Today the most striking example of how new knowledge
transforms environmental features into toolable natural
resources is biotechnology. While advances in analysis
and sequencing now allow researchers (and hence firms) to
experiment with known genetic command codes to build new
drugs, enzymes, pathways, proteins et al, the reality
is that the raw material for biotechnology is life itself –
everywhere and every when. Nature is much older and more
experienced in designing command codes under a wide range of
environmental conditions than emergent biotechnology.
Accordingly Nature has become the object of search by the
biotech industry for
This search is called ‘bioprospecting’ and takes two forms:
ethnobiology and ‘original research’ which is
Ethnobiology is the interdisciplinary study of how human
societies use or have used flora and fauna to serve human
purpose, e.g., for medical or nutritional purposes.
Its principal sub-disciplines include ethnobotany,
ethnomycology, ethnolichenology, ethnozoology, ethnoecology,
paleoethnobotany, and zooarchaeology. The
Society of Ethnobiology
publishes a journal documenting activities in these fields.
Ethnobiology draws heavily on the knowledge of historical,
pre-modern and/or indigenous peoples of the Third and Fourth
Worlds. Such knowledge is generally called ‘traditional
ecological knowledge’ or TEK. With the 1991
Convention on Biological
Diversity (CBD) the principles of
compensated bioprospecting were established globally with
the notable exception of the United States which is not a
member of the Convention. The convention recognizes
ownership of biological forms like mineral deposits by the
Nation-State in which they are found. Efforts by the World
Intellectual Property Organization and UNESCO to cede TEK
rights to indigenous peoples themselves rather than the
Nation-State in which they live have, so far, failed.
In 1995 with the founding of the World Trade Organization
(WTO) and its
Trade-Related Aspects of Intellectual Property Rights
(TRIPS) a conflict developed with the CBD.
Under Common Law and Civil Code intellectual property rights
can only be granted to a Person – natural or legal – and
only for a limited period of time. The idea that such rights
could reside in traditional knowledge that lasts forever and
belong to a collective such as a tribe or indigenous nation
is therefore rejected by TRIPS. Similarly, to qualify for
protection knowledge must be novel and not the documented
subject of previous art. Given that most TEK is oral in
nature (or written in obscure ancient languages) this means
that biotech firms can, for example, patent the active
ingredients of traditional medicines as well as crops
because there is no previous documented art.
The exploitation of TEK by biotech firms has led to charges
of ‘biopiracy’, i.e., stealing the work of others for
one’s own profit. Among the leading and most articulate
critics is India-born Vandana Shiva (Shiva
1999). In response Third World countries
have increasing sought to protect their biological
resources. India, for example, is putting together a
30-million-page electronic encyclopedia of its traditional
medical knowledge (as well as yoga positions). Ancient texts
in Arabic, Bengalis and Sanskrit are being translated into
five global languages - English, French, German, Japanese
and Spanish - in an effort to establish ‘previous art’ and
prevent others from claiming intellectual property rights (Biswas
2005). Brazil, on the other hand, is
tightening enforcement of its CBD rights and has, for
example, recently sentenced Marc van Roosmalen, a
world-renowned primatologist, to 16 years in prison for
Competition for novel genetic command codes is heating up.
Natural resources take
two forms - renewable and non-renewable. Renewable
include agriculture, forestry (silvaculture), fishing
(aquaculture) and arguably recyclables of various forms.
Non-renewable include all forms of mining including oil.
In turn, non-renewable natural resources break out into
substitutables and non-substitutables. This last
distinction, however, reflects the current state of
knowledge. Thus aluminum was arguably the plastic of
its time (post-Second World War until the late 1960s) but
new knowledge led to the growth of an enormous plastics
industry based on the chemistry of hydrocarbons mainly
derived from oil.
What is the trend -
culture. Beginning with the Agricultural Revolution
when humanity stopped depending on Nature for its fruits,
berries, grains and meats it has increasingly assumed
responsibility to breed, rear and harvest its food. In
the 19th century humanity began to do the same with the
forests - silvaculture. In the 20th century it did the
same with fish - aquaculture. Arguably it also begun a
similar process with respect to minerals - recycling,
It also has plans to replenish depleteable resources such as
oil, gas and minerals by extending its grasp to other
members of the solar system
The domestication of plant and animal 10,000 years ago
marked the first enframing and enabling of a renewable resource to serve human purpose.
