365 Days of Climate Awareness 365 – Natural Resource Economics

Economics is the study of the creation, transfer, and destruction of wealth. Natural resource economics (NRE) is a sub-discipline of this focusing on the interaction between human economic systems and the natural world. It grew out of the concern for operating the human economy within naturally sustainable bounds.

Ecosystems and components of nature like waterways, air, and plant and animal species, previously considered “externalities” unworthy of attention, are included in economic analyses. At its most fundamental level, NRE assigns dollar values to these aspects of the natural world, in order to include them in cost-benefit analyses. But more broadly, the entire discipline is the means to consider the impacts of human activities on the natural world, and vice versa, to aid in decision-making.

The environment, society, and the economy.

The current discipline of NRE has a number of different roots, including the “physiocrats” of 17^th and 18^th century France like Francois Quesnay and Anne Robert Jacques Turgot who argued that land is the foundation of all economic value. 19^th century British economists like Thomas Malthus and David Ricardo applied land valuation to their political economic thought, and Stanley Jevons focused on coal as a particularly important resource for Britain.

In the early 20^th century United States, land economics gained prominence with the ideas of Harold Hotelling, including that mineral resources like ores, coal and oil should be thought of as capital assets. He created what is known as the “Hotelling Rule”, that owners of nonrenewable assets (like fossil fuels) will produce only as much as will generate more profit than similar investments in financial markets. He explicitly tied resource extraction to economic realities like interest rates. The rule is still used to predict future oil prices.

One concept of sustainability.

NRE has since grown to encompass far more than questions of investment. Current researchers in the field work on comprehensive resource models including availability of ores and their substitutes. NRE modelers also address the destructive effects of waste on pricing. A goal of the discipline is to help guide humans toward perpetual resources, i.e. a perfectly sustainable economy. A noble goal, though the principles of entropy and greed are significant obstacles.

Tomorrow: conclusion.

Be brave, be steadfast, and be well.