are in place,
• or feasible, i.e., the cost of exclusion outweighs
the benefits.
• The government can sometimes effectively
convert open access property into private,
common or public property through the land
grant process, by legislating to define
public/private rights previously not granted.
Common property or collective property
• owned by a group of individuals
• Access, use, and exclusion are controlled by the
joint owners
• owners have greater ability to manage conflicts
through shared benefits and enforcement.
• Example: Hunting area controlled by a group
would control the resource in two ways
- Exclude non members
- Regulate activities of members
• Under this there were certain special
mechanisms
―CPR could be given for individual use, but the
jurisdiction remain with the group

CPR in Nepal
• Community Managed Forest
- CFUGs -ownership to use and mange forest
resources effective.
• Irrigation User Groups (IUGs)
Public property (also known as state property)
• owned by all, but its access and use are
controlled by the state or community.
• An example is a national park or a state-owned
enterprise.
• sometimes state ownership is established as a
response to the unsatisfactory private ownership
• State ownership may also be established because
private ownership is proved to be unable to
manage the resources in a sustainable manner.
• Current trend is to transfer from state to private
sector.
Private property
• both excludable and rival.
• Private property access, use, exclusion and
management are controlled by the private
owner or a group of legal owners
Climate Change: Mitigation and Adaptation

• Climate change mitigation consists of actions to limit

the magnitude or rate of long-term climate change.
• Climate change mitigation generally involves
reductions in human emissions of greenhouse gases
• Mitigation may also be achieved by increasing the
capacity of carbon sinks, e.g., through reforestation.
• Mitigation policies can substantially reduce the risks
associated with human-induced global warming.
• Effective climate change mitigation will not be
achieved if each agent (individual, institution
or country) acts independently in its own
selfish interest.
• So there is a need of collective actions.
• One of the issues often discussed in relation to
climate change mitigation is the stabilization of
greenhouse gas concentrations in the
atmosphere.
Methods and Means:
• Alternative energy sources:
• Renewable energy sources – sunlight, wind,
rain, tides, plant growth, geothermal heat
• Nuclear power
• Coal to gas fuelswitching
• Heat pump
Demand side management:
• Energy efficiency and conservation
• Demand side switching sources
• Demand side grid management
• Life style and behaviour
Sinks and negative emissions:
• Reforestation and afforestation
• Avoided desertification
• Carbon capture and storage
• Adaptation is a response to global warming and
climate change, that seeks to reduce the
vulnerability of social and biological systems to
relatively sudden change and thus offset the
effects of global warming
• Even if emissions are stabilized relatively soon,
global warming and its effects will last many years,
and adaptation will be necessary to the resulting
changes in climate.
• Adaptation is especially important in developing
countries since those countries are predicted to
bear the brunt of the effects of global warming.
• the capacity and potential for humans to adapt
(called adaptive capacity) is unevenly
distributed across different regions and
populations, and developing countries
generally have less capacity to adapt
• Adaptive capacity is closely linked to social and
economic development (IPCC, 2007). The
economic costs of adaptation to climate
change are likely to cost billions of dollars
annually for the next several decades, though
the amount of money needed is unknown.