It provided the economic surplus required to jump start
human settlement leading to civilization, i.e.,
living in cities, first in the so-called 'Fertile Crescent'
between the Euphrates and Tigris Rivers to the Mediterranean
Sea then somewhat later along the Indus River in India and
the Yangtze River in China. As will be seen below
under 3.2 Fishing, a somewhat similar situation arose 7,000
years ago along the coastlines of eastern North America and
western South America.
This economic surplus permitted a division and
specialization of labour with farming producing more food
than farmers themselves could consume allowing others to
specialize in everything from art to weapons and trade for
food rather than produce it. In most places this also
led to the emergence of hierarchal societies with palaces
for the king and nobles and temples for priests paid for
with surplus taken from farmers effectively in the form of
taxes. Exceptions appear to include the Harappan
civilization along the Indus River and the earliest cities
along the coast of western South America which appear to
have been much more egalitarian - no palaces, no temples, no
One thing all these early civilizations developed was
extensive irrigation systems for farm and field.
Over time through selective cross breeding plants and
animals were bred for characteristics most favourable to
human needs. In fact most of the original wild grains,
cattle, sheep and lamas have either disappeared or become
increasingly rare. This development is known as the
Agricultural Revolution. A vastly greater division and
specialization of labour then occurred with the surplus
produced by the Industrial Revolution of the 19th century.
While authors of the required text wax gloomily about
contemporary food scarcity they note that there is no food
shortage in the world today. Rather there is a problem
of distribution with some populations suffering want while
others enjoy surpluses. Unfortunately, to my mind,
they fail to identify the underlying causes of this
distribution problem -
politics and war.
Africa - the continent in which food scarcity is arguably
the greatest - has been plagued since de-colonization
beginning in the 1950s with wars and political policies that
have arguably aggravated the problem. In Saharan
Africa from Morocco to Egypt governments have subsidized
consumption purchasing much of staple foods on international
markets and thereby undercutting domestic producers.
When subsidies are reduced, riots and political unrest
reinforces the vicious circle. The use of food
subsidies to maintain domestic peace dates back at least to
the Roman Revolution in the second century before the common
era. Among other things the Gracchi Brothers in 125
B.C.E. instituted a program of subsidizing imported grain to
feed the plebian masses. Julius Caesar's conquest of
Egypt in the next century turned Egypt into the bread basket
of the emerging Empire. Ironically, Egypt now
subsidizes grain imports from what some call the new Roman
Empire - the United States - to maintain domestic peace.
In the Sudan civil war
in Darfur has essentially stopped food production by black
farmers facing attack from Arabic herders. On the horn
of Africa especially in Somalia there is currently a threat
of major famine but political forces specifically Islamist
fundamentalist militias will not allow distribution of
foreign food aid with dire consequences for the population.
It should be noted that beginning in the late 1960s as the
first 'green revolution' came to fruition India refused food aid and pursued a policy of self-sufficiency which has
been remarkably successful.
In sub-Saharan Africa amongst the tropical rain forests and
jungles war especially civil war has hampered food
production as have destructive policies by governments such
as Zimbabwe which have turn bread basket economies into
areas of extreme food scarcity. So-called 'bush meat'
remains a critical source of human food with significant
consequences for biodiversity and extinction of species.
In many cases such wars and policies represent the indirect
result of European colonization. Borders of the
nation-states of Africa are not the result of indigenous
forces but rather mark the limits of a colonial powers
success in capturing territory. In places like the
Congo and many other countries civil war has been endemic
often because borders divide people of the same tribal
backgrounds. Thus on opposite sides of a national
border people often have more in common with each other than
with those in their respective national capitals. The
international organizations that feed the doom and gloom of
the authors with statistics cannot admit the problem because
the United Nations treats existing borders as sacrosanct.
Hence the United Nations is in a sense not part of the
solution but rather part of the problem. There has in
fact been only one exception - the recent emergence of
Southern Sudan as an independent nation-state. Its
future, however, remains uncertain.
