Measuring & Mitigating Natural Resource Scarcity

Introduction In economics, natural resource scarcity is a relative

concept. It implies that a natural resource is scarce when its quantity is less than other inputs to the production process. The main objective of natural resource economics is to better understand the role of natural resources in the economy in order to develop more sustainable methods of measuring and mitigating those resources to ensure their availability to future generations.

Types of Scarcity Absolute or Physical resource scarcity It may occur if any economic activity or a whole

system of economic activities depends upon an essential natural resource which has a finite limit on its physical availability.

Example: Uranium

Types of Scarcity Relative natural-resource scarcity Economics is a science which studies human

behavior as a relation between ends and scarce means which have alternative use. Thus there always exits the solution of relative scarcity as the resources are limited with respect to human demand and human wants are unlimited in relation to resources.

Example: coal

Malthusian & Ricardian Scarcity Recognition

Theory of Natural-resource scarcity The theories of natural-resource scarcity have been

traditionally classified as either “pessimistic Malthusian” model that suggests a long-term absolute natural-resource scarcity constraint or “optimistic Ricardian” model that do not assume any absolute limits but only admit that resources decline in quality and are therefore relatively scarce.

Malthusian scarcity recognition The stock of agricultural land is absolutely limited; Natural resources are homogeneous in quality; Malthusian scarcity is based upon absolute scarcity

where fixed input (land) which eventually leads to scarcity;

Malthusians stock scarcity applies to resources of uniform quality with an ultimate limit;

Malthusian flow scarcity applies to resources for which average extraction costs depend upon the rate of extraction.

Malthusian scarcity recognition

Ricardian scarcity recognition

Ricardian Scarcity Recognition depends on the relative natural resource scarcity

Ricardian scarcity portrays agricultural land as varied in quality

In the absence of technological change, this scarcity effects eventually constrain economic activity

Ricardian scarcity recognition

It differs both in method and timing. In terms of method and timing of diminishing returns,

Ricardo focused upon the differential fertility of the individual parcel of lands

He assumed that the better land used first Ricardo also found that declining quality to be the

cause of increasing resource scarcity.

Ricardian scarcity recognition

Resource price path patterns Empirical Evidence on Resource Price Paths:

Physical Indicators

Physical measures of scarcity rely on looking at geological estimates of reserves, and relating this in some way to the level of demand.

McKelvey explain about the reserves gradation and the concept of the ‘ultimately recoverable resource’.

Resource price path patterns The formula for calculating the amount of time left for

a resource with constant consumption growth is:

Where:y = years left (Exhaustible time of resources);r = The continuous compounding growth rate.s = R/C or static reserve.R = reserve;C = (annual) consumption.

Resource price path patterns For example: If the rate of resource use is increasing, the

amount of reserves cannot be calculated by simply taking the current known reserves and dividing by the current yearly usage, as is typically done to obtain a static index. For example, in 1972, the amount of chromium reserves was 775 million metric tons, of which 1.85 million metric tons were mined annually. The static index is 775/1.85=418 years, but the rate of chromium consumption was growing at 2.6% annually. If instead of assuming a constant rate of usage, the assumption of a constant rate of growth of 2.6% annually is made, the resource will instead or exhausted last

Resource price path patterns A number of exhaustible resources face imminent

exhaustion. Yet, we hear of no such problems

It has two reasons:

First reason is that the reserve figures in limit to growth are themselves already out of data

Example: Nickel

The second reason is that exponential indices fail

Resource price path patterns These indices fail to account for:

Variations in forecast demand;

The effect of rising real prices on demand via reduced demand, the substitution of other materials for the scarce ore and conservation in terms of reduced resource requirements per unit of output; and

The effect of rising real prices on supplies in respect of increased recycling and new exploitation/ discovery.

Resource scarcity mitigationSeparating the phrase, two words are identified. They Are ‘Resource Scarcity’ and ‘Mitigation’. Resource scarcity concerns the availability of natural resources needed to satisfy basic human needs for food, shelter, and energy.

So, resource scarcity mitigation is the process of eliminating or reducing the threat of unavailability of basic human needs. When it happens so in case of Natural resource, it is called natural resource scarcity mitigation.There are two way out to mitigate natural resource scarcity they are- Mitigation Recycling

MitigationMitigation implies the elimination or

reduction of the frequency magnitude, or severity of exposure to risks, or minimization of the potential impact of a threat or warning.

MitigationHow mitigation mitigates resource

scarcity?

Identify Recognize Mitigate Collaborate Integrate Control Promote

Recycling Recycling is one of the most common of all

environmentally beneficial activities. It is relatively simple and painless and a great way to involve staff at all levels in your company’s environmental priorities. Recycling protects habitat and saves energy, water, and resources such as trees and metal ores.

