One of the fundamental lessons of economics says that if a society does not control external costs of economic activity, for example pollution, it will satisfy fewer of its people’s needs and wants from available resources than it would if it did limit such damage.
Real world cases arise constantly. One Minnesota faces right now is possible long-term water damage from the proposed Polymet copper-nickel mine on the Iron Range. A study, disclosed by the state in December, specified that the company would have to post as much as $1 billion to cover long-term pollution abatement measures that might be needed. This is three times what the company initially proposed.
This interesting case that differs from simple examples used in econ textbooks, because the potential harm can continue decades after the productive economic activity stops.
If practicing teen rock bands disturb neighbors, impose noise regulations. If power plants pollute, tax the emissions, as economists prefer, or specify exactly what pollution control equipment need be used, as is U.S. practice. But what do we do if harm will occur decades from now and its eventual form and degree are uncertain? What do we do if the entity causing that harm has gone out of business?
There is too much uncertainty to decide in 2018 exactly what will be the best way of dealing with a problem presenting in 2058. Exactly how the problem will manifest itself is not certain now. We don’t know what the best remedies will be 40 or 80 years hence. Better to require the company to post an adequate fund of money to be used, if needed, down the road. But how much money and for how long?
Potential problems could last very long after mining stops. Nearly all mining pollutes ground and surface waters while it is going on, particularly in relatively high rainfall areas like Minnesota. But in some cases damages end when extraction ends. Sulfide ores for copper and other non-ferrous metals are an exception. When these are exposed to oxygen and then water, sulfuric acid is formed. This itself contaminates water. More importantly, the acidic water can leach other harmful substances out of whatever material through which it flows.
This is not rare. In fact it is nearly the rule. The Iron Mountain mine near Redding, Calif., produces some of the most acidic substances ever found outside of a laboratory. A borehole from a long-abandoned mine in Pennsylvania flows upwards of 40 million gallons of acidic water a day. And acid mine drainage is a problem in working or abandoned mining districts on every continent.
In arid areas of Arizona, Australia or the Andean countries, damage to other plant and animal life is small. But the Polymet site is upstream from important lakes, including several used for wild rice production and the St Louis River. So concern about long-term water pollution is not some low-probability abstract peril. Indeed, it is hard to find a sulfide ore-based mine anywhere in the world that has not caused water pollution.
The possible levels of harm vary at different stages in the life of the mine. So estimating one lump sum to be maintained in reserve over its entire life would be excessive. Mining is competitive and keeping hundreds of millions tied up in an environmental protection reserve increases the cost of this mine. Competing mines in most other countries don’t face the same requirement.
Yet, renewing mining activity in northeastern Minnesota has long been a dream for many in the area. In its heyday, iron mining employed tens of thousands of workers and towns like Hibbing were among the richest in the state. Miners’ wages historically are higher than other jobs and spending on fuel, construction services, equipment maintenance and other services and supplies could be an economic boost to the area. So there always is some support for such projects.
Over time, however, employment and business in the region depends more and more on tourism and recreation. Mining, especially of a kind that hurts water quality, threatens that. So community support for new mining is not as broad or deep as might have been the case 30 years ago.
The introductory econ exposition of external costs disregards the details of who exactly bear the external cost. All Los Angeles residents bear the cost of their region’s classic smog problems, just as London’s coal smoke-exacerbated killer fogs hit Buckingham Palace as well as the East End. But the damage is geographical. Those downwind from smelters in Great Falls, Mont., La Oroya, Peru, or Sudbury, Ontario, suffered much more than people in Billings, Lima or Toronto.
And sometimes, harm does vary by income and social class. African-Americans and Italians in St. Paul and Minneapolis lost their neighborhoods when Interstates went through. Native Americans lost a proportionately higher proportion of prime land to the Missouri River dams when these were built in the Dakotas. And the Native American bands that harvest wild rice stand to lose disproportionately if long-term pollution from the mine is not controlled.
History matters. For centuries, mine operators have taken resources and left problems behind, around the globe. West Virginia is a living monument to that. And there is a legacy of centuries of broken promises to native nations.
However, everyone uses copper, nickel, lead, and other metals produced in mines like the one pending approval. Modern economies and lifestyles depend on these metals. If everyone keeps a mine out of their back yard, we all suffer.
Yet another consideration: Beneficiaries of economic activity may or may not be in the same geographic area as those bearing costs. Los Angeles residents get their clothes dry-cleaned and drive cars, and they breathe the smog. There was correspondence. But Great Falls residents breathed in heavy metals and West Virginians had polluted streams while people across the United States had cheaper coal and metal products.
Non-ferrous metals are now an internationally-traded commodity, in markets as efficient as those for corn. Just as the benefits of cheaper corn due to U.S. federal crop subsidies are dissipated to all corn users around the world, so the benefits of cheaper copper and nickel from uncompensated environmental damages flow to all the globe’s metal users. Those immediately harmed by the new mine won’t just be taking a bullet for all Americans, but also for another 7 billion people in other countries.
The question of whether any specific abatement measure brings benefits that are greater than the costs is always legitimate. But to rule that any requirement that mining companies fund cleanup costs is an unacceptable burden on business, as federal EPA head Scott Pruitt does, is sure to make us collectively poorer. Minnesota must not repeat that mistake.