Fairfield University
Fairfield University
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Economics Faculty Publications
Economics Department
1999
The Economic Implications for Sustainable Mining
The Economic Implications for Sustainable Mining
Dina Franceschi
Fairfield University, dfranceschi@fairfield.edu
James R. Kahn
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Repository Citation
Franceschi, Dina and Kahn, James R., "The Economic Implications for Sustainable Mining" (1999).
Economics Faculty Publications. 1.
https://digitalcommons.fairfield.edu/economics-facultypubs/1
Published Citation
Franceschi, Dina; Kahn, James R.. 'The Economic Implications for Sustainable Mining.' Analise Economica 17.31 (1999): 141-154.
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Faculdade
de Ciências Econômicas
UFRGS
econômica
Balança Comercial e Capacidade Produtiva da Indústria de Transformação
- F I á v i o B e n e v e t t F l i g e n s p a n - J e f e r s o n L u i s B i t t e n c o u r t
Breves Reflexões sobre a Relevância da História da Teoria Econômica
- G i i b e r t o T a d e u L i m a
A Competitividade do Arroz Gaúcho e seus Condicionantes
- A u g u s t o M . A l v i m - C a r l o s G . A . M i e l i t z N e t t o
Uma Análise da Economia de Ricardo
- L i d e r a u S. M a r q u e s J u n i o r
A Estratégia de Substituição de Importações Revisitada
- A l e x P e r e i r a B e n í c i o - J o a n í l i o R o d o l p h o T e i x e i r a
The Refinements of the Orthodox Macroeconomic Theory and the Post Keynesian Theory
- F e r n a n d o F e r r a r i F i l h o
Instrumentos de Gestão Ambiental
- J a i l d o S a n t o s P e r e i r a - V i t o r E m a n u e l T a v a r e s
The Economic Implications for Sustainable Mining
- D i n a F r a n c e s c h i - J a m e s R. K a h n
Mudança Institucional e Estrutural na
Economia Brasileira do Inicio dos Anos Noventa
- E d u a r d o S i m õ e s d e A l m e i d a
lllih.
n ° 3 1
I
ano 17 Março, 1999UNIVERSIDADE FEDERAL DO RIO GRANDE DO SUL
Reitora: P r o f . Wrana Maria Panizzi
FACULDADE DE CIÊNCIAS ECONÔMICAS
Diretora: P r o f . Otilia Beatriz Kroeff Carrion
C E N T R O DE ESTUDOS E PESQUISAS ECONÔMICAS
Diretor. Prof. Fernando Ferrari Filho
DEPARTAMENTO DE CIÊNCIAS ECONÔMICAS
Chefe: Prof. Luiz Alberto Oliveira Ribeiro de Miranda
CURSO DE PÓS-GRADUAÇÃO EM ECONOMIA
Coordenador. Prof. Marcelo Savino Portugal
CURSO DE PÓS-GRADUAÇÃO EM ECONOMIA RURAL
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CONSELHO EDITORIAL: Achyles B. Costa, Aray M. Feldens, Carlos A. Crusius, Carlos G. A. Mielitz Netto, Eduardo A. Maldonado Filho, Eduardo P. Ribeiro, Eugênio Lagemann, Fernando Ferrari Filho, Gentil Corazza, Mar-celo S. Portugal, Naii J . Souza, Otilia B. K. Carrion, Paulo A. Spohr, Paulo D. Waquil, Pedro C. D. Fonseca, Roberto C. Moraes, Ronald Otto Hillbrecht, Stefano Florissi, Eleutério F. S. Prado (USP), Fernando H. Barbosa (FGV/RJ), Gustavo Franco (PUC/RJ), João R. Sansón (UFSC), Joaquim P. Andrade (UnB), Juan H. Moldau (USP), Paul Davidson (Univ. of Tennes-see), Werner Baer (Univ. of Illinois).