RecyclingAdvantages of Recycling in mitigating

resource scarcity- Reduce the Size of Landfills Conserve Natural Resources More Employment Opportunities Offers Cash Benefits Saves Money Reduces the amount of waste sent to landfills and

incinerators Conserves natural resources such as timber, water,

and minerals

RecyclingSteps to Recycling Materials-

Step 1: Collection and Processing Step 2: Manufacturing Step 3: Purchasing New Products Made from Recycled Materials

RecyclingDon’t stop with recycling- As you become aware of the benefits of reduction to

save natural resources, you won’t be able to escape the easiest and most cost effective method of reduction: driving less. When you reduce the amount of miles you drive, you are reducing the need for gas production and refining. The result is savings in your pocket, as well as natural resources. You can take it a step further by buying a hybrid or more fuel-efficient car.

Scarcity and price/cost indexThe most popular indices are- Unit cost (the value of factor inputs per unit of

extractive-industry output)i. least appealing of the three measures.ii. provide no signal of increasing scarcityiii. When absolute stock/the quality of existing stock

declines, unit extraction costs increase.

Drawback: Misrepresentation of technological change

Scarcity and price/cost indexRelative price (The ratio of an extractive-

industry price index to an overall price index) Rental rate (price net of marginal

extraction cost)i. is theoretically the best indicatorii. affected by the changes in the market

Drawback: Lack of data

Scarcity and price/cost index Here, the data is from 1960 through 1980 of United

States Unit costs for petroleum and gas, coal and electricity

declined in the 1960s, reaching minimum between 1968 and 1973 and then rising.

Relative prices of most energy commodities fell during the 1960s and bottomed out during the late 1960s and early 1970s. finally, relative prices of most energy commodities between their minimum.

Scarcity and price/cost index Earlier used by Smith and Johnson, Bell and

Bennett, but modifies here to account for market intervention

=as an indicator of the scarcity trend for the 1960s.

= is the change in the scarcity trend between two decades (1960s and 1970s)

Scarcity and price/cost indexResult- From the analysis of the price and costs of 1960s to

the 1970s, there was a significant shift in the direction of scarcity. The change in the trend of Ricardian flow scarcity was significantly positive for agriculture and energy products. The change in the trend of Ricardian Scarcity and/or Malthusian Scarcity, as measured by relative prices, was significantly positive for energy prices.

GeochemicalThe term "geochemical" tell us that geological and chemical

factors are all included in it. In Earth science, a geochemical cycle is the pathway that chemical elements take in the surface and crust of the Earth.

 The migration of heated and compressed chemical elements and compounds such as silicon, aluminum, and general alkali metals through the means of subduction and volcanism is known in the geological world as geochemical cycles.

The geochemical cycle encompasses the natural separation and concentration of elements and heat-assisted recombination processes. Changes may not be apparent over a short term, such as with biogeochemical cycles, but over a long term changes of great magnitude occur, including the evolution of continents and ocean.

Geochemical Flux in geochemical cycles is the movement of material

between the deep Earth and the surface reservoirs. This occurs through two different processes: volcanism and subduction of tectonic plates.

Subduction is the process that takes place at convergent boundaries by which one tectonic plate moves under another tectonic plate and sinks into the mantle as the plates converge. This leads to the sinking of one plate into the mantle which creates a broad range of geochemical transformations or cycling.

Geochemical Volcanism is the process that takes place at divergent

boundaries by which one tectonic plate separates from another creating a rift in which molten rock (magma) erupts onto the surface of the Earth. This molten rock magma then cools and crystallizes, forming igneous rocks. If crystallization occurs at the Earth´s surface, extrusive igneous rocks are formed; if crystallization occurs within the Earth´s lithosphere, intrusive igneous rocks are formed which can then be brought to Earth´s surface by denudation.

Important cycles of geochemical cycle are: Carbon cycle Phosphorus cycle Sulfur cycle Rock cycle

Stock pollution constraints Stock pollution refers to pollutants that cannot be

absorbed and are accumulated in the environment. Examples of stock pollutants are lead, many chemicals such as dioxin, and so forth. Stock-damage pollution describes the case in which damages depend only on the stock of the pollutant in the relevant environmental system at any point in time. Pollution stocks derive from the accumulation of emissions the life time of which is more than merely instantaneous.

Stock pollution constraints The presence of a latent constraint on pollution accumulation

affects the net social benefits of a society and its optimal emission policy even when current emissions are far below the level where the constraint binds. It is argued that if the pollution target is properly set, and if the emitters do not violate the relevant constraints, then the target will be reached. This argument makes regulation very attractive to environmentalists. Unfortunately, this approach has severe shortcomings. Inefficiency about regulation when agents are heterogeneous, bureaucratic and monitoring costs to obtain pollution permits or similar allowances, difficulties in designing control regimes which are income-neutral, non-neutral technology effects and credibility of environmental rules make the regulatory approach difficult to implement.

Conclusion Natural resource economics deals with

the supply, demand, and allocation of the Earth's natural resources. In economics, natural resource scarcity is a relative concept. It implies that a natural resource is scarce when its quantity is less than other inputs to the production process, i.e., capital, labor and technical know-how. This ultimately causes the supply of the good to decline or remain constant, while the demand for it remains constant or increases, respectively. In other words, scarcity creates diminishing returns to inputs. However, so long as demand for goods is somehow met, the scarcity of resource inputs will not be crucial.