Environmental Engineering Reference
In-Depth Information
sector.
7
The project of sharing the benefits of the minerals boom broadly
has thus far achieved very incomplete success.
It now seems clear that the current minerals boom comes in two stages.
The initial stage has been driven more by high minerals prices than in-
creased output. Observed productivity in the industry has been declining,
which might have a couple of explanations: willingness to use more inputs
and to work lower quality deposits in direct response to the higher prices;
and the price-driven export boom has led to an investment boom in the
industry, with inherently high up-front costs. The second stage will be driven
more by increased quantities of exports, as exploration and investment in
the initial stage comes to fruition.
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We may well expect the stage one
productivity decline to be reversed in due course.
2.2.3 Capital Accumulation. Minerals are exhaustible resources. Extrac-
tion means depletion, as opposed to the renewable resource case where
harvest may be sustainable if the resource is managed carefully. But all is
not lost. Solow
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and Hartwick
10
have shown that, under ideal conditions,
an economy that relies on exhaustible resources may nevertheless achieve
weak sustainability provided the economic net benefits (technically, the re-
source rents) from resource depletion are invested in reproducible capital.
This kind of sustainability is called 'weak' because it sustains welfare, i.e.
standard of living, while tolerating liberal substitutions in consumption
and production. In contrast, strong sustainability requires that the de-
pleted exhaustible resources be replaced directly with equivalent renewable
resources.
The challenge facing a nation that exports exhaustible resources is to
capture the resource rents and to ensure that they are, in fact, reinvested
eciently. Note that one would expect profits in the minerals industry to
come in two parts - rewards to effort in extraction and processing, and
resource rents - and it is not always easy to separate them empirically.
The actual and potential profits from the minerals industry are huge but,
because the industry is predominantly foreign-owned - consensus estimates
suggest at least 83% foreign ownership in the minerals sector
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- much of the
profits will leave Australia.
11
To meet the Solow-Hartwick sustainability
criterion, Australia would need to intercept and retain the resource rents
accruing initially to the minerals operators. Instruments for this purpose
include royalties and taxes of various kinds, including severance taxes on
extracted resources and taxes on mineral company profits.
While the industry will pay substantial royalties to state governments - in
2007 (the most recent year with complete statistics) the industry paid
AUD6573 million in royalties on a gross output value of AUD106 216 million
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- it remains an open question whether royalties and taxes on the industry are
high enough to compensate Australians for the eventual exhaustion of a
valuable resource. With much of the profits from extraction shifted off-
shore, the magnitude of revenue collected via royalties and taxes matters
crucially to the nation. Despite the dominant position of Australian