COMISSÃO EDITORIAL: Eduardo Augusto Maldonado Filho, Fernando Ferrari Filho, Gentil Corazza, Marcelo Savino Portugal, Paulo Dabdab W a -quil; Roberto Camps Moraes,
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Os materiais publicados na revista Análise Econômica são da exclusiva responsabilidade dos autores. É permitida a reprodução total ou parcial dos trabalhos, desde que seja citada a fonte. Aceita-se permuta com revistas congêneres. Aceitam-se, também, livros para divulgação, elaboração de resenhas e recensões. Toda correspondência, material para publicação (vide normas na terceira capa), assinaturas e permutas devem ser dirigidos ao seguinte destinatário:
PROF. GENTIL CORAZZA
Revista Análise Econômica - Av. João Pessoa, 52
THE ECONOMIC IMPLICATIONS
FOR SUSTAINABLE MINING WITHIN THE
PARADIGM OF SUSTAINABLE DEVELOPMENT^
Dina Francesclii^ James R. Kaiin *
A B S T R A C T
T h i s p a p e r will d i s c u s s t h e c o n c e p t of sustainability in t e r m s of its e c o n o m i c i m p l i c a -tions, w i t h s p e c i f i c e m p h a s i s o n t h e ramifications for t h e m i n i n g sector in B r a s i l . It will e x a m i n e this p e r s p e c t i v e t h r o u g h a r e v i e w o f c o n c e p t u a l a p p r o a c h e s to e x h a u s t i b l e r e s o u r c e sustainability a n d d e s c r i b e it's relationship to t h e m o r e g e n e r a l definition of s u s -t a i n a b l e d e v e l o p m e n -t . Addi-tionally, i-t will offer s u g g e s -t i o n s o f h o w -to o p e r a -t i o n a l i z e -t h e c o n c e p t o f s u s t a i n a b l e d e v e l o p m e n t s o that t h e criterion o f sustainability c a n b e c o m e a real a s p e c t of t h e d e c i s i o n p r o c e s s .
A E A C o d e : 7 2 2 Key Words: S u s t a i n a b l e d e v e l o p m e n t , sustainability,
e n v i r o n m e n t , natural r e s o u r c e s
R E S U M O
Este t e x t o visa discutir o c o n c e i t o d e s u s t e n t a b i l i d a d e e m t e r m o s d e s u a s i m p l i c a ç õ e s e c o n ô m i c a s , c o m e s p e c i a l ê n f a s e n a s r a m i f i c a ç õ e s d o s e t o r m i n e i r o n o B r a s i l . P r e t e n d e
-s e e x a m i n a r e -s t a p e r -s p e c t i v a a t r a v é -s d e u m a revi-são d a -s a b o r d a g e n -s c o n c e i t u a i -s à s u s t e n t a b i l i d a d e d o s r e c u r s o s e x a u r í v e i s e d e s c r e v e r s u a r e l a ç ã o c o m u m a d e f i n i ç ã o g e r a l d o d e s e n v o l v i m e n t o s u s t e n t á v e l . A d i c i o n a l m e n t e v i s a - s e o f e r e c e r s u g e s t õ e s
relati-v a s à o p e r a c i o n a l i z a ç ã o d o c o n c e i t o d e d e s e n relati-v o l relati-v i m e n t o s u s t e n t á relati-v e l d e m o d o q u e o critério d e s u s t e n t a b i l i d a d e p o s s a tornar-se u m a s p e c t o real d o p r o c e s s o d e c i s ó r i o .