Politics in the developed world have also contributed to the
problem of scarcity. Traditionally these countries
unlike those of Saharan Africa subsidize production rather
than consumption of food. The disproportionate
political influence of rural voters has contributed to the
problem. Attempts to reduce such subsidies face
political consequences that governments have been hesitant
to confront. Great hope arose, however, with formation
of the World Trade Organization in 1995. The WTO is
committed to the elimination of production subsidies.
Article 13 (“due restraint”) of the Agriculture Agreement
protected countries using subsidies from being taken to WTO
tribunals where sanctions could be levied against those
providing such subsidies. This “peace clause” as
it was known lapsed in 2004. Agricultural
producers in the developing world can now take offending
nation-states to such tribunals. This change in
bargaining power is evident in difficulties experienced in
the so-called Doha Round of WTO negotiations.
Developing countries are pressing for access to developed
world food markets as bargaining chip against the developed
world's pressure for access to financial markets of the
The gradual ending of agricultural subsidies in the
developed world has, however, been accompanied by political
responses that have arguably exasperated the situation.
In the United States and Europe the political need to keep
rural constituencies happy has led to a questionable lurch
into biofuels specifically ethanol. While food
production cannot be subsidized production of crops for
ethanol can. Thus a large part of the American corn
crop now goes to cost ineffective ethanol production.
This has raised the price of corn and reduced the quantity
available for feeding both people and livestock.
Another example is that to avoid American action at the WTO
Japan has agreed to buy large quantities of American rice
which it simply stores keeping it off the market. For
Japan rice production is not just an industry but also a
tradition at the root of its culture. Furthermore
experience of embargos before the Second World War makes
Japan concerned about giving up cost-ineffective production
because of the security implications of any future embargo
or other interruption in the supply of imported foods. When
a worldwide rice shortage occurred in 2005 and food riots
sprang up the Japanese and Americans agreed to let the
stored rice onto the market relieving the problem,
Similarly the restrictive GMO policy of the EU has been
taken to the WTO by the U.S., Canada and Australia but
nonetheless has so far successfully block access to those
markets. In addition many African nations that wish to
sell in the EU market are blocked because they use
genetically modified seed. All in all it is not lack
of technical ability to produce food that has caused what
the authors describe as 'food scarcity' but rather politics
While the authors spend little time on environmental
pollution caused by agriculture it is in fact one of the
leading environmental problems. Thus a wide range of contaminants reach rivers via
groundwater and drainage ditches including
fertilizer residues, insecticides, herbicides,
pesticides and farmyard waste, all of which are potentially
harmful. Milk spillage from dairies as well as cattle and
pig slurry are also
serious contaminants of the water system. Among other
things they contribute to eutrophication, i.e, depriving rivers
and lakes of oxygen.
With respect to the earth or soil various farming activities
erosion of soil particles. The resulting sediment can damage fish habitat and wetlands.
Improper grazing practices in riparian, as well as upland
areas, can also cause water quality degradation.
Furthermore large scale confined animal facilities rearing,
e.g., chicken and pigs, can result in air pollution
specifically the stench of excreta. Cost-benefit
analysis described above is used to estimate both the health
and environmental costs of agricultural activity as well as
cost effective control mechanisms. These include:
sediment/erosion control; confined animal facility
management; nutrient or fertilizer management; pesticide
management; controlled livestock grazing; and,
environmentally friendly irrigation techniques. Such
management practices, however, require cooperation by
farmers as well as enforcement by regulatory agencies of
government. Enforcement costs are, of course,
generally external to market price and hence also need to be
calculated in any cost/benefit analysis.
As will be discussed in 4.0 Ecological Economics another
environmental concern is increased urbanization which draws
population from rural areas (reducing the rural labour
force) into growing cities. As urban areas expand
prime agricultural land is often taken out of production.
In turn, this places increased burden on less productive
land which in turn raises costs.
