Dateline 2,000 - the Looming Resource Crunch!

Dateline 2,000 - theLooming ResourceCrunch! by Poorna Pal

Resources Perpetual or Renewable Exhaustible or Nonrenewable Wind, tides, flowing water Direct solar energy Non- metallic minerals Fossil fuels Metallic minerals Potentially renewable Fresh air Fresh water Fertile soil Bio- diversity

1950 2050 What will happen if world’s population and economic growth continue at the 1990 levels, assuming no major policy changes or technological innovations* Population Resources Pollution 2000 2100 1900 * Donella Meadows et al., Beyond the Limits: Confronting Global Collapse, Envisioning a Sustainable Future (Chelsea Green, 1992)

The exhaustibility of extractive earth resources • 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.

TE C0 ekt S = 0 Depletion time based on the “Limits to Growth” scenario* S 5xS S 5xS Aluminium 2003 2027 Chromium 2067 2126 Coal 2083 2122 Cobalt 2032 2120 Copper 1993 2020 Gold 1981 2001 Iron 2065 2145 Lead 1993 2036 Manganese 2018 2066 Molybdenium Natural Gas Nickel Petroleum Platinum Silver Tin Tungsten Zinc 2006 2017 1994 2021 2025 2068 1992 2022 2019 2057 1985 2014 1987 2033 2000 2044 1990 2022 *Depletion time or the exponential index, TE, is computed here by solving this equation

The depletion time of selected resources based on the “Limits to Growth” scenario Five times the current stock Current stock 1960 1980 2000 2020 2040 2060

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%

Measured Reserve World demand Reserve inadequacy of advanced material elements beyond theyear 2000 (S. Fraser, A. Barsotti & D. Rogich: Resources Policy, March 1988) Arsenic 1.7 Barium 1.3 Bismuth 1.2 Cadmium 1.6 Gold 1.9 Indium 1.4 Mercury 1.1 Silver 1.5 Tantalum 1.4 Thallium 1.9 Tin 0.8

200 100 1900 1925 1950 1975 2000 Long-run inflation-adjusted world prices for nonferrous metals (aluminum, copper, tin and zinc)

OPEC Average world crude oil prices 20 10 1925 1950 1975 2000

Oil 40% Coal 22% Natural gas: 22% 1991 commercial energy use by source* World USA Hydel, Geothermal, Solar etc. Bio- mass Biomass: 4% Nuclear 11% 6% Oil 33% 5% 5% 7% Coal 27% Natural gas: 18% * Sources: US Department of Energy and Worldwatch Institute

Average daily per capita energy use at various stages of human cultural development Daily per capita consumption in kcal Farming & Industry Trans- portation Food Home Industrial societies Advanced agri- cultural societies Early agri- cultural societies Hunter-gatherer societies Primitive societies 0 20 40 60 80

The U.S. oil production costs and proven reserves have been falling 30 100 90 28 26 80 70 24 60 22 1985 1990 1995

Oil output per well is rising world-wide, though falling in the U.S. 70 14 67 13 64 12 61 11 1985 1990 1995

dC(x) dx dP dt F(x) dF(x) dx s P - C(x) P - C(x) The basic equation for optimally exploiting a renewable resource is* where F(x) is the growth curve for stock of size x and dF(x)/dx its marginal productivity or its own rate of return, F(x) [dC(x)/dx] is the marginal stock effect that measures increase in future costs of harvesting due to reduction in stock caused by harvesting now, P - C(x) is the net utility or gain of consuming now, and s is that resource’s discount rate or shadow price. dx dt F(x) x *D. Pearce & R. Turner: ECONOMICS OF NATURAL RESOURCES AND ENVIRONMENT (Harvester Wheatsheaf, New York, 1990)

dC(x) dx dP dt F(x) dF(x) dx s P - C(x) P - C(x) The Hotelling Rule* : 1 P dP dt = s orPt = Poest *Harold Hotelling: ‘The economics of exhaustible resources’, Journal of Political Economy (1931)

The Hotelling price path Pt = Poest PB Po T Quantity Time Resource stock T

In the long run, economic growth peters out, in the Ricardian* perspective, because rising demand forces society to exploit increasingly poorer quality of resources. Stationary State Constant Real Wage Total Product Population or Demand *David Ricardo (1772-1823)

dC(x) dx dP dt F(x) dF(x) dx s P - C(x) P - C(x) Take the basic equation for optimal resource exploitation: and set • dF/dx = -(dF/dC)(dC/dx) • dC/dx = -, a constant (note thatCasx) and treat [P - C(x)] = /H, where  denotes profit and H is the harvest, i.e., this ratio too is a constant.

Then dF/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 the data on worldwide oil production and production costs clearly show.

As predicted by theory, the extraction costs indeed rise exponentially 80 60 1994 World Demand 40 20 The Exponential Fit 0 0 4 8 12 16 20 Cost (US$ per barrel)

Also note that Fo = (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 implies a decline in the prices.

The depletion curve for a typical nonrenewable resource Depletion Time (TE) = The time when 80% of the resource is used up 80% Time

1.00 4 Cummulative production as share of the earlier resource estimate 0.75 3 Actual production 0.50 2 Cummulative production as the share of current resource estimate 1 0.25 0.00 0 1850 1900 1950 2000 2050 U.S. oil production (1857-1995)

Fraction used up Fraction remaining f 1 - f f 1 - f = Then y = ln f1 = A + Bt where f1are the observed data as function of time (t), so that the constants A and B can be found by linear regression analysis. f1 eA+Bt Write = =

Logistic or Hubbard curves for the U.S. oil output and prospects using 4 1995 resource estimate 1986 resource estimate 3 2 1 Actual Production 0 1950 2000 2050

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

Estimates of the world petroleum reserves 8 6 4 2 0 billion barrels 1,500 2,000 2,500

Hubbard curves for world petroleum output and prospects assuming resource estimates of 60 3.0 x 1012 barrels 2.2 x 1012 barrels 1.4 x 1012 barrels 40 Actual 20 Production 0 1900 2000 2100

5000 4000 3000 2000 50 40 1000 30 20 10 0 1900 1920 1940 1960 1980 2000 Wolves and Moose at the Isle Royale National Park, Lake Superior - an example of “sustainable growth”

Economic prosperity and energy con-sumption are closely correlated 100 USA China Russia Germany India Japan 10 Brazil Italy France U.K. Mexico Saudi Arabia Netherlands Spain Australia Sweden 1 Norway Swtizerland Singapore 0.1 0.01 0.1 1 10 GDP (PPP) in trillion US $

3 USA 1 China Russia 0.3 Japan Ukraine Poland Australia India Germany Canada U.K. 0.1 Kazakstan Italy France South Africa Brazil North Korea South Korea Mexico 0.03 Iran 0.03 0.1 0.3 1 3 10 ...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 5000 4000 3000 2000 1000 1900 1920 1940 1960 1980 2000

Carrying Capacity and Sustainable GrowthMoose and Wolves on the Isle Royale National Park, Lake Superior 5000 4000 3000 2000 50 1000 25 1900 1920 1940 1960 1980 2000

Population Industrial Output Resources Food 1,900 1,950 2,050 2,100 2,000

Worldwide commercial energy consumption, 1989* Oil (39%) Nuclear (2.5%) Natural gas (24%) Hydro- electric (2.5%) Coal (32%) *Data from World Resources Institute, 1992

Dateline 2,000 - the Looming Resource Crunch!