Dateline 2,000 - the Looming

Resource Crunch!

Poorna Palby

Wind,tides,

flowing water

Directsolar

energy

Perpetual or Renewable

Non-metallicminerals

Metallicminerals

Fossilfuels

Potentially renewable

Freshair

Resources

Exhaustible or Nonrenewable

Freshwater

Fertilesoil

Bio-diversity

1900 21002000

What will happen if world’s population and economic growth continue at the 1990 levels, assuming no major policy changes or technological innovations*

* Donella Meadows et al., Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future (Chelsea Green, 1992)

Population

Pollution

Resources

1950 2050

• is a problem if we take

– the Malthusian perspective, that exhaustibility limits socioeconomic growth;

– the neo-Malthusian perspective, that resource exploitation has environmental limits; or

– the Ricardian perspective, that progressive depletion raises costs and lowers quality; but

• poses no problem if we take the cornucopian view, that technological innovation will always provide substitutes and alternates.

The exhaustibility of extractive earthresources

C0

TE

0ekt = S

Depletion time based on the “Limits to Growth” scenario*

*Depletion time or the exponential index, TE, is computed here by solving this equation

Aluminium 2003 2027Chromium 2067 2126Coal 2083 2122Cobalt 2032 2120Copper 1993 2020Gold 1981 2001Iron 2065 2145Lead 1993 2036Manganese 2018 2066

MolybdeniumNatural GasNickelPetroleumPlatinumSilverTinTungstenZinc

2006 20171994 20212025 20681992 20222019 20571985 20141987 20332000 20441990 2022

S 5xS S 5xS

1980 2000 20402020 20601960

Five times the current stockCurrent stock

The depletion time of selected resources based on the “Limits to Growth” scenario

Depletion of estimated reserves by the year 2100(H. Goeller & A. Zucker: Science, February 1984)

Cobalt

Manganese

Molybdenium

Nickel

150%

120%

249%

152%

Titanium 102%

Tungsten 236%

Zinc 581%

Reserve inadequacy of advanced material elements beyond the year 2000(S. Fraser, A. Barsotti & D. Rogich: Resources Policy, March 1988)

Arsenic 1.7Barium 1.3Bismuth 1.2Cadmium 1.6

Gold 1.9Indium 1.4Mercury 1.1Silver 1.5

Tantalum 1.4Thallium 1.9Tin 0.8

Measured ReserveWorld demand

1900 1925 1950 20001975

200

100

Long-run inflation-adjusted world prices for nonferrous metals (aluminum, copper, tin and zinc)

1925 1950 1975 2000

20

Average world crude oil prices

10

OPEC

Oil40%Coal

22%

Naturalgas: 22%

NuclearBiomass: 4%

Hydel, Geothermal,Solar etc.

Oil33%

Coal27%Natural

gas: 18%

7%5% 5%

6%

Bio-mass11%

World USA

1991 commercial energy use by source*

* Sources: US Department of Energy and Worldwatch Institute

0 20 40 60 80

Industrialsocieties

Advanced agri-cultural societies

Early agri-cultural societies

Hunter-gatherersocieties

Primitivesocieties

Food Home Farming & Industry

Trans-portation

Daily per capita consumption in kcal

Average daily per capita energy use at various stages of human cultural development

28

60

70

80

90

100

1985 1990 199522

24

30

26

The U.S. oil production costs and proven reserves have

been falling

64

70

67

61 11

12

13

14

199519901985

Oil output per well is rising world-wide, though falling in the U.S.

dC(x)dx F(x)

sdPdt

P - C(x)P - C(x)dF(x)

dx

The basic equation for optimally exploiting a renewable resource is*

dxdt

x

F(x)

where F(x) is the growth curve for stock of size x and dF(x)/dxits marginal productivity or its own rate of return, F(x) [dC(x)/dx] is the marginal stock effect that measuresincrease in future costs of harvesting due to reduction instock caused by harvesting now,P - C(x) is the net utility or gain of consuming now, ands is that resource’s discount rate or shadow price.

