Course:ECON371/UBCO2011WT1/GROUP3/Article5

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Summary

The state of Alaska is suing a new initiative that was recently voted in by the residents of Lake and Peninsula Borough. The initiative was created to ban large scale resource extraction that would "destroy or degrade" salmon habitat. The state clearly explains that they are not suing to side with Pebble Mine, but have suggested that Borough's initiative is trumped by Alaska State law. The legal action is strictly meant to uphold the state's constitutional authority. The administration has stated that their authority is to balance the development to maximize the benefits for all Alaskans, while never sacrificing one resource for another. According to the state, Alaska's Constitution requires that they, not the Borough, completely and fairly conduct an evaluation of the development.

There is another article similar to this one with perspectives of the Borough and the mining company. If you would like to review this article please click here

Analysis

Opportunity Costs

Opportunity cost, or the cost of the next highest valued alternative resources could have been used for which society forgoes, is a topic raised in this article where, “[the] administration has consistently maintained that the state will not sacrifice one resource for another.” This means that both the “massive gold and copper,” which would be gained from the prospective Pebble Mine, would be considered in respect to the next best alternative of the benefits from the “world’s premier salmon fisheries,” or vice versa. The importance of Bristol Bay is widely known as the world's largest salmon habitat. If the mine development proceeds, there is possibility to "destroy and degrade salmon habitat". While the gold and copper mine would benefit Canada-based Northern Dynasty Minerals Ltd. and Anglo American PLC of the United Kingdom, the salmon fisheries would be supporting local businesses and community in which salmon habitats would be protected with the absence of the mine. However, without the mine, salmon fisheries may proceed to exploiting this industry, hindering salmon habitats nonetheless. Altogether, the opportunity cost of both resources must be taken into consideration, and the outcome should not be determined solely by local interest.

Benefit-Cost Analysis

It has been stated that “in the case of Pebble, [the administration] haven’t yet even considered the pros and cons of any development that may be proposed,” and that the “Alaska Constitution requires the state, not the borough, to fairly and completely conduct this evaluation,” thus indicating that a real benefit-cost analysis should be done in order to further consider the proposition for the Bristol Bay Pebble Mine. A benefit-cost analysis is generally used in order to help make public decisions as to what policies and programs are to be introduced by taking society’s views into account. The state of Alaska has expressed that they are trying to do this by making sure that the “development of Alaska’s resources is beneficial to all Alaskans,” and not simply to selective firms. “This case is not about state support for or against a Pebble Mine,” where the future of this project may not be determined without further evaluations determined. The uncertainty of future abatement costs or damages are the main reason of conflicts. In addition, both sides do not know how much benefits will be earned from the development of mining relative to the damages.

Property Rights

In environmental economics, property rights are defined as something which gives the holder the rights to do certain things with a type of natural resource. Property rights, in the case of the Pebble Mine project, seem too important an aspect to ignore.

Standing & Transaction Costs

Transaction costs are the costs required to reach and enforce an agreement between parties, including the costs of acquiring information, bargaining, and enforcement. This article highlights the many, varied, divisive, and overlapping interests of different stakeholder's groups - including the residents of the communities of Lake and Penisula Borough, the proponents of the Pebble Mine project, the fisheries, the people of Alaska (whom the state claims to represent), and the state of Alaska itself - who appear to have some claim to property rights. The residents, by narrow margin, voted to ban mining in the region. In doing so, they are asserting some right over the land and water. The proponents clearly would like to proceed with mineral extraction and production through use of the land and deposit of wastes to the water. On the other hand, the fisheries, who rely on unaltered water quality to support salmon habitat, have interest in avoiding the potential pollution damages caused by the activity. And what about the people of Alaska? Do they have some right which should be considered? Finally, what is the state's interest with regard to their authority and responsibility to manage and enforce property rights? With so many differing and competing interests, negotiation and bargaining is sure to be difficult, and this is appears to be the case with regard to the Pebble Mine project.

Assignment

An open access resource is a resource that can be used by anyone with no exclusion. In cases of open access resources, it is impossible to define private property rights (exclusive rights) because everyone has access to them. This may be an issue as well, as the water and even the land may be open access. If they were, then the mining company would be free to use the water to deposit waste and the land to extract minerals. At the same time, the fisheries would have the ability to fish the waters but would neither appreciate nor be able to stop the mine's ability to use the water. Interestingly, the residents are seeking to stop Pebble Mine's proposed activities which may indicate their perceived ownership. This suggests the assignment of property rights are neither clearly defined nor identifiable.

Coase Theorem

Coase Theorem proves that a socially efficient equilibrium can be reached by parties bargaining over compensation and actions, independent of which party has the property rights. However, barriers to this bargaining, in the case of the Pebble Mine, may include: determining who has standing; the high transaction costs; and the lack of clearly defined property rights, due to the nature of open access resources. These problems may hinder the ability to come to an efficient outcome.

Role of Government

Another important aspect of the Pebble Mine project is the role of government. In the article, the state of Alaska is seeking to assert its constitutional power to "govern the management and development of mineral resources". It maintains that it is not about supporting or opposing the activity or sacrificing "one resource for another", but rather it is about maintaining their responsibility to "evaluate whether, on balance, development of Alaska's resources is beneficial to all Alaskans". Therefore, the state is suing the local government of Lake and Peninsula Borough to uphold this constitutional authority, which was challenged by the Borough's initiative to prevent mining in their jurisdiction. Consequently, they will rely on the role of the courts, by way of the U.S. legal system, to determine if the initiative was in fact ultra vires. Perhaps this conflict between the two levels of government hints the possibility that the Constitution lacks clarity or overlap of jurisdictional responsibilities and causing uncertainty as to which level of government has the authority to regulate for specific environmental problems and objectives. In the case of Pebble Mine, this would require further research to determine, but obviously is a large enough problem to require resolution through the courts.

Conclusion

Pebble mines' problems continue. While local fisheries and, now, the municipal borough lobby for the project to be scrapped, the mining companies and the state, although not in collusion, argue that the costs and benefits of both options need to be considered, in order to determine the efficient solution. What started as a dispute over rights and externalities between private interest groups (the mining companies and the fisheries), has come to encompass legislative and judicial parties, which, ironically, have had their own problems in determining roles and rights. Ultimately, it seems that, through the decision by the state, which is believed to have the paramount authority regarding the matter, an outcome will not be determined until all aspects are taken into account.

Prof's Comments

10/10