C ó d . A E A : 7 2 2 Palavras-Chave: D e s e n v o l v i m e n t o s u s t e n t á v e l , s u s t e n t a b i l i d a d e ,
m e i o a m b i e n t e , r e c u r s o s naturais
^ P r e p a r e d for M i n e r a ç ã o e D e s e n v o l v i m e n t o S u s t e n t á v e l ( S u s t a i n a b l e D e v e l o p m e n t a n d M i n i n g ) O u r o Preto W o r k s h o p , Brasil M a r c h 2 3 - 2 5 , 1 9 9 8 . T h e a u t h o r s w o u l d like to t h a n k L a u r a B a r r e t o , M o n i c a P e r e s M e n e z e s , C a r l o s Peiter, a n d R o b e r t o V i l l a s B o a s for h e l p f u l c o m m e n t s . * D e p a r t m e n t of E c o n o m i c s a n d N a t i o n a l C e n t e r for E n v i r o n m e n t a l D e c i s i o n M a k i n g R e -s e a r c h Univer-sity of T e n n e -s -s e e , K n o x v i l l e , T N 3 7 9 6 6 - 0 5 5 0 ( 4 2 3 ) - 9 7 4 - 3 3 0 3 d f r a n c e 1 @ u t k . e d u D e p a r t m e n t of E c o n o m i c s a n d N a t i o n a l C e n t e r for E n v i r o n m e n t a l D e c i s i o n M a k i n g R e s e a r c h University of T e n n e s s e e , K n o x v i l l e , T N 3 7 9 6 6 - 0 5 5 0 a n d O a k R i d g e N a t i o n a l L a b o r a t o r y , O a k R i d g e , T N ( 4 2 3 ) - 9 7 4 - 1 6 9 9 j k a h n @ u t k . e d u . Análise Econômica A N O 1 7 N . 3 1 M a r ç o / 9 9 p. 1 4 1 - 1 5 4
1 - INTRODUCTION
The term and concept of sustainable development had gotten much attention since the late 1980's, when it became the theme for planned eco-nomic growth around the world. The definition of the terms has been molded to fit different situations since then, but has mostly retained the original thrust behind which sustainable development is driven. Generally, the interpreta-tion relates "improving the prospects of the current generainterpreta-tion without re-ducing the prospects of future generations".^ This implies the potential for economic growth and standard of living increases for today's society, while preserving the potential for future societies to continually grow and live bet-ter, as well. But many hold a more specific definition of sustainable devel-opment in mind with a greater emphasis on natural resources. Some feel that providing a sufficient level of environmental resources to future genera-tions is the central issue in leaving opgenera-tions for development open to them. This idea puts a greater weight on the necessity of basic inputs to living and production than on the technological advances used to produce goods. With this definition, the roles of exhaustible resources or mining products and environmental resources or ecosystem products are at the very heart of the discussion of sustainability.
2 - TRADITIONAL APPROACHES
The conventional treatment of exhaustible resources in terms of sustainability dates back to the early works of Thomas Malthus (1822) and David Ricardo (1817), where resource scarcity and diminishing returns dominated the analysis. These models focused on finite resource supply and whether continued economic growth was possible if resources became more scarce. Work by Barnett and Morse (1963) built on these ideas by empha-sizing the relationship between increasing scarcity and price, and the feed-back of this relationship in mitigating scarcity. By basing their model on an assumption of free substitution of inputs, namely labor, capital and exhausti-ble resources, Barnett and Morse found that new technology and it's effi-ciency effects in terms of cost reduction, greatly outweighed the cost in-creasing effects of depletion. These influential findings largely refuted the previously held notion that limits to growth existed and a collapse of society was inevitable at current consumption and development rates. Since Barnett
^ For m o r e r e a d i n g o n the basic c o n c e p t of s u s t a i n a b l e d e v e l o p m e n t o n e c a n turn t o t h e original B r u n d t l a n d C o m m i s s i o n R e p o r t ( W o r l d C o m m i s s i o n o n E n v i r o n m e n t a n d D e v e l -o p m e n t , 1987), -or w -o r k s by R -o b e r t S -o l -o w ( 1 9 9 2 ) , D a v i d Pearce (1993), a n d J -o h n P e z z e y ( 1 9 8 9 ) .
and Morse's conclusions, other models of sustainability and intertemporal exhaustible resource use have been formulated. For example, works by John Hartwick (1977,1993, 1994), John Pezzey (1989) and others expand on the same basic premise.
But, the assumption of substitutability between inputs is not an inconse-quential one. The foundation of the Barnett and Morse work is built on the interchangeability between human capital (the quantity and quality of the labor force), human-made capital (such as machines, roads and factories), and extractable natural resources (such as metals, fossil fuels and timber) as inputs to the production process. Two issues regarding substitution to achieve sustainability in these models are of primary concern. The two is-sues concern the role of environmental resources as an input to the produc-tion process and market failure in the provision of environmental resources.
