Natural Resource Economics: The Essentials

Tom Tietenberg, Lynne Lewis

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000477917
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

Natural Resource Economics: The Essentials offers a policy-oriented approach to the increasingly influential field of natural resource economics that is based upon a solid foundation of economic theory and empirical research. Students will not only leave the course with a firm understanding of natural resource economics, but they will also be exposed to a number of case studies showing how underlying economic principles provide the basis for specific natural resource policies. Including current data and research studies, this key text also highlights what insights can be derived from the actual experience.

Key features include:

• Extensive coverage of the major issues including energy, recyclable resources, water policy, land conservation and management, forests, fisheries, other ecosystems, and sustainable development;

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• Introductions to the theory and method of natural resource economics including externalities, experimental and behavioral economics, benefit-cost analysis, and methods for valuing the services provided by the environment;

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• Boxed 'Examples' and 'Debates' throughout the text which highlight global examples and major points for deeper discussions.

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The text is fully supported with end-of-chapter summaries, discussion questions, andself-test exercises in the book, as well aswithmultiple-choice questions, simulations, references, slides, and an instructor's manual on the Companion Website. This text is adapted from the best-selling Environmental and Natural Resource Economics, 11th edition, by the same authors.

Chapter 1

Visions of the Future

From the arch of the bridge to which his guide has carried him, Dante now sees the Diviners . . . coming slowly along the bottom of the fourth Chasm. By help of their incantations and evil agents, they had endeavored to pry into the future which belongs to the almighty alone, and now their faces are painfully twisted the contrary way; and being unable to look before them, they are forced to walk backwards.

—Dante Alighieri, Divine Comedy: The Inferno, translated by Carlyle (1867)

Introduction

The Self-Extinction Premise

About the time the American colonies won independence, Edward Gibbon completed his monumental The History of the Decline and Fall of the Roman Empire. In a particularly poignant passage that opens the last chapter of his opus, he re-creates a scene in which the learned Poggius, a friend, and two servants ascend the Capitoline Hill after the fall of Rome. They are awed by the contrast between what Rome once was and what Rome has become:

In the time of the poet it was crowned with the golden roofs of a temple; the temple is overthrown, the gold has been pillaged, the wheel of fortune has accomplished her revolution, and the sacred ground is again disfigured with thorns and brambles. . . . The forum of the Roman people, where they assembled to enact their laws and elect their magistrates, is now enclosed for the cultivation of potherbs, or thrown open for the reception of swine and buffaloes. The public and private edifices that were founded for eternity lie prostrate, naked, and broken, like the limbs of a mighty giant; and the ruin is the more visible, from the stupendous relics that have survived the injuries of time and fortune.

(Vol. 6, pp. 650–651)

What could cause the demise of such a grand and powerful society? Gibbon weaves a complex thesis to answer this question, suggesting ultimately that the seeds for Rome’s destruction were sown by the Empire itself. Although Rome finally succumbed to such external forces as fires and invasions, its vulnerability was based upon internal weakness.

The premise that societies can germinate the seeds of their own destruction has long fascinated scholars. In 1798, Thomas Malthus published his classic An Essay on the Principle of Population, in which he foresaw a time when the urge to reproduce would cause population growth to exceed the land’s potential to supply sufficient food, resulting in starvation and death. In his view, the most likely response to this crisis would involve rising death rates caused by environmental constraints, rather than a recognition of impending scarcity followed either by innovation or self-restraint.

Historically, our society has been remarkably robust, having survived wars and shortages, while dramatically increasing living standards and life expectancy. Yet, actual historical examples suggest that Malthus’s self-extinction vision may sometimes have merit. Example 1.1 examines two specific cases: the Mayan civilization and Easter Island.

Future Environmental Challenges

Future societies will also face challenges arising from resource scarcity and accumulating pollutants. Many specific examples of these broad categories of problems are discussed in detail in the following chapters. This section provides a flavor of what is to come by illustrating the challenges posed by one pollution problem (climate change) and one resource scarcity problem (water accessibility).

