The diehard of the resource discussion is not the real problem

Exhaustible resources such as fossil fuels, metals and non-metals are necessary for our societies. It is quite common to see newspaper headlines or even scientific publications stating that these resources are running out. This is the true diehard of resource related discussions. See for example these recent headlines from The New Yorker and from The Smithsonian,

“The world is running out of sand”,

and a similar one from The New Your Times

“The world’s disappearing sand”.

We have seen similar phrases used for other resources, probably most often for oil. However, the current reserves of exhaustible resources, that is, the amount of resources that are profitable to extract with current prices and technology, are vast. And more importantly, the amount of reserves grows as technology improves and new deposits are discovered. For example, the development of oil sands in Canada and shale oil and gas in the U.S. have been important thresholds that have expanded the oil and gas reserves. As described by Covert, Greenstone and Knittel, the supply of oil and other fossil fuels can be expected to increase in the future exactly because of improvements in technology. The same goes for metals such as copper.

Even if exhaustion begins to loom for some resource, its price will increase and its use will be substituted. For many resources, particularly for some metals, recycling of used products offers, at least to some extent, an alternative to exploiting reserves. Therefore the problem is not, nor has ever been, the limited total amount of these resources. Economists have argued for this at least since the oil crisis of 1970s. Economic incentives affect the resource use, and it is the economic incentives that are important when discussing resource depletion. The problem is not the physical exhaustion of the resource, since it does not occur at least on a global scale. What might occur is economic exhaustion, that is, there might come a point in time at which it is no longer economical to extract the resource.

Instead, the real problem are the environmental (and societal) issues related to resource extraction and to the resource itself. The environmental problems are unfortunately quite diverse varying from local air quality problems and acid mine drainage to global problems like CO$_2$ emissions that contribute to climate change related problems. If one wishes to solve the real problem related to exhaustible resources, one should understand and exploit economic incentives in policy-making.

Written on March 14th, 2018 by Pauli Lappi