Course:ECON371/UBCO2011WT1/GROUP3/Article1

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• Econ 371 Winter 2011 Main Page

Summary

As of April 13, 2011, Investor Organizations have urged the U.S. Environmental Protection Agency (EPA) to evaluate, under Section 404(c) of the Clean Water Act, the environmental impacts of the Pebble mine. The Pebble mine is proposed for the headwaters of the Bristol Bay Fishery Reserve. It would create North America's largest open pit mine (about two miles wide, and several thousand feet deep), massive toxic tailing ponds (engulfing two valleys, and requiring four earthen dams), and a significant infrastructure footprint for the extraction of an estimated $150 to $200 billion worth of minerals. The EPA has announced, as of February, that it will conduct a scientific assessment of the Bristol Bay watershed, which some believe will lead to a full 404(c) review.

While Cynthia Carroll, chief executive of Anglo-American PLC, promised to back out of the project if met with strong opposition, the President of Northern Dynasty Minerals Ltd., Ronald Theissen, argues that minerals are in high demand, especially with the increase in electronic consumption. He reasons that he is simply trying to reach market demands, and highlights the amount of mining jobs that the project will bring. Opponents to the mine, including 58 jewelers that have signed the Bristol Bay Protection Pledge, argue that the approximately 2,000 short-term jobs created by mining are trivial compared to the 12,000 jobs the fishing industry supplies. Opponents, such as politician Rick Halford, also argue that the metals would be extracted from low-grade ore, meaning large amounts of residuals.

Analysis

As mentioned in the article, the Pebble mine development in Bristol Bay would provide substantial economic benefits to the region. The benefits could include increasing the supply of jobs in the local communities, developing important infrastructure, and creating wealth and products that contribute to economic prosperity. However, as a trade-off and also highlighted in the article, the mine would cause environmental impacts to the region. The impacts could include altering the environment from its natural state, producing massive amounts of mine wastes, and creating potential for large-scale irreparable harm to a highly valued ecosystem. Of course, economic efficiency occurs when the economy’s resources are allocated to their best uses and there is a balance between the marginal benefits and marginal costs of production. While the mining company may be judged efficient if they maximize their benefits from operation and minimize their private costs, social benefits and costs must also be considered to determine efficiency to the economy as a whole. The following analyses will highlight the risks and social costs associated with the project.

Risk is the potential that an activity will lead to some sort of an undesirable outcome. It entails known outcomes and probabilities as opposed to uncertainty, which entails outcomes and probabilities that cannot be foreseen. As evident from the article, the Pebble mine project is riddled with risk. These risks, including events which could harm air, water, land, animals, human, must be taken very seriously and accounted for by way of a thorough cost-benefit analysis. While the probability of these risks may not be enough to decrease the expected value of the project's net benefits below the alternative of not proceeding with the project, society might want to take the risk averse approach and avoid any and all probability of a very large loss. Furthermore, that there are uncertainties likely associated with this project which cannot be accounted for because they are just that, diligence in the matter of proceeding with this project should be of utmost importance.

Social costs are costs that occur as a result of production and consumption of goods and services. They are made up of both private costs and external environmental costs. Firms such as Anglo-American and Northern Dynasty Minerals Ltd. of Canada largely concentrate on private costs such as the market value of labour, raw materials, and other expenses they incur when producing goods and services, as they directly affect their profits. External environmental costs, however, exist when environmental damages occur due to environmental impacts ignored by firms. If the Pebble mine project proceeds, there will be numerous social costs incurred including mine waste impacts, as well as “devastating consequences for the people and the ecosystem of Bristol Bay”. Further, salmon populations will significantly decrease, possibly to extinction due to the creation of enormous toxic tailing ponds. Alaskan natives tribes have expressed their concerns with the project and its impacts, particularly on their people and the decline of salmon resources, which emphasizes important cultural traditions and values that cannot be ignored. As the project grows, society – the people of Bristol Bay – would have to bear the costs of noise pollution and an increase in congestion as their population grows due to a possible influx of foreign workers. In order to proceed with this mine, a "100 mile transport route from the mine to Bristol Bay [which] lies across mountains and along the shoreline of the region's largest lake," would have to be built adding to the external environmental costs. Moreover, the alteration and destruction of nature's beauty would be considered a social cost. Clearly, the environment currently holds extraordinary non-market values and incorporating them into the social costs of the project suggests the project is not economically efficient.

As Alaskan Politician Rick Halford states, "It's the wrong type of ore body in the wrong location." If the ore was of a higher quality, which would not produce such large amounts of residuals, and if the mine would not affect the booming fishing industry of Bristol Bay, then the opponents of the Pebble Mine Project might consider it a possibility. However, as things currently stand, the social costs of the mine greatly outweigh the social benefits, mostly received by the mining companies and foreign countries, and is exemplified by the overwhelming opposition. Until mining technology advances, or another similar variable that will make mining more efficient, it is reasonable to assume that opening up the Pebble Mine is not a socially efficient move.

Prof's Comments

Good comments related to efficiency, as what should be considered.

Another issue here is property rights, in the spirit of Coase. What is the property rights problem?

10/10