Our Environment - Mining and the Environment: From Ore to Metal - page 327

Economists term these 'externalities'. An externality is a benefit (positive externality) or
cost (negative externality) that is experienced by someone who is not a party to the trans-
action that produced it. Externalities are important because they can create incentives to
engage in too much or too little of an activity, from an efficiency perspective. Considering
all internal costs and benefits of a mine development, meaning all costs and benefits
directly experienced by the mining company, we expect mine development to take place
only if the benefits are greater than the costs.

Distribution of Costs between Owners and Non-owners

The market price of mine products may not reflect all of the production costs. For exam-
ple, if mining companies discharge effluents into a stream, the economic damage done to
the downstream aquatic environment, whether fewer fish are produced or water quality
is impaired, may not be reflected in the market price of the mine product. In other words,
the market does normally not include negative externalities, the lost economic value of the
environment, in the company's production costs.
Unaccounted environmental costs are often substantial. In 1990 the USA introduced a
nationwide SO 2 trading system similar to the CO 2 trading mechanism embedded in the
Kyoto Protocol in 1997. The current trading price of 1 ton of SO 2 (as of end of 2007) aver-
ages to about 400 US dollars. If this is applied to the average SO 2 emissions of the Mount
Isa Lead Smelting operation, which are about 500 kt/y (Case 7.1), then there would have
been an additional operation cost of about 200 million US dollars. Applying a price of 5 to
10 US dollars to 1 ton of CO 2 emissions to the annual methane emissions caused by coal
mining sector worldwide, detailed in a later chapter of this text, would amount to a stag-
gering annual bill to the coal industry well exceeding 1 billion US dollars.

The market does normally not
include negative externalities,
the lost economic value of the
environment, in the company's
production costs.

Underestimating Cumulative Effects
Even in large-scale mining, the affected land area is usually very small compared to the
total area of the host region affected by human activities. When taken together, however,
a combination of relatively small incremental changes to an ecosystem may have more
dramatic effects than those recognized when individual changes are made. These cumula-
tive effects result from past, planned and future changes, often unrelated, and are difficult
to recognize and assess physically as well as economically, in part because of the dynamic
nature of ecosystems.

Even in large-scale mining, the
affected land area is usually very
small compared to the total area
of the host region affected by
human activities.

Our Limited Understanding of Science
The ability to measure the economic value of an ecosystem is also limited by our scien-
tific understanding of ecological functioning in nature. Societies do not yet fully appreciate
or understand all the benefits that the environment provides to their wellbeing and to the
Earth's ecological stability, and the odds are that society never will. This lack of scientific
understanding will always undervalue environmental benefits contributing to market failure.

A comparison of the full
economic costs of mine
development versus generated
benefi ts, for example, could
prompt governments to put
resources into the conservation
of an ecosystem rather than
in the exploitation of minerals
within the ecosystem.

Deriving Economic Values for Natural Assets and Services
To counteract the problem of market failure, we need to find ways to calculate the total
economic value of an ecosystem in a way that the market understands - in dollars. This
helps both individuals and societies more easily compare alternative uses and policy
options. A comparison of the full economic costs of mine development versus generated
benefits, for example, could prompt governments to put resources into the conservation of