Not so very long ago a crude oil price of more than 30 dollars per barrel caused anxious reports in the press. Today the public has already become accustomed to a price of 70 dollars and it is foreseeable that the product will rise still further. What is unclear is the effect this price increase will have on the world’s economy – a question that is of great interest from the scientific viewpoint as well. In this context it is not surprising that the international “Sustainable Resource Use and Economic Dynamics” conference (1) held in the week commencing 5th June 2006 at the Centro Stefano Franscini (2) on the Monte Verità near Ascona aroused lively interest among experts.

“Sustainable resource management is often discussed solely from the conservation viewpoint,” explained Lucas Bretschger, Professor for Resource Economics at ETH Zurich (3) and principal organiser of the Conference. "However, we economists are also interested in the overall economic aspects: for example what contribution does the use of resources make to economic growth and what effect does this have on employment? When is the sustainable use of resources in harmony with economic dynamics and when are there contradictions?"

Dynamic consideration

Bretschger explained that the conference had shown that questions of resource utilisation must be looked at dynamically. Economists usually examine economic systems statically; the supply and demand principle is taken as the starting point and one then asks the question of when a stable economic situation becomes established. However, this approach does not go far enough, since today’s utilisation has direct consequences for future generations. According to Bretschger, "Every litre of petroleum that is taken out of the ground today is no longer available afterwards. That’s why the time factor plays a decisive role.”

In principle, economic science can define clearly how optimum use should be made of non-renewable resources. “However, such models are based on simplified assumptions,” explains Bretschger. “For example they assume that the ownership rights have been settled for the relatively long term and that the players who are responsible are also interested in the future." This may perhaps be true for the countries of Europe, whereas the situation is already less clear in the Middle East, and most of the developing countries do not fulfil these criteria. According to Bretschger, "That’s why they also think and act much more short-term there".

Growth in spite of resources

Paradoxically, natural resources are not always a blessing from the national economic point of view. Bretschger explains that "It is an established fact that countries with many natural resources often show weaker growth than countries that are poorer in resources. This phenomenon is observable to a particularly marked extent in Africa." In the Netherlands, the consequences of developing the natural gas fields were not as beneficial as was at first thought. However, the example of Norway shows that the opposite outcome can result, as became clear at the conference. Previously this Nordic country was comparatively poor, but was able to work its way up thanks to petroleum. The decisive factor was that the Norwegians employed their earnings sensibly. Bretschger’s conclusion from this example is that "The quality of the institutions is decisive."

Scientists are also interested in the effects of globalisation on the use of resources. Bretschger reports that "It was shown at the Conference that developing countries can import technologies quickly if they keep their markets open. This can be fully in keeping with sustainable use." A historical example shows how devastating the consequences of uncontrolled development can be: the gigantic herds of bison in North America were destroyed within a decade in the 19th century. Technical progress enabled the animals’ hides to be tanned more efficiently and the large demand in Europe to be satisfied. Here again the decisive factor was the institutions – which in this case did not function well.

IIn animated discussion about the sustainable use of non-renewable resources: upper row, l. to r.: David Popp, University of Syracuse, Induced Innovations; Scott Taylor, University of Calgary, Environment and Foreign Trade; Michael Hoel, University of Oslo, Environment and Resources. Lower row: Cees Withagen, Free University of Amsterdam, Environment and Growth; Lucas Bretschger, ETH Zurich, Dynamic Economic Theories; Geoffrey Heal, Columbia University, author of various standard works on resource economics. large

An unfair calculation

However, the Ascona conference dealt not only with the use of resources but also with environmental pollution. The latter topic focused on international climate politics. According to Bretschger, this problem also lacked a dynamic viewpoint. "If the economic aspects of climate change are considered dynamically, the costs are doubled compared to a static way of looking at them." Another aspect criticised at the conference was that the costs being incurred nowadays in the industrialised countries are not being offset fairly against the benefits that will arise in the developing countries in the future. Bretschger is convinced that "If the costs and benefits were calculated independently of the incomes of the respective countries, and if one omitted to discount long-term benefits, the end result of the climate policy adopted would look quite different.”

There are plenty of ideas as to how international climate policy could be improved. For example it was suggested at the conference that the ability of individual countries to respond technologically to the imposed conditions must be taken into account when negotiating future reduction targets. For example the USA would be technologically entirely in a position to fulfil the conditions imposed by the Kyoto Protocol. Bretschger does not regard the fact that the leading industrialised nation nevertheless has a sceptical attitude towards current international climate policy as a contradiction of the theory. "The USA itself extracts large amounts of raw materials, and if one influences the prices of these goods, this erodes the corresponding companies’ profits. That’s why they also resist the change so vehemently."