The first issue arises because these economic models leave out the environmental or ecological resources input component to the production process. Ecological resources provide an array of important services to a variety of different production processes, including traditional economic pro-duction processes (industrial, agricultural, etc.), ecological propro-duction proc-esses, and direct impacts on day-to-day living and the quality of life.
The exclusion of environmental resource as inputs to the production process is compounded by the assumption of perfect substitutability of all inputs. Even if there were a representation of the quality or quantity of envi-ronmental resources in a steady state or sustainability model, the assump-tion of substitutability would render the models ill-suited for examining issues of sustainability. Because of the inherent complexity of ecological systems, particularly those in the tropical climates, it is not realistic to assume that other inputs are good substitutes. The ecological services produced by a complex ecosystem cannot be easily replaced by the application of other inputs such as human-made capital, human capital or extractible resources. This is both an issue of the large scale of the natural provision of ecological services^ and because of a lack of understanding of ecological complexity and the factors that determine ecological resilience and productivity. In addi-tion, there is a very incomplete understanding of the role of ecological serv-ices in economic production processes, so even if replication were possible, the question would remain, what ecological services should be replicated. The above arguments indicate that human-made capital, human capital and
' I m a g i n e t h e n u m b e r of " e c o l o g i c a l s e r v i c e factories" that w o u l d b e n e c e s s a r y t o p r o c e s s t h e nutrients that are c y c l e d b y a large f o r e s t or w e t l a n d s y s t e m , w h a t it w o u l d t a k e to p r o d u c e o x y g e n o n t h e s a m e s c a l e a s t h e w o r l d ' s tropical f o r e s t s a n d t h e o c e a n s ' p h y t o -p l a n k t o n layer, or the size of t h e z o o s a n d botanical g a r d e n s n e c e s s a r y to -p r e s e r v e t h e biodiversity of the tropical rainforests.
exhaustible resources cannot, to a significant degree, substitute for ecologi-cal services in production. In particular, human-made capital cannot replace ecological services in production.
This lack of knowledge of ecosystem complexity, resilience, stability and productivity makes the task of including ecological resources in the analysis of sustainability all the more challenging, but also heightens the responsibil-ity.
As a reminder, the generally accepted definitions of sustainability re-quire the current generation to satisfy their needs without reducing the pros-pects for future generations. The above discussion indicates that the con-servation of environmental resources and ecological services may be more important to maintaining these prospects than the conservation of extractible resources or even the accumulation of human-made capital.
As noted above, the second issue concerning environmental resources arises because of market failure. The traditional approach to the rationing of exhaustible resources is based on the premise that the market can allocate supply and usage through the pricing system. In the classic literature of re-source scarcity, including the work by Barnett and Morse, as an exhaustible resource or mineral resource base becomes depleted, prices rise. The rise in price is primarily the response of increased costs of extraction of the rela-tively less abundant source (relative in the sense of the deposit being less rich than deposits of the past). As price of one extractible resource rises, either firms find better extraction technology to control costs or buvers switch to another product that can satisfy their needs at a lower price, in the case of environmental or ecological resources, the market is unable to signal scar-city or ration usage. Most often ecological systems do not have prices asso-ciated with their services, because they are external to markets. The public goods nature of ecosystems, which includes the properties of non-rivalry and non-excludability, precludes sustainable long term usage."* Again, the fact that these systems are exceptions to the classic economic rules height-ens the need for their explicit inclusion in policies to promote sustainability.
