Natural resources Flashcards
What are natural resources?
biotic or abiotic materials that can be found within the environment and used for our survival, or in general for satisfying our wants. A natural resource may exist as a separate entity (fresh water), or as a living organism (fish), or it may exist in an alternate form which must be processed to obtain the resource such as metal ores, oil, and most forms of energy.
What are raw materials?
Raw materials are materials or substances used in the primary production or
manufacturing of goods. Raw materials are often referred to as commodities, which are bought and sold on commodities exchanges worldwide.
What is natural capital?
Natural capital can be defined as the world’s stocks of natural assets which include geology, soil, air, water and all living things. It is from this natural capital that humans derive a wide range of services, often called ecosystem services, which make human life possible.
Renewable vs non-renewable resources.
Only very few resources are considered inexhaustible in foreseeable future: in
particular solar radiation, and geothermal energy. Most of the resources are susceptible to depletion by overuse or misuse, both in quantitative and in
qualitative terms.
Renewable resources (RR) are those that can be replenished naturally at rates higher or comparable to human consumption: water, timber.
Non-renewable or exhaustible resources (NRR, ER) are resources that do not
regenerate or whose regeneration rate is extremely slow: minerals and fossil fuels. Some NR are ubiquitous(e.g. sun, or wind), but in general they are characterized by uneven distribution and concentration. The use of NR raises many different issues, such as property rights, appropriation, allocation, depletion, etc.
Exhaustible resources and sustainability.
Two ways to include ER in sustainable economies:
- Substitutability: to ensure that as ER are depleted they are substituted by
increases in RR - constant stock; - Increased efficiency: to allow for persistent standards of living secured by
reduced stock of R.
Important role of technological development.
How are ER managed?
ERs (or NRRs) are either private or government property. Where they are government property, exploitation rights are often sold, or leased, to firms.
The unit price for extraction rights is called the rent, or the royalty. The rent is the price of a barrel of oil ‘in the well’. This is to be distinguished from the price of a barrel of extracted oil, and the difference between the two is the unit cost of extraction.
Where a deposit is owned by a firm, it can be shown that, if the ideal conditions hold, it will be depleted in a way that is consistent with intertemporal efficiency. An allocation is intertemporally efficient if it is not possible to make individuals in one period of time better-off except by making those in some other period of
time worse-off. The analysis of interteporal efficiency requires the definition of the discount rate.
What is project appraisal?
Project appraisal: decision-making process with the objective of maximizing net worth (the present value of future profit stream, or the sum of present values of profits in future years).
What is Net Present Value?
Net present value (NPV) is the difference between the present value of cash inflows and the present value of cash outflows over a period of time. NPV is used in capital budgeting and investment planning to analyze the profitability of a projected investment or project. NPV is the result of calculations used to find today’s value of a future stream of payments.
Net present value (NPV) test, where the NPV of an investment is the discounted present value of the Net cashflow (N = Returns – Expenses) associated with it.
What is Internal Rate of Return (IRR)?
The internal rate of return (IRR) is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis.
IRR calculations rely on the same formula as NPV does. Keep in mind that IRR is not the actual dollar value of the project. It is the annual return that makes the NPV equal to zero.
The IRR for a project is the rate of interest r which, if used to compute its NPV,
would give the result 0. As with the NPV rule, then, it remains essential to choose some acceptable discount rate.
The IRR test calculates what the rate of interest would have to be for an
investment project to be marginal, to have no effect on the firm’s net worth.
• E.G.: the rate of return to investments i in oil by an oil well owner is just the
future increase in the value of oil in the ground divided by the current value of
oil in the ground:
What is intertemporal efficiency?
An allocation is intertemporally efficient if it is not possible to make individuals
in one period of time better-off except by making those in some other period of
time worse-off.
Intertemporal efficiency requires that renewable resources are depleted, disinvested in, so that their unit rent increases at a proportional rate equal to the
rate of interest.
It establishes that in a system of markets that satisfy the ideal conditions, nonrenewable resources would be depleted in ways that go with allocative efficiency, but not necessarily in a way that was fair to future generations;
Markets do not satisfy the ideal conditions necessary for them to produce an efficient allocation. In regard to the markets that are directly involved in nonrenewable resource extraction, they are not, for example, perfectly competitive;
↘ Only technological development and substitutability allow for (weak) sustainability when NNR are concerned
How are RR managed?
If the populations of fish were privately owned and if the ideal conditions for market operations were satisfied throughout the economy, then fish would be harvested as required for efficiency in allocation.
Assuming that the population dynamics of the fishes is density-dependent growth and that owners ensure sustainable yield harvesting → the perfect market & intertemporally efficient outcome has two properties:
1. it will involve a harvest smaller than the maximum sustainable harvest.
2. it may involve maintaining the stock size so low as to risk the exploited species
going extinct. This is more likely the slower growing the species and the higher
the interest rate.
What are the attributes of a population?
Attributes of populations:
Density: dimension per unit of surface area
Birth rate: average number of live birth per capita per unit of time
Mortality: average number of death per capita per unit of time
Dispersion: immigration or emigration modes
Distribution (in space): 1) random; 2) uniform; 3) clumped
Age distribution: proportion of individuals per age classes
Darwinian fitness: The relative probability of survival and reproduction for a genotype (probability of having descendants and survive)
What are two types of reproductive strategies?
r-selection strategy: most of the energy is used for offspring
In unstable or unpredictable environments r-selection predominates, as the ability to reproduce quickly is crucial, and there is little advantage in adaptations that permit successful competition with other organisms, because the environment is likely to change again.
Characteristic traits: high fecundity, small body size, early maturity onset, short generation time, and the ability to disperse offspring widely. (e.g. bacteria and diatoms, small rodents, etc.).
K-selection strategy: little amount of energy used for reproduction, most of it used for inter-specific (competition) and intra-specific relations
In stable or predictable environments K-selection predominates, as the ability to compete successfully for limited resources is crucial, and populations of K-selected organisms typically are very constant and close to the maximum that the environment can bear.
Characteristic traits: large body size, long life expectancy, and the production of fewer offspring, requiring extensive parental care (e.g. elephants, trees, humans and whales).
What are the types of population growth models?
Exponential growth:
– growth rate: dN/dt = r N
N = number of individuals
r = net growth rate of population in non limiting conditions
Sigmoidal growth: Sigmoidal growth is a modification of exponential growth in which the percent change gets smaller as the population approaches the carrying capacity. The current growth rate is the product of the initial growth rate and the percentage of resources available.
– growth rate: dN/dt = r N (K-N)/K K = maximum possible number of individuals of the population (maximum carrying capacity) (K-N)/K = negative feedback loop
Explain open-access renewables
e.g. fishing out of territorial waters
In case of open access, fishing shows larger harvests than would occur if the fish populations being exploited were subject to private property rights. The basic reason is that where the fish populations are privately owned or regulated by government charges, average costs are higher due to the cost of extraction rights (e.g. timber industry).
↘the industry harvest level at which new firms cease to enter the fishing industry will be higher, for the same extraction costs, with open access.
↘not necessarily this means the extinction of species
