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Chapter 11 Market Failures and Abiotic Resources • 195■ Table 11.1SPATIAL AND TEMPORAL CHARACTERISTICS OF SELECTED EXTERNALITIES ASSOCIATED WITH FOSSIL FUELEXTRACTION AND CONSUMPTIONExternality Local Regional Global IntergenerationalGlobal warming X XAcid rain X X XOil spills X X XDamage from extraction (see Table 11.2) X XWar a X X XWater pollution X X XSoil pollution X XAir pollution (gaseous) X X x xAir pollution (particulate)XHeavy metal emissions X X X Xa The number of wars that have been fought and are currently being fought over the control of fossil fuels argues for the treatment ofsome wars, or at least some military expenditures, as an externality of fossil fuel production. See, for example, M. Renner, WorldWatchPaper 162: The Anatomy of Resource Wars. Washington, DC: WorldWatch, 2002.must be on the scale of the problem they address, as there is little incentivefor governments (generally the most relevant institutions) to deal withexternalities beyond their borders. At present, appropriate institutions foraddressing international externalities either do not exist or are inadequate.User CostsAnother problem is that fossil fuels are a nonrenewable resource uponwhich the well-being and even the survival of future generations is highlydependent. Even ignoring future generations, economists agree that theuse of a nonrenewable resource now increases scarcity (decreases supply)in the future. As supply goes down, price should go up. Therefore, if theowner of a nonrenewable resource extracts that resource today, she losesthe option of extracting it in the future when the price is higher.The more of a resource we extract today, the greater the current supplyand the lower the current price. Also, greater extraction now meansgreater scarcity in the future and a higher future price. All else beingequal, the marginal user cost (MUC)—the opportunity cost of producingone more unit of the resource today instead of in the future—shouldtherefore be increasing with total production. 3The marginal user cost is a real cost of production, and it must beadded to MEC and MEX to give the full cost per unit that represents allUser cost is the opportunitycost of nonavailability of a naturalresource at a future datethat results from using up theresource today rather thankeeping it in its natural state.Marginal user cost is the valueof one more unit of the resourcein its natural state. In aperfectly competitive economy,marginal user cost would intheory equal the price of a resourceminus its marginal extractioncost.3 We caution that some theoretical studies suggest that rising marginal extraction costs or thepresence of an inexhaustible substitute (a backstop technology) may lead to declining marginaluser costs over time. Different sets of assumptions in mathematical models lead to different results.