Optimal Environmental Policy Design for Mine Rehabilitation and Pollution with a Risk of Non‐Compliance Owing to Firm Insolvency

22 Pages Posted: 28 Mar 2012  

Ben White

University of Western Australia - School of Agricultural and Resource Economics

Graeme J. Doole

University of Western Australia - School of Agricultural and Resource Economics

David J. Pannell

University of Western Australia

Veronique Florec

affiliation not provided to SSRN

Date Written: April 2012

Abstract

The modified Pigovian tax approach to regulating stock and flow pollutants from a non‐renewable resource firm (Farzin, 1996) provides incentives for the firm to abate optimally, but does not allow for the possibility that a firm may become insolvent. In contrast, the current environmental bond policy applied in most jurisdictions across Australia and New Zealand provides funds in the case of insolvency, but often does not provide optimal incentives for rehabilitation. This study analyses these alternative policy approaches through a theoretical model and an empirical case study. From the case study for a mineral sands firm, the policy recommendation is that, based on economic efficiency alone, a modified Pigovian tax (termed here a damaged land tax) is optimal for most combinations of parameters. However, both risk‐sharing and efficiency objectives can be simultaneously addressed by a mixed policy that includes a damaged land tax and an environmental bond.

Suggested Citation

White, Ben and Doole, Graeme J. and Pannell, David J. and Florec, Veronique, Optimal Environmental Policy Design for Mine Rehabilitation and Pollution with a Risk of Non‐Compliance Owing to Firm Insolvency (April 2012). Australian Journal of Agricultural and Resource Economics, Vol. 56, Issue 2, pp. 280-301, 2012. Available at SSRN: https://ssrn.com/abstract=2030134 or http://dx.doi.org/10.1111/j.1467-8489.2012.00591.x

Ben White

University of Western Australia - School of Agricultural and Resource Economics ( email )

Nedlands, Western Australia 6907
Australia

Graeme J. Doole

University of Western Australia - School of Agricultural and Resource Economics ( email )

Nedlands, Western Australia 6907
Australia

David J. Pannell

University of Western Australia ( email )

35 Stirling Highway
Crawley, WA Western Australia 6009
AUSTRALIA
(08) 9844 8659 (Phone)
(08) 9844 8659 (Fax)

HOME PAGE: http://www.general.uwa.edu.au/u/dpannell/welcome.html

Veronique Florec

affiliation not provided to SSRN ( email )

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