The Transition From Extractive to In Situ Resources

THE TRANSITION FROM EXTRACTIVE TO IN SITU RESOURCES Introduction  As we delve into the realm of resource economics, we revisit the insights of John Stuart Mill (1848), whose ideas still hold relevance in the contemporary world. Specifically, we focus on the transition from extractive resources to in situ resources and the economic implications thereof. Mill's Modern Ideas  Idea 1: Extraction costs tend to rise as mineral deposits are depleted. This increase stems from the need to access deeper deposits, work with thinner seams, and exploit lower-quality resources.  Idea 2: The impact of rising extraction costs can be mitigated through discoveries and technological advancements.  Idea 3: Mill recognized the intrinsic value of land not just for its extractive potential but also for the opportunities it offers for experiencing natural beauty and solitude. Environmental Preservation and Economics  Mill's ideas on the preservation of natural beauty and environmental resources didn't directly influence policy but found echoes in the early conservation movements.  Initially, environmental disruption was analyzed as static externalities, with examples like pollution from factories and railway engines.  It wasn't until the early 1960s that economists started systematically applying Pigouvian economics to address water and air pollution issues. The Focus on In Situ Environmental Resources  This chapter shifts the focus from traditional pollution externalities to the allocation of in situ environmental resources.  We examine scenarios where a development project site, e.g., a hydroelectric dam or a mining operation, has value in its natural state.  Questions arise about how this impacts benefit-cost analysis and what challenges are posed when in situ resources are irreplaceable after development. Irreversibility in Economics and Environmental Processes  Irreversibility is a crucial concept in our discussion. It implies that certain environmental changes cannot be undone, significantly impacting decisionmaking.  While all investments are technically irreversible in terms of time, meaningful distinctions exist between reversible and practically irreversible uses.  Krutilla's work provides the foundation for this discussion. Examples of Irreversible Environmental Changes  The use of geothermal resources in Yellowstone National Park highlights the difference between reversible and irreversible uses. While geothermal resources can be used for energy or tourism, the conversion to energy production is essentially irreversible and would harm the environment permanently.  Traditional mining projects in sensitive environments can lead to irreversible consequences like increased solar heat absorption and habitat destruction, impacting both the environment and climate. Irreversible Impact on Biological Environments  Irreversible impacts extend to biological environments. The loss of an entire species due to habitat destruction is one example.  Even if species survival is not at stake, the biological impacts of environmental changes can take centuries to reverse, making them effectively irreversible. Restoration and User Preferences  Restoration efforts might be technically feasible in some cases, but user preferences play a crucial role.  Authenticity in natural environments holds value for many, and the loss of authenticity can't be fully compensated through restoration.  Preferences for authentic, pristine environments are positively correlated with income and education levels, indicating a growing concern for preserving natural beauty. In Situ Resources: More Exhaustible than Extractive Resources  In situ resources are often "more exhaustible" than conventional extractive resources because they are intrinsically tied to a specific environment.  Extractive resources can often be replaced with substitutes or sourced from alternative locations, making their depletion less critical.  In contrast, in situ resources are unique and cannot be fully substituted in consumption, making their loss significant for those who value them. Conclusion  Transitioning from extractive to in situ resources poses economic challenges due to irreversibility and the intrinsic value of natural environments.  The preservation of in situ resources requires a nuanced approach, considering user preferences and the lasting impact on the environment.