About 7,000 years ago along the east coast of North America
from the Carolinas to Ungava an advance seafaring culture
developed relying on fishing as the source of economic
surplus. Megalithic sites were built in New England
and elsewhere along the coast. Formally known as the
Maritime Archaic, the Mystery of the Lost Red Paint People
(see Link below) includes the conjecture that they may have
crossed the Atlantic following the Gulf Stream and taught
Europeans how to build megalithic structures. A
similar settlement pattern developed along the west coast of
South America shortly after. These, however, appear to
have combined sea resources and agriculture. And, of
course, along the west coast of North America an advanced
seafaring culture developed in places like British Columbia
where the Europeans discovered sizeable settlements in the
1700's of the common era.
agriculture the oceans are a commons in which private
ownership is difficult to establish. When John Cabot
discovered the Grand Banks off Newfoundland in 1497 his crew
simply used buckets to land the fish because they were so
plentiful. In short order other European nations began
to exploit the resource as they continue to do to this day.
Ocean fish in terms of the authors of the required text are
thus an 'open access
Given such resources belong to everyone yet to no one, i.e.,
they are ‘public goods’, competitive self-interest dictates
getting for oneself as much as possible as quickly as
possible with no consideration for others – past, present or
biological science can estimate optimum harvesting practices
for different species - timing, permitted quotas and size of
maintain such resources over time - sustainability -
government must act because there is simply no private
incentive to do so. Three generic approaches have been
developed: Property Rights; Regulation; and Fiscal Policy.
By government fiat
private property rights in the fisheries can be established.
Four examples demonstrate. First, aquaculture -
fish farming - involves penning and rearing certain species
in private water estates licensed by government. In
fact over the last three or four decades aquaculture has
become a major source of those species that can thrive under
such conditions. The text documents the benefits and
the costs of such practices. Second, based on
scientific evidence government establishes the maximum
quantity of a species that may be captured in a given
timeframe and then allocates individual transferable quotas
to fishers. Such quotas may initially be auctioned off
and are marketable to other fishers meaning that those who
are most cost-efficient can afford to buy up quotas from
those who are not. This eliminates inefficient fishers
rationalizing the industry and making it easier for
government to regulate (see below). The text again
documents benefits and costs of such transferable quotas.
Third, government may establish the maximum quantity
of a given species that can be captured and then allocate catch shares
to fishers - individual or collectives - based on historical
records. In some cases such shares may be
marketed again allowing the most cost-efficient fishers to
buy quotas from the less profitable reducing the costs of
regulation. Finally, through the Law of the
Seas Convention, nation-states have agreed to recognize a 200 mile
management zone beyond their internationally recognized
three mile maritime territorial limit. Within these
zones a nation-state effectively exercises ownership of
maritime resources including fish as well as mineral
resources such as oil. Nation-states then use their
coast guard and naval military forces to exclude fishers
from other countries. Where such zones overlap
bilateral agreements between countries are usually ratified
permitting cross exploitation or defining rights and
obligations of both parties. Within such zones
individual transferable quotas and catch shares can then be
Government regulation of
the fisheries takes on at least three forms. First,
government may limit the
technologies that can legally be used to harvest fish
species. Such limitations are intended to keep catches
at levels that will allow a fishery to remain sustainable.
The text documents a number of such limitations including
their benefits and costs. Second, government often
imposes closure in space & time to protect species
during critical phases of their reproductive cycle.
Thus certain areas at certain times may be closed to
fishing. Third, government may establish marine
protected areas and reserves in which no fishing is ever
permitted. This is intended to allow species to have a
secure habitat to breed and from which they emerge to renew
fish stocks in areas open to fishing.
Fiscal policy involves
tax and spend decisions of governments. With respect
to taxes, these can be used to raise the costs of fishers in
order to limit their numbers and thereby foster
sustainability of a fishery. Such taxes can also be
used to pay for regulation and enforcement costs. With
respect to spending government can offer buyback and
decommissioning subsidies to purchase vessels from fishers
and decommissioning vessels taking them out of service and
thereby reducing the number of participants in a fishery.
Arguably the most significant spending decision of
government involves enforcement costs. Whether it is
establishing property rights, regulating technology and/or
fisheries themselves or collecting taxes or paying subsidies
without market discipline government must pay the costs of
enforcing its policies to maintain sustainable fisheries.
As in Agriculture,
however, government imposed property rights, regulations and
fiscal policy are subject to political pressure by a
relatively small but often powerful constituency made up of
fishers, fishing communities and the commercial fishing
industry. Such political forces continue to limit the
implementation and enforcement of 'scientifically' or
'environmentally' sound practices in many countries and
internationally - the case of the
Atlantic blue tuna is a recent example.
