A new basis for the economic theory of natural resources.

Practical application of the principles of sustainable development must be based on a consistent and comprehensive theory of natural resources. Examination of current approaches to environmental policies reveals that a range of practical techniques have been developed but their application requires the sound basis of such a systematic theory of natural resources. A review of literature demonstrates that there are a number of economic theories which are based on poorly-defined differences between natural resources. In particular, these resources are generally referred to as "depletable" and "renewable". However, it is apparent that such terms are not clearly specified and closer examination indicates that the term "renewable" typically refers to "biological" resources such as fish and forests. Other renewable resources, including hydro, solar, tidal, wave and wind power are not explicitly addressed by existing economic theories. In reality, the physical and economic characteristics and nature of renewable energy resources are quite different from those of so-called "conventional renewables".The possibility of formulating a single economic theory of natural resources is explored by first considering the physical processes responsible for resource creation. This leads to the identification of the common physical characteristics of all natural resources. Additionally, the economic characteristics of natural resource utilisation are established. Together, these characteristics enable the real costs of natural resource use to be identified, providing the basis of a single unifying theory of all resources based on a User Cost Function. Two key considerations emerge from this approach. Firstly, in relation to resource depletion, it is necessary to explore the role of rate of consumption relative to rate of supply as a quantitative aspect of resources. Secondly, in relation to pollution, it is necessary to investigate the role of rate of change of entropy as a resource is utilised as a qualitative aspect of resources.Once the true costs of resource use have been established, natural resources can be classified in a systematic way according to these components of the User Cost Function. Clear differences between different types of natural resource emerge, leading to new terms being proposed to describe different resource types. In order to demonstrate the application of this theory in relation to a natural resource, a case study of geothermal energy is used to calculate the user cost component of depletion for the Geysers geothermal reservoir in California, USA. The relationship between the user cost component of environmental impact and the rate of change of entropy for the resource is explored and an example based on the pollution costs of carbon dioxide emissions is presented. Alternative policy measures which articulate the new theory are considered, especially the subsequent alternative application of differential discount rates to different types of natural resource. Finally, conclusions and recommendations are proposed, including further work on the full derivation of the User Cost Function for a range of different types of resources. This would provide a basis for implementing the economic theory of natural resources through realistic policy measures to help achieve sustainable development.