3 - SUSTAINABLE MINING
Mining processes have long been thought to be very harmful to the en-vironment and generally not sustainable in the long run. Much of this mind set is due to a history of inhospitable mining operations around the wodd and in Brasil. In the past, not unlike other industries, the mining industry has
"* Non-rival m e a n s that o n e p e r s o n ' s c o n s u m p t i o n of a public g o o d d o e s not r e d u c e the a m o u n t of that g o o d a v a i l a b l e for other p e o p l e ' s c o n s u m p t i o n . N o n - e x c l u d a b l e m e a n s that if a public g o o d is a v a i l a b l e for o n e p e r s o n it is available for all o t h e r s as w e l l .
used little caution with regard to the land and forest that was cleared for construction, the water that was used in the production process and dis-posed of without treatment, the air pollution that was emitted, and the tailings and leachates which released harmful toxins into the earth. But this history of degradation and depletion need not define the role of mining in terms of sustainability for the present and the future.
Economic reliance on exhaustible resources does not necessarily mean an unsustainable growth path. Typically mining profits are thought to be relevant over the time horizon of the mining project, then disappear as quickly as the deposit itself. It is not a necessity that short term gains are the only contribution of mining to the economy, a broader view of this rela-tionship may provide a more optimistic view. The revenues received in the current period from mining operations in Brasil are substantial. The fore-casted potential revenues from mining in the near future are considerable as well. High earnings today, if used wisely, can help offset reliance on other economic activities that are less sustainable than mining. For instance, sub-sistence, slash-and-burn type, agricultural practices in the Amazonian forest region are only sustainable, economically, for 2 or 3 years due to the rapid depletion of nutrients from thé soil (Caviglia, 1998). An increase in mining activity could replace reliance on this style of living by providing jobs for those otherwise unemployed, or by providing capital to those who need better equipment, seeds or fertilizer to farm land more efficiently and longer term. No general conclusions have been made to date regarding the relative sustainability of renewable extraction compared with non-renewable extrac-tion. But it is likely that extractive uses of renewable resource systems (e.g. unsustainable forestry, unsustainable intensive agriculture and open-access fishing practices) are less sustainable than extraction of non-renewable re-sources. If mining can direct economic growth away from the less sustain-able activities, the effects of current period profits will have implications for many years into the future.
Even without concrete quantitative analysis, qualitative comparison of economic activities can result in conclusions regarding environmental im-pacts. Mining operations, in many cases, leave a smaller ecological footprint over time than alternative land uses, particularly with regard to ecological services. Take again, a simplified version of the comparison of mining to agriculture. For illustrative purposes, one could look solely at the impact of each productive process with regard to it's effect on deforestation. The min-ing enterprise in the forest would initially need to clear the land by removmin-ing trees and undergrowth, build roads and other facilities, but then most of the impact is in digging down into the earth. A farming operation would also clear the trees first. But after two or three years of viable farming, the farmer would need to abort the original farming plot for another, where clearing
would then occur again. The original farming land could then perhaps be used for cattle grazing for another four or five years, and after that aban-doned. A comparable portion of ground then is used for an upper limit total of eight years as productive farm/grazing land, or for an upper limit total of twenty or more years, depending on the life of the ore deposit.
The focus here on deforestation or equivalentiy, the depletion of an en-tire bunble of ecological services, points directly to the basic definition of sustainability. As opposed to pollution or point source emissions, environ-mental impacts on complete health more directly affects long term welfare or the people or communities which functions within them. Over the past few decades, we have gotten relatively efficient at controlling point source pollut-ants. The technology is available air and water emissions to diminimus lev-els and in most cases legal controls for pollution are among the variety of regulations with which industry must comply, in both developed and devel-oping countries. Ecosystems are also very resilient in themselves. Small, controlled impacts on a limited number of ecological variables does not mean ecosystem collapse. Internal recovery and compensation mechanisms allow ecosystems to recover through natural mechanisms when a natural or man-made shock occurs. Conversely, large scale shocks, such as com-pletely clearing large portions of forest, more likely would mean the trans-formation of that area to another ecosystem type, for example, infertile grassland or scrub.