Unlike fishing, forests
are not a commons but rather either private property or
publicly owned property, i.e., on Crown lands.
In both cases, silvaculture can be practiced, i.e.,
planting, nurturing and harvesting tress as a crop.
Silvaculture is arguably best practiced in the Nordic
countries - Norway, Sweden and Finland. For many
generations their forests have been sustained. Driving
from Stockholm Airport into the city, for example, one
passes through a third generation forest of 100 year old
trees. As in fishing the biological sciences can be
used to estimate optimum harvesting schedules and practices
to maintain sustainable forests.
Forests generate both
market and non-market benefits. Market benefits
include treating trees (as well as other flora and fauna) as
saleable commodities subject to many stages of value added
and as a capital asset that, within limits, grows in value
each passing year. This includes the potential commercial
value of the diverse genetic materials supported by
'natural' forests, especially in tropic regions. Hence
bioprospecting is an important emerging industry placing
market value on forests and their related ecosystems.
Internationally, property rights for such genetic material
have been assigned to nation-states under the 1992
UN Convention on Biodiversity.
In addition, forest lands
often have alternative market uses for agricultural,
industrial or residential purposes. This, of course,
means forests have an opportunity cost, i.e., a next
best alternative use.
or external benefits include environmental services not
captured by market price. These include: preserving
watersheds; preventing soil erosion; protecting habitat
thereby maintaining biodiversity; carbon capture; and, as an
environmental amenity. Furthermore, many tropical
countries forests or rather jungles support indigenous
peoples - Fourth World peoples - with cultures dating back
to pre-history. If protecting biodiversity is
important, is not protecting the cultural diversity
supported by the same forests? Theoretically, at
least, the dollar value of such environmental and cultural
services can be estimated and used in cost-benefit analysis
to determine the true social opportunity cost of alternative
While the biological
sciences can provide guidance to optimize the social benefit
of forests, i.e., maximum net public benefit, there
are perverse incentives, both natural and governmental, that
can and do inhibit its achievement. Natural
incentives include such things as the high present value
of existing over future forests, the potential for forest
fires, air pollution and insect infestations. These
encourage private owners to harvest sooner and more
intensively than would maximize net public benefits.
It also encourages private owners to plant fast growing
species often in plantations to minimize
harvesting costs without accounting for environmental
benefits of a diverse forests ecosystem.
incentives can have the same perverse effects.
More favourable taxation of agricultural, industrial and
residential use of forest lands is one factor.
Concession agreements on public lands are often limited in
time encouraging rapid exploitation of the resource with
little if any concern for long term benefits that can not be
captured by firms at market price. Similarly, stumpage
fees or the charge placed by government on harvesting public lands can fail to capture all non-market benefits and
costs. This is, for example, one argument used by the
United States to place tariffs on Canadian softwood lumber
products. Furthermore while public ownership provides a
vehicle to capture the long-term benefits of the forests as
in agriculture and fishing government remains subject to
political pressure by a relatively small but often powerful
constituency made up of loggers, logging communities and the
commercial timber industry. Such political forces
continue to limit implementation and enforcement of
'scientifically' or 'environmentally' sound practices in
many countries and internationally.
Consumer behaviour can
create market forces that recognize the non-market benefits
of forests. These include boycotts of products made by
offending firms and certification of products made by
eco-conscious ones. The result, of course, is
higher prices on the market and the willingness to pay of
consumers becomes the issue. Action by non-profit
organizations can also help including so-called
'debt-nature' swaps. The authors praise such efforts
but fail to consider the source of much Third World debt.
In many cases this debt was incurred to buy military
equipment to fight the many wars outlined above under
3.1 Agriculture as well as the failure to invest wisely,
often due to corruption of local officials.
By mining I mean purely
extractive industries, i.e., those that take deposits
out of the ground with no possibility of renewal or
replacement, at least on Planet Earth. Put
another way, they are non-living resources for which
'culture' is simply not possible as with agriculture,
aquaculture and silvaculture. They include mineral
deposits such as aluminum (bauxite), copper, gold and silver
as well as coal, natural gas and oil. One way of
characterizing supply is provided by the
U.S. Bureau of Mines and Geological Survey.
