Course:ECON371/UBCO2011WT1/GROUP3/Article8

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Summary

Mining companies are looking at reducing production costs by using greener (and cheaper) forms of energy. Energy costs constitute approximately 25 percent of production costs, and by making long-term investments in renewable energy sources (wind, solar, etc.), companies stand to make huge gains. Multiple companies (Barrick Gold Corp., Teck Resources Ltd. and Rio Tinto PLC) have currently undertaken wind farm projects, specifically in South American projects. Currently, "about 15 percent of electricity use at Barrick’s operations around the world comes from renewable sources, such as wind, solar and bio-fuels." Recently, Diavik Diamond Mines Inc. has announced plans to construct the largest wind farm at an operating mine at its site in the Northwest Territories. Special technology was created to allow the windmills to operate in -40 C temperatures. The four megawatt turbines are expected to benefit the mine, which currently relies on diesel, by reducing the fuel consumption by 10 percent. While the construction costs are estimated around $30-million, the mine is expected to save $5-million in diesel costs per year. This trend is said to be economically-driven, as alternative energy allows remote off-grid projects to be more profitable and/or feasible.

Analysis

Sustainability

A sustainable economy is one in where investment in social capital allows the economy to grow so that future generations are at least as well off as they are now, while sustaining the health of ecological systems. Mining operations are subject to general operating costs, that would most likely vary by location. It seems fair to assume that mines in remote locations would have increased costs due to limited access to roads and cheap electricity. More specifically, many mines in Northern British Columbia are currently not profitable, and not in operation because of limited infrastructure. Depending upon our perspective this can be considered a good thing or bad thing. The green energy production by the mine will have less environmental impact than diesel, for example. However, in the absence of the alternatives, some mines would be forced to wait until cheaper extraction technologies are available or until large investments in infrastructure take place before they can operate. This allows parts of British Columbia and other parts of the world to remain unaffected from the extraction of its mineral resources. These areas may remain unaffected until a future date when these resources are more valuable offsetting the increased costs, or when a new technology is available allowing for the extraction with fewer impacts. By utilizing greener energy to minimize internal costs, mines are able to extend their reach into areas that would otherwise not be profitable. While this may be beneficial to the mining companies or perhaps a community which benefits from job growth, etc., from the extraction of the resources, it may be an external cost to environmentalists now and future generations who could benefit from those resources. Further, in these remote locations, mines may be subject to less scrutiny, and possibly less government oversight and may, therefore, be able to evade actions which demand them to decrease their overall abatement costs. In this way, it could be considered that sustainable technologies such wind turbines may be undermine efforts to create a sustainable mining industry.

Social Costs

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. On the other hand, 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. During many mining processes pollution from extraction can be rather significant. In fact many mines are shut down, or face extreme criticism due to these negative externalities which effect surrounding communities. By utilizing wind turbines for power generation rather than diesel for power generation, mines may be able to lower the mines private costs (internal costs of production) while at the same time minimizing their social costs (external costs of pollution). However, the mines that are pursuing these greener alternatives are doing so, at least in part, because they are unable to "operate on an electrical grid". And, many of these mines are in "remote locations" so there are likely less third party impacts by way of shared water source, noise or other types of pollution societies may be exposed when communities are nearby minesites. This seems to show that the reduction of costs borne by society by the mines' opting for greener energy may not be as great as the reduction of costs borne by the mine itself. This decision making on the part of the mine may suggest self interested motivation rather than a sense of corporate social responsibility (CSR) alone. However, with that said, wind generation still decreases the total amount of air pollution which is borne by society, and lessens environmental degradation to water and land which is valued by people not in the immediate impact zone of the mine. Therefore, overall, the decision still appears to decrease social costs through both private and external costs and could be viewed good for both the mine and society.

Policy

Enforcement

Enforcement, with the imposition of regulations in order to ensure the meeting of abatement requirements, may be done through monitoring with the use of emission taxes or even credit trading, as "governments are still trying to figure out ways to reduce carbon emissions and regulate the industry through measures such as carbon taxes and credits."

Emission Taxes and Subsidies

A proposed carbon tax would allow polluters to discharge as much carbon as they wish while having to pay a tax for every unit discharged. This would then give the mining companies an incentive to switch to the wind farm from the existing diesel fuel approach that greatly contributes towards carbon emissions. Imposing a carbon tax implies the need for an accurate measurement of emissions discharged and should thus be at a reasonable cost.

Credits

Teck, Canada's largest diversified mining company, "will also receive carbon credits to offset emissions from the mine." This indicates that a credit system has been arranged in which credits would be given to polluters from recording a reduction in emissions. This would once again give mining companies an incentive to abate as they would then gain from a reduction in emissions with the ability to sell these credits to others to use for the fulfillment of regulations. Monitoring these emissions at an appropriate cost would also be an issue at hand.

Conclusion

In consideration of aspects of sustainability, social costs, and policy instruments, with regard to mining company seeking greener energy solutions, there appears to be both negative and positive implications on either side. In a pessimistic view, one can interpret this move to be just another way for the companies to cause environmental degradation now for a profit. In an optimistic view, one can interpret it as a sustainable technology which causes less impact than its dirty alternative for the good of society. Or it may be all of these things. With the use of environmental policy instruments, the mines may have incentive to abate, stimulating the production of "greener" mining. However, enforcement may still prove difficult. Overall it appears the socially efficient equilibrium, where marginal damages from another unit of pollution equals the marginal costs of reducing a unit of pollution, will move to a lower level of emissions and higher environmental quality as the green energy would cause a downward shift in the marginal cost curve.

Prof's Comments

Well done. I like the identification of the tradeoff between green energy reducing carbon emissions but also possibly allowing expansion into new areas that are off grid, causing other environmental problems.

10/10