About ten years ago the Club of Rome reminded us that the earth contained only a finite and not inexhaustible supply of resources. Fear was expressed strongly ...
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ECONOMIC THEORY AND THE . OJYflMAL DEPLETION OF COAL RESERVES IN SOUTH AFRICA
P.E Hilsenrath
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University of the Witwatersrand Department of Economics
ISBN 0 85494 8333
August 1984
Occasional Paper No. 3
Occasional Papers W.A, PrIngle, The Economic Position of the Utban White Aged A Central Johannesburg Study D.JJ. Botha, The Image of the Academic in South Africa
ECONOMIC THEORY AND THE OPTIMAL DEPLETION OF COAL RESERVES IN SOUTH AFRICA
P.E. Uilsenrath
ISBN 0 85494 8333
University of the Witwatersrand Department of Economics
August 1984
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FOREWORD About ten years ago the Club of Rome reminded us that the earth
contained only a finite and not inexhaustible supply of resources. Fear was expressed strongly at the time that if we continued to
exploit the earth's resources at the then current high and exponentially increasing rate, the time might not be far off when our modern technological civilization would grind to 8 standstill with cataclysmic results for us all. Oil provided a good example of our dwindling resources, a fact that was painfully brought home to many countries by the formation of the Opec oil carlel and the subsequent almost ruinous increases in the price of crude oil. South Africa
took defensive action by
fRUing back on her very
substantial reserves of coal by establishing more plants for the manufacture of oil from coal. It was a decision of the highest strategic importance to the country and one that soon proved to be correct lind well-timed. In fact. South Africa could be said to have been OUf! of the! first cOllntries in the world to hllve invested relatively heavily ill lJ technologically advanced manufacturing process aimed at moking her less dependent on imported fuel. This kind of decision raises many intractable questions about the optimal use of a basic resource. There is the view that we should not engage in the export of coal at the present rate if we were to conserve our resources for future generations. It is a view that is held by many as being the most sensible in the long run. Whether in fact this is so lurgely depends upon unknown - and unknowable - future technologicltl developments. It is not unthinkable thnt a major bl'Cllklhrough in IlUdC/lf ~i('imJ("e in the futUl'C may ronder cool obsolete as 11 source of energy - or. liS Mr. llilscnruth puts it, future generations might then have "about as much use for coal as we do for horseshoes". In that event a conservative policy with regard to the mining and use of- coal--wol1ld--deprive---ttm- country- of -untold--billions--of Rands--of--much needed foreign exchange. Mr. I-lilsenrath's paper is on a very topical subject. and one that is being almost completely neglected at South African Universities. It is offered in the hope that it would stimulate further work on the subject in this country. D.J.J. BOTIiA Uead, Department_ of Economics
2.
THE ROLE OF SUBSTITUTABILITY
the other hand, nn opposmg school of
substitution and the elasticity of output. If the elasticity of substitution b-etween exhaustible resources and other inputs is equal to or greater than one and the elasticity of output with respect to natural resources is less than the elasticity of output with respcct to reproduccablc cnpitll), then the economy can simply adjust without any loss in consumption. Of course such highly aggregated models provide 11 Pandora's box of difficulties when utilized in empirical and practical applications. An overall estimate of these values becomes more a matter of faith tlmn of scientific inquil·y.
thought fugues thAt rising prices of olle set of commodities will lend to u shift,
3.
The importance of exhaustible resource policy and even the usefulness of resource
economics
in general hinges
upon the degree of substitution and adaptability that an economy can make
as the resources are depleted.
On the
one hond if no substitution is possible, exhaustion could impose grca t hard-
ships on n society and at the -limit perhaps bring about the complete de-
mise of civilization. Such neo-Malthusian perspectives have recently and forcefully been vented by the much
touted
Club
of
Rome
report
known as The Limits to Growth.
On
in relative prices between sectors with no implication for total output. The tI'uth of the matteI' concerning exhllustible resources probably lies somewhere in between these two points of view. blcreasing scnrcity of key I'esources can and have imposed hardships and economic decline. Many of the movements of the fiI'st millenium A.D. from the Steppes of Russia to frontiers of lmpeI'ial Rome are said to have been rooted In "resource scaI'city". The growth of medieval popula'lions in excess of the productive capacity of EUI'ope is argued to have been a source of the 14th century depI'ession and one of the most dismal periodS of human histoI'Y. Yet, the ____~_~_il_r~t!y____ QJ ____Qfl_~ ______(!_Q_~_I!l_c,>~g:r ____