Another used by your authors in the 9th edition is:
Current Reserves: deposits that can be profitably extracted
at current market prices;
Potential Reserves: deposits available depending on future
prices or extraction costs generally caused by new
Natural Endowment: their total geological presence in the
planet, some of which is unlikely to ever become available
at any foreseeable price.
Supply can increase over
time depending on what in traditional mining is generally called
prospecting and in the oil and gas industries, exploration.
The costs of exploration and
extraction are also dependent upon technological progress.
Thus remote sensing technologies using satellites in earth orbit have significantly reduced exploration costs.
Among other things such satellites can identify types of vegetation associated with specific mineral
deposits. Satellites can also use different parts of
the electromagnetic spectrum to detect likely deposits as
well as employ active systems such as radar to penetrate
below the surface to identify geological
formation associated with different types of minerals as
well as oil and natural gas. Similar surface
technologies are employed.
Elaborate 3D graphic models and
visualization technologies can then be applied to test
drilling and remote sensing data.
The question becomes
the optimum social rate of extraction which in turn invokes
the question of present value and the discount rate,
i.e., how much do we value future benefits and costs?
As suggested by
Bain, in economics conservation does not mean non-use or deferment
but rather “wise use”. Conservation involves choice
among of alternative techniques of exploitation as well as
the time pattern of production, investments and other costs
to yield an optimal net social benefit relative to the “time
preference” of society.
Conservation performance is poor to the extent:
1. Exploitation raises both present and future costs above
the obtainable minimum while reducing or not increasing the
amount ultimately recovered;
2. Rapid or intensive current use results in impairing (or
eliminating) future use not compensated by current additions to
3. Minimizing costs or investments in the use and
development of a resources that curtails future use or
raises future costs disproportionately; and,
And, of course, there can
be significant environmental costs associated with
extractive industries. Tailing ponds at the oil sands
and their effect on migratory birds is one example.
During 2010 in
Hungary a tailing pond burst and threatened to
pollute the Danube River. Furthermore the aesthetics of natural areas
are destroyed by
open pit mining of various types. Increasingly firms
are required by governments to return such sites to their
'natural' state after exhausting the resource. Such aesthetic
pollution, for example, caused, in my understanding, INCO in
Sudbury to invest heavily in a special type of
grass to cover its slag heaps. Problems associated
with 'fracking' shale deposits to release natural gas is
another example of potential environmental costs this time to a
with pollution above
2.0 Environmental Economics, government has a
significant role in forcing firms to internalize such costs
through taxes, regulation or fines.
3.5 Recyclables: One Man's
Garbage is Another Man's Treasure
Recycling is a classic example
of knowledge being required to recognize an environmental
feature as a toolable natural resource suitable to serve
human purpose. Since the beginning of civilization
(living in cities) there have been garbage pickers, rag
merchants and others making their living cleaning up the
waste of others - One Man's Garbage is Another Man's
Treasure. In Victorian England there was an entire
class of people who lived by going under the paved rivers of
London (like Fleet Street built over the Fleet River) when
the tide went out to collect the coins, rings, jewels and
other expensive things dropped by the walking and riding
rich above. In much of the Third World today recycling
is arguably more efficient than in the developed world.
With so many poor - cheap labour - garbage picking is a way
of life for millions of people. There are, of
course, medical and other human costs associated with such
In the developed world a formal
market must exist for recycling to become a viable economic
endeavour. In general the smaller number of poor are
legally prohibited from garbage picking of landfills and
city dumps, i.e., sorting and collecting recyclables.
There must be a supply and a demand. With respect to
the supply of recyclable materials, civilization - a
concentrated urban population - is required. With respect to
demand there has to be the expectation of profit.
If consumers do not bare the
cost of disposal and receive no reward for recycling then
everything simply gets trashed; i.e., no at-source
sorting or collecting. Traditional municipal
garbage collection works in this manner. Pay your
taxes and everything is picked up and then dumped in a
landfill of one sort or another. As population grows,
however, both the quantity of trash and the cost of
landfills grows. Suitable nearby sites become fewer as
existing ones are filled requiring new sites further away
from the population centre raising transport and other
costs, e.g., negotiating disposal contracts with
neighbouring communities. General taxes can be raised
or, alternatively, user taxes based on volume can be
imposed. Tax increases, however, generally face voter
resistance and politicians look for alternatives because,
one way or another, all social costs must be paid.