*D. Pearce & R. Turner: ECONOMICS OF NATURAL RESOURCES AND ENVIRONMENT (Harvester Wheatsheaf, New York, 1990)

dC(x)dx F(x)

sdPdt

P - C(x)P - C(x)dF(x)

dx

The Hotelling RuleThe Hotelling Rule* :* :

*Harold Hotelling: ‘The economics of exhaustible resources’, Journal of Political Economy (1931)

dPdt = s1

P

or Pt = Poest

TimeQuantity

Pt = Poest

Po

PB

Resourcestock

T

T

The Hotelling price path

Population or Demand

TotalProduct

StationaryState

ConstantReal Wage

In the long run, economic growth peters out, in the Ricardian* perspective, because rising demand forces society to exploit increasingly poorer quality of resources.

*David Ricardo (1772-1823)

dC(x)dx F(x)

sdPdt

P - C(x)P - C(x)dF(x)

dx

Take the basic equation for optimal resource exploitation:

and set

• dF/dx = -(dF/dC)(dC/dx)• dC/dx = -, a constant (note that Casx)

and treat [P - C(x)] = /H, where denotes profit and H is the harvest, i.e., this ratio too is a constant.

ThendF/dC + (H/)F = s/ - (H/) (dP/dt)so that,writing Fo = (H)s - (1/) (dP/dt),

we have

(F/Fo) = 1 - e-(H/)C

i.e., F grows asymptotically with C, as thedata on worldwide oil production and pro-duction costs clearly show.

As predicted by theory, the extraction costs indeed rise exponentially

0

20

40

60

80

0 4 8 12 16 20

Cost (US$ per barrel)

1994 World Demand

The Exponential Fit

Also note thatFo = (H)s - (1/) (dP/dt)translates into(dP/dt) - sP = - (Fo + sC)so that, writing Po = (Fo + sC),we have

P/Po = 1 - est

i.e., unlike the Hotelling Rule of rise in the prices, technology induced growth impliesa decline in the prices.

Depletion Time (TE) =

The time when 80% ofthe resource is used up

80%

Time

The depletion curve for a typical nonrenewable resource

1.00

1850

4

Actualproduction

Cummulative production as share of the earlier resource estimate

Cummulativeproduction as the

share of currentresource estimate

0

1

2

3

19501900 2000 20500.00

0.25

0.75

0.50

U.S. oil production (1857-1995)

Fraction used upFraction remaining

f1 - f

eA+Bt=

=

f1 - f

Write =f1

Then

y = ln f1 = A + Bt

where f1 are the observed data as function of time (t), so that the constants A and B can be found by linearregression analysis.

0

1

2

3

4

1950 20502000

Actual Production

1995 resource estimate1986 resource estimate

Logistic or Hubbard curves for the U.S. oil output and

prospects using

Logistic or Hubbard curves for the U.S. oil output and

prospects using

Estimates of the world petroleum

reserves

1,500 2,000 2,500 billion barrels

Num

ber of

estim

ates

0

8

6

4

2

0

20

40

60

1900 2000 2100

Hubbard curves for world petroleum output and prospects assuming

resource estimates of3.0 x 1012 barrels2.2 x 1012 barrels1.4 x 1012 barrels

ActualProduction

Wolf population

1900

3000

4000

5000

1000

200050

30

40

20

10

1920 198019601940 20000

Wolves and Moose at the Isle Royale National Park, Lake Superior - an example of “sustainable growth”

FranceU.K.

China

Sweden

Russia

USA

BrazilItaly

Singapore

0.1

1

10

100

0.01 0.1 1 10

Mexico

GermanyIndia Japan

NorwaySwtizerland

Saudi ArabiaNetherlands Australia

Spain

GDP (PPP) in trillion US $

Economic prosperity and energy con-sumption are closely correlated

0.03

0.1

1

3

0.1 1 10

0.3

30.30.03

USA

China

Japan

Russia

GermanyIndiaU.K.

UkrainePoland Canada

ItalyFrance

Iran

BrazilMexico

SouthKorea

Australia

SouthAfricaNorth

Korea

Kazakstan

...and so are economic prosperity and carbon emmissions

GDP (PPP) in trillion US $

Thank You!

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

Wolf population

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

50

25

Wolf population

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

50

25

Wolf population

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

50

25

Wolf population

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior

1900 1920 1940 1960 1980 2000

1000

2000

3000

4000

5000

Moo

se p

opul

atio

n

50

25

Stat

e of

the

Wor

ld

Resources

PopulationIndustrial Output

1,900 2,0001,950 2,1002,050

Food

Oil (39%)Natural gas (24%)

Coal (32%)Hydro-electric (2.5%)

Nuclear(2.5%)

Worldwide commercial energy consumption, 1989*

*Data from World Resources Institute, 1992