THE TRANSITION FROM EXTRACTIVE TO IN SITU RESOURCES Introduction As we delve into the realm of resource economics, we revisit the insights of JohnStuart Mill (1848), whose ideas still hold relevance in the contemporary world.Specifically, we focus on the transition from extractive resources to in situresources 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 thinnerseams, 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 beautyand solitude. Environmental Preservation and Economics Mill's ideas on the preservation of natural beauty and environmental resourcesdidn't directly influence policy but found echoes in the early conservationmovements. Initially, environmental disruption was analyzed as static externalities, withexamples like pollution from factories and railway engines. It wasn't until the early 1960s that economists started systematically applyingPigouvian 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 theallocation of in situ environmental resources. We examine scenarios where a development project site, e.g., a hydroelectricdam or a mining operation, has value in its natural state.
Questions arise about how this impacts benefit-cost analysis and whatchallenges 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 certainenvironmental changes cannot be undone, significantly impacting decision-making. While all investments are technically irreversible in terms of time, meaningfuldistinctions 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 thedifference between reversible and irreversible uses. While geothermal resourcescan be used for energy or tourism, the conversion to energy production isessentially irreversible and would harm the environment permanently. Traditional mining projects in sensitive environments can lead to irreversibleconsequences 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 entirespecies due to habitat destruction is one example. Even if species survival is not at stake, the biological impacts of environmentalchanges can take centuries to reverse, making them effectively irreversible. Restoration and User Preferences Restoration efforts might be technically feasible in some cases, but userpreferences play a crucial role. Authenticity in natural environments holds value for many, and the loss ofauthenticity can't be fully compensated through restoration. Preferences for authentic, pristine environments are positively correlated withincome and education levels, indicating a growing concern for preserving naturalbeauty.
In Situ Resources: More Exhaustible than Extractive Resources In situ resources are often "more exhaustible" than conventional extractiveresources because they are intrinsically tied to a specific environment. Extractive resources can often be replaced with substitutes or sourced fromalternative locations, making their depletion less critical. In contrast, in situ resources are unique and cannot be fully substituted inconsumption, making their loss significant for those who value them. Conclusion Transitioning from extractive to in situ resources poses economic challenges dueto irreversibility and the intrinsic value of natural environments. The preservation of in situ resources requires a nuanced approach, consideringuser preferences and the lasting impact on the environment.