Climate Change

Energy from the sun drives the earth’s weather and climate. Incoming rays heat the earth’s surface, radiating heat energy back into space. Atmospheric “greenhouse” gases (water vapor, carbon dioxide, and other gases) trap some of the outgoing energy.

Without this natural “greenhouse effect,” temperatures on the earth would be much lower than they are now and life as we know it would be impossible. It is possible, however, to have too much of a good thing. Problems arise when the concentration of greenhouse gases increases beyond normal levels, thus retaining excessive heat somewhat like a car with its windows closed in the summer.

Since the Industrial Revolution, greenhouse gas emissions have increased, considerably enhancing the heat-trapping capability of the earth’s atmosphere. According to the US Global Change Research Program (USGCRP) (2014):¹

Evidence from the top of the atmosphere to the depths of the oceans, collected by scientists and engineers from around the world, tells an unambiguous story: the planet is warming, and over the last half century, this warming has been driven primarily by human activity—predominantly the burning of fossil fuels.

As the earth warms, the consequences are expected to affect both humans and ecosystems. Humans are susceptible to increased heat, as shown by the thousands of deaths in Europe in the summer of 2003 due to the abnormal heat waves. Human health can also be affected by diseases such as Lyme disease, which spread more widely as the earth warms. Rising sea levels (as warmer water expands and previously frozen glaciers melt), coupled with an increase in storm intensity, are expected to flood coastal communities with greater frequency. Ecosystems will be subjected to unaccustomed temperatures; some species will adapt by migrating to new areas, but many others are not expected to be able to react in time. While these processes have already begun, they will intensify throughout the century.

EXAMPLE 1.1

A Tale of Two Cultures

The Mayan civilization, a vibrant and highly cultured society that occupied parts of Central America, did not survive. One of the major settlements, Copán, has been studied in sufficient detail to learn reasons for its collapse.

After AD 400 the population growth began to bump into an environmental constraint, specifically the agricultural carrying capacity of the land. The growing population depended heavily on a single, locally grown crop—maize—for food. By early in the sixth century, however, the carrying capacity of the most productive local lands was exceeded, and farmers began to depend upon more fragile parts of the ecosystem. Newly acquired climate data show that a two-century period with a favorable climate was followed by a general drying trend lasting four centuries that led to a series of major droughts. Food production failed to keep pace with the increasing population.

By the eighth and ninth centuries, the evidence reveals not only high levels of infant and adolescent mortality but also widespread malnutrition. The royal dynasty, an important source of leadership, collapsed rather abruptly sometime about AD 820–822.

The second case study, Easter Island, shares some remarkable similarities with both the Mayan case and the Malthusian vision. Easter Island lies some 2000 miles off the coast of Chile. Current visitors note that it is distinguished by two features: (1) its enormous statues carved from volcanic rock and (2) a surprisingly sparse vegetation, given the island’s favorable climate and conditions. Both the existence of these imposing statues and the fact that they were erected at a considerable distance from the quarry suggests the presence of an advanced civilization, but current observers see no sign of it. What happened? According to scholars, the short answer is that a rising population, coupled with a heavy reliance on wood for housing, canoe building, and statue transportation, decimated the forest (Brander and Taylor, 1998). The loss of the forest contributed to soil erosion, declining soil productivity, and, ultimately, diminished food production. How did the community react to the impending scarcity? Apparently, the social response was war among the remaining island factions and, ultimately, cannibalism.

We would like to believe not only that in the face of impending scarcity societies would react by changing behavior to adapt to the diminishing resource supplies, but also that this benign response would follow automatically from a recognition of the problem. We even have a cliché to capture this sentiment: “necessity is the mother of invention.” These stories do point out, however, that nothing is automatic about a problem-solving response. As we shall see as this book unfolds, sometimes societies not only fail to solve the problem but their reactions can actually intensify it.