Ecological Value Y i
Y2
Environmental Disturbance Figure 1. Ecological Instability
Figure 1 illustrates the natural oscillation of ecosystem health around an equilibrium when effected by disturbances. The y-axis variable implies the difference in biological diversity and richness between say, tropical forest and grassland ecosystems. With some major disturbance or irrecoverable impact, the equilibrium becomes a different one entirely, a new ecosystem
type takes over (see Kahn and O'Neill). Figure 2 shows the non-linear rela-tionship damages can have with disturbances. Low levels of damages, cor-responding with small pollution emission type impacts (or small changes in land use), result in low levels of disturbances and potentially high levels of ecosystem recovery. But, as damages increase, disturbances escalate ex-ponentially, likely causing irreversible change in an ecosystem. In terms of ecological services and sustainability, environmental impacts on ecological resource systems are more important than pollution emissions, except to the extent that pollution emissions grossly impact the ability of ecosystems to provide ecological services. Through generally geographically smaller (though more intense) land use impacts, mining operations may in fact im-pact ecological resource systems less than other economic activities.
Damages
B i v i r o n m e n t a l D i s t u r b a n c e
Figure 2. Exponential Damages
4 - T H E ENVIRONMENT, ECONOMY A N D WELFARE
In many studies which examined the relationship between the environ-ment and the macroeconomy, environenviron-mental quality and GDP were thought to be inversely related. If environmental quality is viewed to be obtained through emission reductions, then resources devoted to reducing emissions cannot be used to produce GDP. Figure 3 demonstrates this traditional pro-duction possibilities frontier, where a direct tradeoff between the two is clearly defined. Many studies examining the relationship between the econ-omy and the environment have been based upon an assumption of this di-rect trade-off, including Jorgensen and Wilcoxen (1990) and Hazilla and Kopp(1990).
The more recent findings however, suggest that environmental quality is an important input in the production process and therefore an input to GDP. For example, Gillis et al (1996) show that the impact of improved environ-mental quality on worker productivity through improved health dominates the direct trade-off between the environment and GDP which is discussed above.
E n v i r o n m e n t a l Q u a l i t y
Figure 3 - Conventional Perspective of the production possibilities frontier Figure 4 shows a revised relationship between environmental quality and GDP. Here, as the economy is in it's infancy, beginning as an agricul-tural society, environmental quality does not decline as the environment has assimilative capacity. Environment quality may even increase as initial levels of waste outputs enhance the natural environment (such as increasing the nutrients in nutrients impoverished ecosystem) or as initial forest clearing activity creates new habitat and increases biodiversity.
As the economy then grows, making the transition to a larger scale agri-cultural society or to industrial society, environmental quality begins to de-cline with added stresses from pollution and resource use. Further, there is likely to be a turning point in the relationship where extremely low levels of environmental quality perversely effect the rate of growth of GDP and further attempts to increase GDP result in reduced environmental quality, causing a downward spiral in the economic productivity of the society. This is probably the position that many Sub-Saharan African countries find themselves in^. A similar situation probably exists in many areas of Eastern and Central Europe.^
® T h i s is d u e to a t t e m p t s to i n c r e a s e o u t p u t by placing m o r e livestock o n t h e g r a s s l a n d , w h i c h c a u s e s o v e r g r a z i n g , d e s t r u c t i o n of w o o d y plants, a n d t h e c o n v e r s e t i o n of g r a s s l a n d to d e s e r t .
' T h i s is d u e to heavy levels of industrial pollution w h i c h h a v e p o i s o n e d s t r e a m s a n d soil, a n d g e n e r a t e d e x t r e m e health c o n s e q u e n c e s for large portions of the p o p u l a t i o n .
Environmental Quality
GDP
Figure 4 - Production possibilities frontier when environmental quality is an input in producing GDP
Social welfare or a nation, as illustrated in Figure 5, is a function of many components. It depends on the health of the population, of the econ-omy, and of the environment, and on social justice. In terms of sustainability, all are equally important. The health of the population is important to provide the essencial input of human capital to production processes. The relation-ship between human health and environment quality is often overlooked. Here too, environmental quality provides a necessary input to human health, through sanitation and clean water by limiting disease and providing clean air to breath. The social justice component is also often forgotten in the dis-cussion of sustainability of social systems. Institutions such as governments, education, families, religious organizations and non-governmental entities must evolve to adequately promote and maintain sustainable activities.
