The Economics of Natural Resource Depletion

While it may seem churlish for an editor to dispute a title of his own choosing, there is no such thing as the economic approach to natural resource depletion. Apart from being naturally disputatious, perhaps a characteristic of any professional discipline, economists do disagree about the ‘proper’ way to look at resource depletion problems. For example, there are widely divergent viewpoints about the optimal rate of depletion, centring on the extent to which the standard neo-classical approach based on the maximisation of some present value of future flows of consumers’ surplus adequately allows for future generations’ well-being. Similarly, attitudes to the varied estimates of resource availability frequently depend on the same issue, and on (a) the subjective attitude of the economist in question to selecting policy options from a matrix of highly uncertain outcomes, and (b) the extent to which the observer places faith in the workings of a mixed price system to secure some smooth pattern of individual resource substitutability over time. As far as (a) is concerned, for example, an optimistic attitude might be based on extrapolation of past experience of ‘muddling through’ and on personal beliefs about the future existence of technologies that are not currently feasible.

For a year or more there has been open discussion of a ‘world energy crisis’ and, though not everyone would accept the term ‘crisis’ and we all have our own ideas on which are the most critical elements, it is obvious that the world faces some awkward energy problems. One of these was forced on our attention in the Autumn of 1973 when some of the Middle-East oil producers reduced their output below planned levels, causing world-wide oil shortages. Such a period is never the best time to examine long-term supply prospects because attention tends to become so concentrated on the pressing issues that an objective view of the longer term is hard to formulate. One of the commonest failings of long-term forecasters, in the energy field as elsewhere, is to give excessive weight to the immediate past. When the newspapers and television are packed with instant comment on Arab supply restrictions it is only too easy to project into the long-term future the experiences of the last few weeks.

Economics has always contained an element of schizophrenia with regard to natural resources. The view that market forces should be left to equate the demand and supply of natural resources through changes in costs and prices glossed over the effects of market imperfections and the long lead times in developing new supply sources; but it was tenable as long as it could be assumed there was no practical limit to the total supply of natural resources which could be tapped. Increasing recognition that the earth’s resources are ultimately finite, combined with the expectation that world consumption will continue to expand at compound growth rates, throws doubts upon this sanguine view.

MR HARRISON (Open University): I am very worried that in fact many of the questions that have been answered in papers that we have heard are not the right questions to be asking in this situation. If I may just go through some of these things. We have had some slight mention of a lead time, but I think this is an absolutely crucial point. It is all very well to say that we can make use of tar sands, that we can make use of fission energy, and so on, but you have to ask yourself: what is involved in actually making this come about? Some of the sums that I have seen done on this are absolutely horrific. There are not enough material resources, nor enough manpower resources to do it in the sort of time scale that is envisaged. I have come across very few people who seriously question the near exhaustion of oil over the next twenty to thirty years, and that is a very short time indeed in which to get these massive new industries under way.

DR R. LAWSON (Hull): It has been said recently that the pending competition for resources of the sea was going to make the Klondyke look like a kindergarten tea-party. So far as fisheries is concerned, this competition is now well advanced, to the point of extinction of some species and the near extinction of many other species.

The preceding three papers have indicated that, with a rather loose use of words, the present use of natural resources involves at least two types of externality:

‘Then you keep moving round I suppose,’ said Alice. ‘Exactly so,’ said the Hatter: ‘as the things get used up.’ ‘But when you come to the beginning again?’ Alice ventured to ask. ‘Suppose we change the subject,’ the March Hare interrupted, yawning. ‘I’m getting tired of this …’

The Treasury Paper on Economic Growth* is a reasoned and reasonable document designed perhaps to take some of the heat out of current debate on the subject of the world’s dwindling resources. It may, however, incline the non-specialist reader towards the acceptance of at least two arguments which are both false and more than potentially damaging. The first of these arguments claims that ordinary market forces will automatically take care of all necessary rationing of scarce raw material much more effectively than any government could. The second proclaims that, if problems do arise, we can always rely upon technological advance to solve them. The market forces argument goes something like this.

DR J. RAVETZ (Council for Science and Society): I fear that we may largely be dividing into economists who are generally not too worried, and non-economists who perhaps are too worried, and it is a little troubling if we do not seem to be able to find a ground where there is a genuinely shared concern or agreement on the order of magnitude of the problems we face.