Sources: Webster, D., Freter, A., & Golin, N. (2000). Copan: The Rise and Fall of an Ancient Maya Kingdom. Fort Worth, TX: Harcourt Brace Publishers; Brander, J. A., & Taylor, M. S. (1998). The simple economics of Easter Island: A Ricardo–Malthus model of renewable resource use. The American Economic Review, 88(1), 119–138; Turner, B. L., & Sabloff, J. A. (2012). Classic period collapse of the central Maya lowlands: Insights about human–environment relationships for sustainability. Proceedings of the National Academy of Sciences, 109(35), 13908–13914; Pringle, Heather. (2012). Climate change had political, human impact on ancient Maya. Science (November 9), 730–731.

Climate change also has an important moral dimension. Due to their more limited adaptation capabilities, many developing countries, which have produced relatively small amounts of greenhouse gases, are expected to be the hardest hit as the climate changes.

Dealing with climate change will require a coordinated international response. That is a significant challenge to a world system where the nation-state reigns supreme and international organizations are relatively weak.

Water Accessibility

Another class of threats is posed by the interaction of a rising demand for resources in the face of a finite supply. Water provides a particularly interesting example because it is so vital to life.

According to the United Nations, about 40 percent of the world’s population lives in areas with moderate-to-high water stress. (“Moderate stress” is defined in the UN Assessment of Freshwater Resources as “human consumption of more than 20 percent of all accessible renewable freshwater resources,” whereas “severe stress” denotes consumption greater than 40 percent.) By 2025, it is estimated that about two-thirds of the world’s population—about 5.5 billion people—will live in areas facing either moderate or severe water stress.

This stress is not uniformly distributed around the globe. For example, in parts of the United States, Mexico, China, and India, groundwater is already being consumed faster than it is being replenished, and aquifer levels are steadily falling. Some rivers, such as the Colorado in the western United States and the Yellow in China, often run dry before they reach the sea. Formerly enormous bodies of water, such as the Aral Sea and Lake Chad, are now a fraction of their once-historic sizes. Glaciers that feed many Asian rivers are shrinking.

According to UN data, the continents most burdened by a lack of access to sufficient clean water are Africa and Asia. Up to 50 percent of Africa’s urban residents and 75 percent of Asians are estimated to lack adequate access to a safe water supply.

The availability of potable water is further limited by human activities that contaminate the remaining supplies. According to the United Nations, 90 percent of sewage and 70 percent of industrial waste in developing countries are discharged without treatment. And climate change is expected to intensify both the frequency and duration of droughts, simultaneously increasing the demand for water and reducing its supply.

Some arid areas have compensated for their lack of water by importing it via aqueducts from more richly endowed regions or by building large reservoirs. This solution can, however, promote conflict when the water transfer or the relocation of people living in the area to be flooded by the reservoir produces a backlash. Additionally, aqueducts and dams may be geologically vulnerable. For example, in California, many of the aqueducts cross or lie on known earthquake-prone fault lines (Reisner, 2003). The reservoir behind the Three Gorges Dam in China is so vast that the pressure and weight from the stored water have caused tremors and landslides.

Furthermore, climate change and water accessibility are interdependent problems. Example 1.2 explores both their relationship and why it matters.

EXAMPLE 1.2

Climate Change and Water Accessibility: How Are these Challenges Linked?

From a policy analysis point of view, whether these challenges are interdependent matters. If they are linked, their interactions must be considered in the design of any polices created to meet the challenges. Otherwise the response may be neither efficient nor effective.

On May 3, 2016, the World Bank released a report that documents and analyzes the nature and economic implications of the linkages. It notes that climate change will exacerbate water scarcity even as demand for water increases, potentially leading to negative economic impacts and security challenges. According to the report:

Within the next 3 decades, the global food system will require between 40 to 50 percent more water; municipal and industrial water demand will increase by 50 to 70 percent; the energy sector will see water demand increase by 85 percent; and the environment, already the residual clai...