H e a l t h o f E c o n o m y H e a l t h o f R o p u l a t i o n H e a l t h o f E n v i r o n m e n t
t
S o c i a l J u s t i c eFigure 5 - Selected determinants of social welfare
It is important to note that operational indicators exist for most catego-ries of social impact defined in Figure 5. For example, GDP, the inflation rate
and the unemployment rates are all indicators of the health of the economy. None of these indicators are perfect or without bias, for example, the unem-ployment rate does not include people who have become so discouraged they have ceased looking for jobs. However, if the shortcomings of the indi-cators are understood, they can still be informative for policy purposes. Similady, we have operational indicators for the health of the population (longevity, infant mortality, etc.) and for social justice (inequality of income distribution, literacy rates, differential incarceration rates, etc.). However, we have yet to construct a useful and widely accepted set of operational indi-cators of the health of the environment or of sustainability.
The importance of developing such operational indicators of environ-mental quality can be emphasized with a mathematical representation (Equation (1)) of the functional determinants of social welfare (SW), which were modeled in Figure 5. In this equation, the full set of functional determi-nants of GDP, environmental quality (EQ), the health of the population (POP) and social justice (SJ) are suppressed to focus on the role of envi-ronmental quality in determining social welfare, particularly through its im-pact on GDP.
SW = f [GDP(EQ, POP), EQ, POP(EQ), SJ] (1) Focusing on the economy-environment inputs to social welfare, the change
in social welfare caused by a change in environmental quality would further look as follows:
d s w _ 3SW dGDP a s w 3GDP 9 P 0 P a s w dpop a s w
d E Q ~ a G D P aEQ ^ a o D P a p o p aEQ " ^ a p o p aEO ^ a E o
Specifically, social welfare changes occur through changes in GDP and environmental quality. Note however, environmental quality not only affects social welfare directly, but also through the GDP function, both directly and through its impact of the health of the population. While we cannot estimate the social welfare function, we can gain insight from indicators, especially if we can use indicators to measure the functional relationship between envi-ronmental quality and GDP, and envienvi-ronmental quality and the health of the population. Thus, it is important to develop indicators not only to measure the status of the health of the environment, but also to give insight in the functional relationships described in Equation (2).
5 - AN INTEGRATED APPROACH
The importance of developing environmental indicators has been rec-ognized, and several programs such as The US EPA's Environmental Monitoring and Assessment Program (EMAP) and the "Green National
Ac-counting Program" of tlie United Nations have begun. The approach of these programs has been to define a set of l<ey environmental variables and track their performance over time. These initial attempts have limited policy appli-cations however. Tradeoffs are difficult, if not impossible to examine when there are literally thousands of environmental indicators. In terms of sustainability and whole ecosystem effects, the only analysis possible is to impose a non-negativity constraint on all relevant environmental variables. In other words, this type of analysis allows only 'no decline' changes in envi-ronmental endpoints. Almost every feasible policy option or project will vio-late at least one of the non-negativity constraints. Some impact is inevitable with economic activity, it is the catastrophic impact that must be guarded against.
A better operational measure of the environment and sustainability is needed. EMAP attempts to develop overall indicators for individual ecosys-tems (such as forests, wetlands or estuaries). In the case of estuaries, EMAP develops as series of over twenty indicators, but creates an aggre-gate index by summing the indicators based on water clarity, the "benthic index, and the presence of trash (Schimmel, et al. 1994). This is indicative of a general procedure employed by natural scientists to create aggregate indicators by summing all individual environmental indicators and dividing by the number of indicators to create an unweighted index. This unweighted index is virtually meaningless, because it implicitly and arbitrarily uses equal weights for each individual indicator. For instance, why should a 10% in-crease in the benthic index and a ten percent inin-crease in the presence of trash receive the same weight in the index? Additionally, there is a potential problem of the level of the index being a function of the choice of the unit of measurement of each of the individual variables.
