Optimal dynamic regulation of the environmental impact of mining across diverse land types

Abstract

Optimal dynamic regulation of mineral extraction and environmental rehabilitation across diverse land assets is studied using discrete-time, distributed optimal control. An extension of Hotelling's Rule is derived that indicates the need to manage both processes over space and time to maximise social welfare. Key empirical insights are drawn from a case study involving the Western Australian mineral sands industry. The incorporation of temporal and spatial dimensions allows for greater precision in the analysis of alternative management strategies. However, numerical analysis shows that optimal regulation may not require information-intensive tax instruments if abatement occurs in the year that land is damaged. Rather, a tax that is constant across time or space that provides a sufficient incentive for firms to rehabilitate degraded land can suffice. Bond instruments are shown unequivocally to provide too weak an incentive for timely rehabilitation by mining firms.

Keywords:

• non-renewable resources
• minerals
• environmental policy
• Pigouvian taxes
• differentiated instruments

Acknowledgement

We are grateful for comments provided by the anonymous referees. The usual disclaimer applies.