Recycling is one alternative.
Its economic success depends, however, on the concentration
and purity of recyclables. One step is providing
households with voluntary recycling dumpster bins promoting
at-source sorting and collecting. The incentive,
however, is social responsibility, not economic.
Refundable deposits - for example, on bottles, batteries,
e-waste and tires - paid initially by the consumer as a
disposal charge on the purchase price acts as an economic
incentive to sort, collect and deliver recyclables to
collection centres. By contrast, if only a surcharge
is imposed with no refund then the consumer has no incentive
to bring recyclables to such centres.
Market demand must exist for
processing at a cost and selling price that sustains the
market. Collection without processing just adds to
landfills. The economic viability of recycling depends
on the cost of virgin materials and possible substitutes as
well as technological change affecting both discovery costs
of new virgin material and recycling costs. As initial
sources of virginal material are exhausted exploration and
discovery costs must be paid to find new ones. In
addition, often the most profitable sources are generally
exploited first meaning rising costs of extracting from the
next best source. At some point the cost of
recycling becomes cost-effective to an industry relative to
secondary and tertiary sources of virgin materials.
When rising costs of virgin ore are combined with waste
disposal incentives for recycling, consumers may find
recyclable goods cheaper to buy and producers find they are
cheaper to produce - a virtuous circle that your authors
call the composition of demand effect.
Recycling, however, is costly.
Collection and separation are labour intensive. To the
degree households begin the collection and separation
process such costs are reduced to firms (but nonetheless
borne by households). Transporting collected materials
to reprocessing plants can be high because they are often
located close to the source of virgin materials rather than
population centres. In addition there are energy costs
of reprocessing as well as costs associated with meeting
regulated pollution standards.
While recycling is promoted by
resource scarcity this, in turn, encourages firms to
increase exploration and discovery activities in search of
new virgin material sources as well as for cheaper
substitute inputs. As noted above
Mining technological change including remote sensing
technologies are lowering exploration and discovery cost for
many minerals. Similarly the search for substitutes,
for example carbon fiber for aluminum, can also reduce the
economic viability of recycling. However, as long as
the marginal cost of recycling is less that the alternatives
it effectively extends the supply of scarce materials.
In fact, the demand for
recyclables begins at home - both the household and firm.
Thus firms have what the authors call 'new scrap' that falls
on the production plant floor. One reason why
the U.S. failed to ratify the Kyoto Agreement was apparently
the poor 'new scrap' practices of American firms relative to
their European and Asian rivals. In the U.S. with its
traditional abundance of raw materials such recycling
practices were slow to be adopted compared to their resource
poor rivals. With respect to 'old scrape', i.e.,
embodied in discarded products, producer do not generally
bear disposal cost biasing them towards virgin materials.
There are also market failures
or imperfections that reduce demand for recycled materials.
Efficient recycling depends on the marginal disposal cost,
e.g., the cost of landfills and alternatives.
If municipalities fail to charge enough in taxes to cover
all social costs of dumping then reducing waste, reusing
products and recycling are discouraged. Senior levels
of government can also fail to charge sufficient royalty
fees on mining public lands effectively creating a subsidy
for the extraction of virgin materials thereby reducing
their cost and recycling incentives. This is similar
to the problem of low stumpage fees with respect to
To the degree firms do not pay
all social costs associated with their activities then
government can step in to force them to internalize such
costs in market price. Thus selected taxes may be
levied on virgin materials and subsidies offered for
recycling things such as waste oil. Government can
also subsidize the purchase of public and private recycling
plants and equipment reducing the market price of
recyclables. Similarly government may impose the
take-back principle forcing producers to take back their
products after their working life has ended. The
government through such measures attempts, in effect, to
establish an efficient balance between consumption of new
and recycled materials. Ideally when recycling is
cost-effective it leads producers through product design to
facilitate recycling and consumers to prefer recycled
products and packaging.
Reduce, Reuse, Recycle