1. Environmental and Natural Resource Economics
2nd ed.
Jonathan M. Harris
Updates for 2012
Chapter 12: Non-Renewable Resources
Copyright © 2012 Jonathan M. Harris

2. Figure 12.1: Classification of Nonrenewable Resources
The implication of this standard resource classification diagram is that reserves are not fixed but variable, and can be expanded in two ways: by new discovery or by new technology and changing market conditions. The currently identified economic reserves may be only a small portion of the ultimately recoverable reserves.

3. Figure 12.2: Resource Rent for the Competitive Firm
Unlike ordinary competitive firms, firms that produce non-renewable resources will not produce where P = MC, but will balance the resource rent available from producing today with the expected rent available from producing in the future. This implies that high-quality resources, with high recoverable rents, will be exploited first, while lower-grade resources are likely to be held in expectations of either higher prices or improved recovery technologies in the future.

4. Figure 12.3: Exhaustion of a Mineral Stock
In theory, non-renewable resources should face eventual exhaustion. The price of the resource should rise over time (in accordance with Hotelling’s rule discussed in Chapter 5), while the quantity extracted should gradually decline, reaching zero when the “choke price”, or highest possible market price for the resource, is reached.

5. Figure 12.4: Hypothetical Nonrenewable Resource Use Profile
The complete life cycle of a resource includes a period of declining prices and increasing consumption, followed eventually by rising prices and decreasing consumption. Until recently, it has appeared that we have been in Phase I or II, although recent evidence suggests that we may be moving into Phase III with rising prices for many resources (see later slides).

6. Figure 12.5: Change in World Reserve Base for Selected Minerals
Even though production has risen steadily since 1950, reserves have increased, not decreased, due to new discovery and improved tachnology for resource recovery.

7. Figure 12-5 Supplement: U.S. Production of 3 Metals, 1950-2009
Production of most metals and minerals is still rising, as shown by U.S. production of three key metals.
Source: USGS, 2010

8. Table 12.1: Reserve Estimates for Selected Minerals
Mineral
Annual Consumption (thousand metric tons)
Total Reserves (thousand metric tons)
Reserve Base (thousand metric tons)
Reserve Index (years)
Reserve Base Index (years)
Alumnium
103,625*
23,000,000
28,000,000
222
270
Cadmium 20
600
1,200 30 60
Copper
10,714
340,000
650,000 32 61
Iron Ore
959,609
71,000,000
160,000,000 74
167
Lead
5,342
64,000
130,000 12 24
Mercury
6.6
120
240 18 36
Nickel
882
49,000
150,000 56
170
Tin
218
9,600
12,000 44 55
Zinc
6,993
190,000
430,000 27 62
Source: Derived from World Resources Institute, 1994; and U.S. Geological Survey, 2001
*Annual consumption of bauxite ore.
Reserve base estimates indicate that shortages are not imminent, although higher-quality reserves may run short in the relatively near future.

9. Figure 12.6: Price Trends for Selected Minerals
After a long period of stable or declining prices, prices for key minerals rose rapidly in , though they fell back somewhat in There is concern that prices are once again rising with some, such as copper, reaching new highs in 2011.

10. Figure 12-7a: Distribution of Mineral Ores in the Earth's Crust (smooth distribution)
If resource reserves have a smoothly rising availability as resource grade declines, prices can be expected to rise gradually as better-quality reserves are mined out.

11. Figure 12.7b: Distribution of Mineral Ores in Earth’s Crust (uneven distribution)
But if the distribution of reserves is uneven, there could be a dramatic price increase when better-quality reserves are mined out, and a jump to much lower-quality reserves is required.

12. Figure 12.8: Resource Price Profile with Environmental Costs
Inclusion of environmental costs would alter the reserve price path, leading to an earlier shift to rising prices. This is especially true if indirect environmental costs, such as the costs of carbon emissions from energy used to recover resources, are included.

13. Figure 12-9: Resource Consumption with Backstop Resource and Recycling
Expansion of resource recycling and substitution of backstop (ideally renewable) resources can stretch out the lifetime of a non-renewable resource.

14. Figure 12.10: Total Costs of Recycling
This somewhat complex diagram compares the total costs of virgin and recycled resources. As the recycling proportion rises, costs of virgin materials and environmental/disposal costs fall. But the cost of recycled resources rises, especially as we attempt to reach the (impossible0 goal of 100% recycling). Thus the economic optimum, or least-cost, point, is found with partial recycling. The proportion recycled will rise if environmental and disposal costs are internalized to the producer.

15. Figure 12-11: Marginal Costs of Recycling
The same principle is shown in a simpler form using marginal costs of virgin and recycled materials. Producers will tend to operate where these marginal costs are equalized, which will be at a higher level of recycling with internalization of environment costs.

16. Figure 12.12: U.S. Metals Consumption from Primary and Recycled Sources
Even without aggressive policies to promote recycling, and increasing proportion of U.S. metals are recycled as a result of market incentives.

17. Figure 12.13: Scrap Metal as a Percentage of Total U.S. Consumption
The proportion recycled is highest for lead, a durable metal with high environmental impacts from mining. About half of U.S. iron and steel, and 40% of aluminum, are recycled.