Course:ECON371/UBCO2011WT1/GROUP3/Article7

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Summary

The current Premier of British Columbia is aiming to restructure the current Mining Act (the Act) in order to streamline and encourage the development of mining in British Columbia. Some say that the Premier is willing to encourage these mines at any cost while supporters of the Premier suggest it's time for British Columbians to realize that ecotourism is not going to pay for our socialized health care. Last week the Liberals made minor changes to the Act, which created a severe backlash from environmental organizations in B.C. These organizations insist that they are not against mining, but against mining that jeopardizes the overall sustainability of the province. Further, they insist that changes to the Act, which simply allow for mines to be developed without thorough environmental assessment, are not in the best interests of the province. The Premier and her colleagues defend their position, suggesting that the current Act does not allow low risk exploration to take place and that the current process takes companies one to two years to simply determine if further exploration is warranted. The current office provides statistical evidence that shows since 2001, 38 mines have submitted project applications, of which 10 were approved by the province's Environmental Assessment Office, and 3 of those 10 are in production today. The future of the BC Mining Act is not clear, but what is clear is that world demand for British Columbia's resources is increasing and will continue to increase for many years to come.

Analysis

Benefits

Benefits are defined by how much better off someone is by having something, conferred by giving someone something they value in the sense of being to pay for that item. Premier Clark and her government contend increased mining will produce increased benefits for the province. Supporters further advocate that mining may be the way to cover the province's socialized health care and high standard of living. In fact, a report recently released by the Mining Association of B.C. concluded "mining in B.C. generated almost $9 billion in activities last year, including 45,703 direct and indirect jobs." Professor Michael Hitch from the University of British Columbia remarked that ecotourism in the province is not going to cover the province's health costs and in order to maintain the high standard of living we currently enjoy "we need to pay for it somehow.” Further, Marcia Smith, spokesperson for Teck Resources highlighted that copper and steel-making coal mined in B.C. is in great worldwide demand and companies are looking to expand and said, "in B.C., Teck has about 6,500 people and we will hire about 1,100 new people in our company next year in B.C. alone." Clark and supporters such as Hitch and mining proponents suggest the benefits generated by mines will cover the costs the province currently faces and promote job growth.

Social Costs

Social costs are the costs that occur to society as a result of production and consumption of goods and services and in relation to the environment, the costs are pollutants and other forms of environmental degradation. These are made up of private costs, borne to the firm, and external costs, borne to society as a whole. The B.C. Mining Act can act to minimize the social costs of mining through legislating adequate environmental assessment, regulation, monitoring and enforcement. Premier Clark and her government maintain that they would like to modify the act in a way to encourage mining by lessening "the regulatory burden on mining companies", while also minimizing the external costs by "maintaining vigorous environmental standards on their operation." However, George Heyman, a representative of the Sierra Club, argues that by changing the Act external costs are increased as "British Columbians oppose relaxed approval standards for mining developments and fear the province will make sacrifices today that could cause future regrets" and provided the Taseko mine as an example where a lake was proposed to be used as a tailings disposal and was opposed by local First Nations yet the province approved the permit. Heyman suggests "we should all take a step back and take into account certain values that are strongly held by British Columbians, one of which is you don’t drain or kill lakes in order to dispose of mine tailings." It appears a cost-benefit analysis should be completed to determine is Clark's effort to stimulate job growth and other benefits by amending the Act would out weigh the external costs such as those suggested by Heyman.

Transaction Costs

Transaction costs are the costs required to reach and enforce an agreement between parties, such as those incurred as a result of information gathering, bargaining and enforcement. The provincial government may have been looking to decrease transaction costs between themselves and the mining proponents by easing on timely and costly permitting requirements such as legal and processing fees, information sharing at the environmental assessment phase, and future monitoring and enforcement programs. For example, the province highlighted that in some cases, specifically smaller mines, a one or two-year process is simply for approval too expensive and unnecessary. However, this step may not decrease transaction costs, as more parties to be considered, such as First Nations, other industries, the public, non-governmental organizations (NGO) and other government agencies may feel they were not adequately consulted or that the decision is not in their best interests. If this is the case, the move may actually increase transaction costs by polarizing the interests of the various parties leading to a need to acquire more information and bargaining between parties. The article seems to suggest this is what is happening with the opposition from the Sierra Club, an NGO who claims to represent the interest of the public, and First Nations in the case of the Taseko mine. Regardless of the intent, transaction costs appear to be an issue with regard to changes to the Act and may be something to consider in the attempt to move toward a socially efficient equilibrium.

Role of Government

As stated in the article, by streamlining and encouraging mining in British Columbia, the provincial government could seriously damage the environment. Many of the processes are in place to ensure that the mines will not only prove profitable, but also have a limited impact on the surrounding area. Reducing the processing time for a new mine likely means reducing the restrictions and careful consideration put into project assessments as well. The risk of these potentially negative effects has caused and will continue to cause much outrage from environmentalists, unless the changes determined by the province can be proven to maintain environmental standards.

Federal Powers vs. Provincial Powers

With respect to the Taseko mine copper project near Williams Lake, "the federal government disagreed with the province and rejected environmental approval for the mine." However, in Canada, most regulatory powers related to the environment are held by provincial powers rather than federal powers. Federal powers mostly lie within international trade and treaties, interprovincial trade, fishing, and control over federal lands, where they merely set a general 'tone' in terms of environmental policy. Provincial powers, on the other hand, are largely responsible for the environmental policies which are enforced as they play a large role in federal decisions and have power over provincially owned lands and resources, among other criterions. This is this a reason as to why "the proposal now is undergoing another review process," as provincial powers are more dominant in this matter and the federal government's rejection of the proposal is not entirely accepted, causing conflicting objectives in which the federal powers seek for sustainability and environmental protection whereas provincial powers focus on development.

Conclusion

The provincial government must be diligent in its efforts to promote the mining industry. While making the application process quicker and easier may help to grow the mining industry in B.C., reducing the constraints on mining could lead to some alarming actions, similar to the approval of the Taseko mine project, which included using a lake for tailings disposal in the face of opposition from local First Nations. A cost-benefit analysis may be a useful tool in this situation to determine if the increase in job growth and revenue to cover the province's health care to maintain its current standard of living outweighs external costs to the environment and society as a whole. Reducing the transaction costs for the mining industry specifically may actually be increasing transaction costs for other parties, so this must also be considered. If this government action provides more benefits to society than costs then it may be a good idea. However, if it does not then it may need to be reconsidered.

Prof's Comments

Nice discussion of the role of transactions costs here. Good job recognizing this.

Do you think there is a role for liability law? Any other incentive based policies that you can think of? Would a 'performance bond' be a useful tool, where companies are required to put up assets of sufficient value to pay the cost of remediation once the mine is closed?

9.5/10