Course:ECON371/UBCO2011WT1/GROUP3/Article4

Link to class main page:

• Econ 371 Winter 2011 Main Page

Summary

Due to its health effects on residents living in the area, challenges have been made to an Alpha Natural Resources mining permit, regarding mountaintop removal mining in West Virginia. Lawyers for the Ohio Valley Environmental Group argued that the federal Army Corps of Engineers, who approved the Clean Water Act permit for the Reylas Surface Mine, did not properly take into account the mine’s potential negative impacts on both water quality, hydrology, and public health. While the U.S. Environmental Protection Agency (EPA) had objected to the Reylas Surface Mine permit, it declined to intervene and stop the Corps from approving it. This 635-acre mine would create about 100 jobs for about six years, as well as roads and utilities which could be used for temporary housing during emergencies after the project is complete; however, there are concerns for 2.5 miles of streams that would be buried, and conductivity and selenium water pollution. Effects on health are also a major concern. Despite statements from the corps that, "no human health effects are anticipated as a result of the proposed project," studies have found that there have been higher rates of cancer and birth defects among residents living in the mountaintop removal areas in Appalachia. Environmental groups have filed suit, calling for a rejection of the Reylas Surface Mine permit, and stating, "this permit should never have gotten this far". At the time of this article, corps lawyers had not responded to the suit.

Analysis

This article brings to mind several important environmental economics issues, including risk and expected costs, role of government, property rights and Coase Theorem, and social costs. All of these factors are considered in the following analysis and culminate in the determination of the the Reylas Surface Mine's efficiency.

Risk & Expected Costs

The local community, in collaboration with West Virginia University (WVU), have collected information suggesting that the associated risks of the mine currently may be underestimated. In the sense that, prior to the WVU study, the associated risks had been justified and assumming both parties were willing to allow the mine to proceed. To a certain extent it would be safe to conclude that the mine and the community were in equilibrium and for simplicity assume that both parties are risk neutral. Now, the community has received more information regarding the potential externalities due to the mine. These externalities are added to the previous marginal expected costs, and due to the increased risk suggested by the new study, the marginal expected cost would increase. In order to achieve equilibrium for both risk neutral parties, either the expected benefits of the mine need to increase signficantly or the mine needs to be scaled back in way so that it can offset the new expected costs. In either case, it is possible for the mine and community to achieve equilibrium, but difficult negotiations will need to take place.

Role of Government

The Clean Water Act permit, which was approved by the Army Corps of Engineers, would have had to go through the EPA, as the legislative process in the United States is formal and directive to the U.S. Environmental Protection Agency (EPA); however, "[the EPA] declined to step in and stop the Corps from approving it” despite their officials' objections to it. The Clean Water Act permit would allow the mining company to “bury about 2.5 miles of streams beneath a valley fill and associated runoff-control structures,” causing stream damage for which citizen groups believe there is inadequate mitigation. Further, they are concerned about conductivity and selenium water pollution affecting water quality that has potential aquatic and human health impacts. To support their claims regarding human health impacts, the group cites a series of WVU studies that found higher rates of cancer and birth defects among residents living near mountaintop mines. Considering the EPA officials' initial objections to the permit and the serious claims made by the environmental group, it is curious as to why the EPA did not provide an intervention to the Corps. And, it begs the question, did the Corps adequately consider the mine's environmental and human health impacts prior to approving the permit?

Property Rights & Coase Theorem

The article has also reported that the EPA is not willing to help determine the best way for the community and the mine to proceed. This leads one to believe there may be more information regarding property rights that the article has not reported. The EPA is an agency within the federal government of the United States responsible for enforcing acts that protect the environment as well as human health. If they are not willing to participate that suggests that environment and human health are not in danger, or that the EPA does not have jurisdiction. In terms of jurisdiction, it may be possible that the state of West Virginia has laws and acts that override those of the federal government, therefore it is reasonable to believe that the EPA feels that there is no need for their involvement. Further it may be possible that the mining company has rights to the land that allow it to continue operations with little to no oversight from either government agency. Utilizing aspects of the Coase Theorem, if the negative externalities in the community are as a great as they have been suggested, then it would seem reasonable that the individuals may have a large enough willingness to pay to purchase the property from the mine. It may even be reasonable to believe that enough individuals within the United States may be willing to pay to help assure that the mine does not damage the environment or community. Conversely, if the project is stopped or the property rights are transfered away from the company, then they may attempt to pay off the opposition for the 6 years that the project would take place, provided the profits yielded from the mine were greater than the costs to the opposition.

Social Costs

There are numerous external environmental costs or negative externalities that would affect residents living in the Appalachia area where the mountaintop removal mining project is taking place. As mentioned above, recent WVU studies have shown that there have been “higher rates of health problems, and specifically higher rates of cancer and birth defects” in this area, a major social cost that the Corps has not taken into consideration. Further, the citizen groups maintain previous negative externalities including conductivity and selenium water pollution, inadequate stream damage mitigation, and inadequate stakeholder consultation were also not appropriately considered. Without addressing these damaging negative externalities beforehand, affecting both human health and water quality along with aquatic life in these streams, issuing a permit for this mine would not be economically efficient. Other externalities including noise pollution and degradation of the visual environment also surely exist but they were not outlined as such in the article.

Efficiency

While the Reylas Surface Mine is to yield great economic profits, the social costs, which are made up of both private costs and external environmental costs, greatly outweigh these economic benefits thus proving its inefficiency. This is supported in the above analysis by way of the underestimation of risks, questions regarding government, jurisdiction and property rights, and numerous negative externalities that were inadequately considered prior to granting the permit for the mine to proceed. In contemplation of these serious environmental economics issues, it is determined the activity is currently not socially efficient.

Documentary Related to Mountaintop Removal Mining
Side: a documentary was just released on mountaintop mining in Appalachia titled "The Last Mountain". To learn more about the documentary, visit http://thelastmountainmovie.com/film/.

Prof's Comments

Good job. I'd be a little hesitant to conclude that it is inefficient. We don't have enough information. However, the new information suggests that the costs are larger that originally estimated, which does suggest that less mining activity would move us closer to efficiency.

I would interpret the Coase theorem bit a little differently. The de-facto property right does seem to be pretty close to the company having the right to pollute. The communities seem to be trying to change this state of affairs, rather than, as you suggest, just buying up the property and stopping the mine. This hints at an issue with the Coase theorem and efficiency generally. It is based on willingness to pay, which comes from ability to pay. If the party suffering the pollution cannot afford to pay to buy out the polluter, is it still efficient? Is it equitable? Does it satisfy justice principles?

9/10