Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?

VATT Institute for Economic Research Working Papers 137, 2020

53 Pages Posted: 9 Mar 2021

See all articles by Anni Huhtala

Anni Huhtala

Government of the Republic of Finland - VATT Institute for Economic Research

Olli Tapani Ropponen

Government of the Republic of Finland - VATT Institute for Economic Research; University of Helsinki - Department of Political and Economic Studies

Date Written: December 29, 2020

Abstract

Growing demand for materials required in the construction of renewable technologies and zeroemission infrastructure may signal significant changes for the minerals and metals market. These in turn might exacerbate the social and environmental risks associated with the mining industry. We explore the impacts of commodity price volatility, the adoption of new technology and environmental risks on the long-term sustainability of a stylized mining firm and examine the implications for government policy intervention. We first analyze whether a mine should remain open or be closed when premature closing is costly due to land rehabilitation and reclamation resulting from an environmental accident. We then go on to investigate alternative resource policy instruments for by which the government may extract resource rents, examples being an ad valorem tax on output, a mining industry-specific corporate tax rate and a royalty on the amount of ore removed. Furthermore, we evaluate the potential of a number of means to correct for environmental externalities and compensate for damages that a mine causes during its lifetime, specifically a Pigou tax on effluents, fines on environmental accidents, mandatory up-front payments to an environmental liability fund and a surety bond to cover closure and reclamation costs.

Keywords: royalty, fines, liability payment, surety bond, Pigou tax, ad valorem tax, excess corporate tax

JEL Classification: Q31, Q38, Q52

Suggested Citation

Huhtala, Anni and Ropponen, Olli Tapani, Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks? (December 29, 2020). VATT Institute for Economic Research Working Papers 137, 2020, Available at SSRN: https://ssrn.com/abstract=3764595 or http://dx.doi.org/10.2139/ssrn.3764595

Anni Huhtala (Contact Author)

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Box 1279
Helsinki, 00101
Finland

HOME PAGE: http://www.vatt.fi/en/researcher/huhtala-anni

Olli Tapani Ropponen

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

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