Natural resources and accounting
Classification of resources, scarcity and natural resource accounting.
Classifying natural resources
A natural resource is anything from nature that people use to meet needs. They can be classified in several ways:
- By renewability: renewable resources regenerate within a human time span (forests, fish, fresh water, soil) if used below their regeneration rate; non-renewable resources form over geological time and are finite (coal, petroleum, metallic ores); inexhaustible or perpetual flows such as sunlight and wind are not used up.
- By origin: biotic (obtained from living things, such as forests, fish and livestock) and abiotic (non-living, such as minerals, water and air).
- By development: actual resources, whose quantity is known and in use, and potential resources, which exist but are not yet used.
- By ownership: individual, community, national and international.
A renewable resource can still be exhausted if it is over-used, like an aquifer pumped faster than it is recharged.
Scarcity
Economic scarcity means that resources are limited relative to wants, so choices and trade-offs are needed. Scarcity can be absolute (physical limits, as with fossil fuels) or relative (caused by unequal access, poor distribution or pollution, as when a city has water nearby but it is too polluted to use).
Natural resource accounting
Conventional national accounts count the sale of timber or minerals as income but ignore the fall in the stock of forests or ore. They also ignore damage from pollution. Natural resource accounting adjusts national accounts for the depletion of natural resources and the degradation of the environment. The UN's System of Environmental-Economic Accounting (SEEA) provides a standard framework. A simplified "green" measure is: Green NDP = NDP − value of resource depletion − cost of environmental degradation.
Key points
- Renewable resources can be exhausted if used faster than they regenerate.
- Scarcity may be absolute or relative.
- Natural resource accounting records depletion and degradation.
- SEEA is the UN framework for environmental-economic accounts.
Exam tips
- In green accounting sums, subtract both depletion and degradation from the conventional figure.
- Remember: selling off natural capital is not true income.