One solution might be to use an analog to GDP to create an index to solve these problems. With GDP, the issue of weighting the index is solved implicitly through the prices that the market assigns to goods and services. Here, prices can show the willingness to make clear tradeoffs between the entities and provide a consistent unit of measurement over all variables. However, prices don't exist for many of the most important environmental resources that are essential to the discussion of sustainability. It is neces-sary to find another method for weighting the variables, but it would be use-ful if the weights still maintained the property of prices in measuring the will-ingness to make a trade-off between one variable and another. It is possible to accomplish this goal through the use of survey research methods.
' S e e K a h n ( 1 9 9 8 ) for a c o m p l e t e d i s c u s s i o n of u s i n g s u r v e y m e t h o d s to d e v e l o p a n indi-c a t o r of e n v i r o n m e n t a l quality.
Although some survey based valuation techniques have been contro-versial in recent years because of biases introduced in the survey process, new techniques have been developed to correct for many of them. Conjoint analysis enables researchers to estimate environmental value by asl<ing individuals to choose among alternative states of the environment, with dif-ferent levels of key environmental variables. Preference functions can then be estimated by using the probability of a person's choice as a function of the environmental characteristics embodied in that choice. And finally, the derivative of the preference functions with respect to the individual charac-teristics can be used as weights to aggregate individual characcharac-teristics into an index, producing an environmental index which is analogous to GDP. Indices could be developed at the global, national, regional or local level, and could also be developed for individual types of resources (forests, wet-lands, oceans, etc.)
This trade-off weighted index of environmental quality can then be used in shaping environmental policy in several ways. It can simply provide a minimum acceptable level constraint, a kind of baseline around which future policy can be controlled. It could be set as a non-negativity constraint, where no decline in it's value would be allowable in the future. Or it could be used in sensitivity analysis around which different policy option could be evalu-ated.
Environmental Quality Index
GDP
Figure 6 - Sensitivity analysis and the environmental quality index
Figure 6 provides some insight into how this sensitivity analysis could be conducted. Alternative policies could be evaluated with respect to their performance on social indicators, such as GDP and the index of environ-mental quality. When all the alternative policies are diagramed, an outer envelope of the policies can be drawn which has the same interpretations as the production possibilities frontiers depicted in Figures 3 and 4. Policy op-tions in the interior of the possibilities curve demonstrate inferior policy choices among those available. Policies directly on the frontier are the best in the sense that they have higher levels of both environmental quality and GDP then the policies to the interior. Which of these policies is the best?
That question can not be answered by this analysis, but the analysis defines a specific trade-off between environmental quality and GDP, and the best position on the frontier would be determined through social dialogue and the political process. It is also possible that the sensitivity analysis might identify policies that are outliers in the sense that they are far to the northeast of the bulk of the other policies, such as the points labeled A and B in Figure 7. The possibility of these points exists because of the potential positive feed-back between the environment and GDP, where increased environmental quality leads to increase GDP.
Environmental Quality Index
GDP
Figure 7. Sensitivity analysis and the possibility of indentifying outliers
6 - CONCLUSIONS AND MINING RESEARCH AGENDA
The questions of sustainability in general and sustainability and mining specifically remain complex questions with no easy solutions. However, this paper suggests that sustainability is dependent on the conservation of eco-logical resources and the maintenance of a flow of ecoeco-logical services that are important to economic production processes, ecological production pro-cesses and to day-to-day living and the quality of life. Since many activities based on the extraction of renewable resources are extremely detrimental to environmental resources, environmentally sound mining may play a key role in sustainable development.
However, it is difficult to implement policies which strive towards sus-tainable development without developing operational indicators of environ-mental quality and sustainable development. This paper suggests a method for doing this that consists of four major steps. First, a relevant set of envi-ronmental charactenstics is defined and placed into scenarios describing alternative states of the environment. Second, survey methods such as conjoint analysis are implemented which ask people make choices between sets of alternative states of the environment that are preferable. In the third step, these data are used to estimate preference functions, which can be
differentiated witli respect to each ctiaracteristic to define a trade-off based weight for the characteristic. Finally, the weights can be used to aggregate the characteristics into a single index of environmental quality.
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