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5: CHAPTER THE ALLOCATION OF DEPLETABLE AND RENEWABLE RESOURCES I. A Resource Taxonomy A. There are three separate concepts used to classify the stocks of depletable resources: 1. DEFINITION: Current Reserves are know resources that can profitably be extracted at current prices. Notice that even though current reserve is usually given as a number, it usually fluctuates with prices. 2. DEFINITION: Potential Reserves refers the relationship between a resource's market price and the amount of a resource that can be profitably extracted at that price. It is a function. The higher the price, the greater the potential reserves. Example: Congressional Study of Recoverable Oil from Enhanced Oil Recovery. Estimates of Oil Potential Reserves > $30.00 Price Per Barrel $30.00 $22.00 $13.75 $11.62 0 20 40 60 Ultimate Recovery (Billion of Barrels) 3. DEFINITION: The resource endowment refers to the natural occurrence of resources in the earth's crust. This provides an upper bound on the available (terrestrial) resources. B. The U. S. Geological Survey is responsible for keeping records of the U. S. resource base Show Figure 7.1 from Text 6-1 Note the two dimensions: 1. 2. C. Economic: first two concepts Geological: the third concept Two common mistakes made in resource evaluation: 1. Current Reserves Potential Reserves The static reserve index is a commonly used measure of how long a resource base will last. a. DEFINITION: The static reserve index is the ratio of current reserves to current consumption. It is expressed in terms of the number of years a given resource will last. This index is accurate if and only if i. ii. c. The consumption rate continues at its current level. No new additions to reserves occur during the intervening period. b. Examples: i. Copper had a static reserve index of 40 in 1934. In 1974, this static index stood at 57. Examples from Ehrlich and Ehrlich ii. Static Reserve Indices - 1964 1995 Platinum Silver Gold Aluminum Tin Zinc Lead Copper Tungsten Nickel Manganese Iron Uranium Natural Gas Crude Oil Worldwide United States 1900 2000 2100 2200 2300 6-2 2. The entire resource endowment is unlikely to ever be fully extracted. Price would have to approach infinity. a. The maximum feasible size of potential reserve < resource endowment many in cases This is especially true when there are substitute resources b. D. Resource Categories 1. DEFINITION: A depletable resource is a resource for which the natural replenishment feedback loop can be safely ignored. a. Examples i. ii. iii. 2. Energy Resources: Oil, natural gas, uranium, and coal Other Minerals: Copper, nickel and zinc Redwood trees or old growth in national forests. DEFINITION: A renewable resource is a resource with a natural replenishment rate that augments its own stock (or biomass) at a non-negligible rate. a. Examples i. Plants and Animals: Grass, cereal grains, fish and game populations, and forests. Inanimate: Solar Energy, Surface water, and soil. ii. 3. The distinction between depletable and renewable resources is somewhat fine. To a large extent, it reflects resource research to date, in which some simplifying restrictions were required. Stock versus flow emphasis a. With depletable resources, the emphasis is on allocating a fixed stock of the resource over time. With renewable resources, the emphasis is on managing the flow of resources. However, stocks can matter in the case of renewable resources and extinction can occur. 4. b. c. 5. The role of storage 6-3 a. With depletable resources, storage provides a way of extending the economic life of a resource. With renewable resources, storage is used to smooth out cyclical imbalances of supply and demand. Example: dams, food storage b. 6. In some cases, the replenishment rate depends crucially upon human activity (fish, forests, cereal grains, etc.), while in other cases it is independent of human activity (solar power). DEFINITION: A recyclable resources is a resource which, although currently being used for some particular purpose, exists in a form allowing its mass to be recovered once that purpose is no longer necessary or desirable. a. It can be depletable or renewable. Examples i. ii. Recyclable resources: aluminum, paper, glass bottles Non-recyclable resources: Coal, oil, and natural gas. Once these are use, their heat dissipates into the atmosphere and becomes non-recoverable. 7. b. Even with recyclable resources, recycling is never 100%. Some mass is lost during recycling. Recycling extends the life of a resource, but not indefinitely. 6-4

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