The economics of natural resources has a relatively long history dating back to Malthus and Jevons in the nineteenth century and to Hotelling in the 1930s. Hotelling (1931) developed an influential theory of depletion of oil or mineral deposits in which he described optimal non-renewable resource extraction. In short, Hotelling proposed a way of calculating the optimal rate of depletion for such resources (based on a given discount rate). In standard (neoclassical) economics, it was believed that if resources were scarce and if market participants knew they were scarce, then resource prices would rise and alternative resources would become profitable. In this way, scarce resources would little by little be substituted by other resources. This corresponds to the model of ‘weak sustainability’.
Standard economics is in general much more optimistic than ecological economics, usually showing a great deal of confidence in the ability of prices and market processes to steer the behavioural responses of producers and consumers. Unsustainable extraction or, better said, growing scarcity of a given natural resource is argued to lead to responses of substitution, savings and recycling of materials, and technological innovations at process and product levels, through price information.
Ecological economics, in contrast, is more pessimistic about such responses and often refers to the entropy law implying irreversible changes (Georgescu-Roegen, 1971). Accordingly, ecological economics emphasises ‘strong sustainability’. It argues that extraction of non-renewable resources cannot be ‘sustainable’ by definition and that it is crucial to acknowledge this point. However, the sustainable extraction of renewable resources such as wood or fish is possible if related to a careful understanding of reproduction and growth rates. Ecological economists directly link economic growth to the increased extraction of natural resources (renewable or non-renewable). Some even link it to environmental conflicts. Most researchers state that damages to nature and environment have assumed such proportions that continuing growth will almost surely lead to ecological disasters. In this context, soil erosion, deforestation, enhanced global warming and loss of biodiversity are regarded as urgent problems. As an illustration of this approach, ecological economists have examined the metabolism of extractive industries. They have for instance shown that the extraction of natural resources is associated with the transformation of enormous amounts of energy, both in the extraction process itself and in subsequent processes of concentration, smelting, filtering and refining. In order to extract resources from supplies with low concentrations of a desired material, the amount of energy use per useful unit of output needs to rise, and increasingly so. This means that as the economy grows over time, energy use will follow. Technological improvements and recycling can slow down the unfolding of such patterns, but not permanently postpone them. This model of resource extraction takes a significantly broader approach than the traditional, Hotelling-type models of standard environmental economics.
References
Georgescu-Roegen, N. (1971) The Entropy Law and the Economic Process, Cambridge, MA: Harvard University Press.
Hotelling, H. (1931) ‘The economics of exhaustible resources’, Journal of Political Economy, 39 (2): 137–175.
This glossary entry is based on a contribution by Mariana Walter
EJOLT glossary editors: Hali Healy, Sylvia Lorek and Beatriz Rodríguez-Labajos
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