A Multiple Account Benefit-Cost Analysis of Coal Mining in Alberta

Abstract

Alberta’s history with coal development goes back to 1874, but 21st century social, economic and environmental factors demonstrate that it’s not in the public interest to pursue coal mining on the Eastern Slopes of the Rocky Mountains.

This paper uses a multiple account benefit-cost analysis to compare the positives and negatives of a hypothetical coal mine in the eastern foothills of the Rockies. We provide estimates of the economic, social and environmental impacts, and evaluate how coal mining affects different stakeholders.

The economic benefits — $440 million in undiscounted incremental tax revenues and $35 million in undiscounted incremental employment earnings — are overshadowed by the costs arising from the displacement of ranching, tourism and the negative environmental effects on water, vegetation, air and wildlife. Compounding these effects is the non-zero probability that the Alberta government will pick up the tab for reclamation costs, and the adverse social impacts on local communities and on Indigenous Peoples’ rights and interests. Therefore, any new coal mine development is unlikely to provide the province with a net benefit.

Following on the heels of the federal government’s rejection of the Grassy Mountain coal project in southwestern Alberta, the provincial government should consider banning coal mining in the Eastern Slopes. Any future coal development policy should include a public-interest test that examines both monetary and non-monetary impacts.

This paper finds an estimated undiscounted profit before taxes and royalties of $511 million to the mine developer. Discounting that value by a rate of eight per cent, which would approximate the opportunity cost of investors’ capital, shows coal mines are at best a break-even proposition from a private perspective. Only under optimistic price and activity assumptions does the mine earn a net profit.

Tax revenues would be marginal and additional labour income would accrue to only a few individuals. These benefits would be vastly outweighed by the adverse effects on a much greater population, including Indigenous Peoples.

Further, the Eastern Slopes already suffer the effects of current forestry, oil and gas, ranching, road development and recreational activities. Water quality and habitat for such wildlife as the Westslope cutthroat trout would be significantly compromised. With coal markets in a long-term decline due to coal’s impact on climate change and the focus on transitioning to alternative energy sources, new coal mine projects in Alberta would be counter-productive in many ways.

The comparatively small economic benefits derived from a new coal mine could not possibly justify the large and possibly irreversible damage done to the environment, local communities and to the rights and interests of Indigenous Peoples.