Non-renewable resource extraction under financial incentives to reduce and reverse stock pollution

Yang, Peifang; Davis, Graham A.

doi:10.1016/j.jeem.2018.09.007

Cited by 14 publications

(25 citation statements)

References 29 publications

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“…There are several analytical papers that have investigated optimal abatement of polluting effluents, clean-up of polluted mining sites and the role of environmental regulation (e.g., White 2015, Yang and Davis 2018, Lappi 2020. Ultimately, a government wants to prevent a mining firm from abandoning the mine without assuming responsibility for a cleanup.…”

Section: )mentioning

confidence: 99%

“…Optimal taxation of a firm exploiting nonrenewable natural resources has been discussed extensively in the literature (e.g., Lund 2009, Gaudet and Lasserre 2015, Boadway and Keen 2015. Similarly, there are several analytical papers that have investigated optimal abatement of polluting effluents, clean-up of polluted mining sites and environmental regulation (e.g., White 2015, Yang and Davis 2018, Lappi 2020. Moreover, enforcement policies such as fines and sanctions have been considered as means to prevent and compensate for environmental hazards in case of violation (e.g., Arguedas 2005).…”

Section: Introductionmentioning

confidence: 99%

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Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?

Huhtala

Ropponen

2020

SSRN Journal

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Growing demand for materials required in the construction of renewable technologies and zeroemission infrastructure may signal significant changes for the minerals and metals market. These in turn might exacerbate the social and environmental risks associated with the mining industry. We explore the impacts of commodity price volatility, the adoption of new technology and environmental risks on the long-term sustainability of a stylized mining firm and examine the implications for government policy intervention. We first analyze whether a mine should remain open or be closed when premature closing is costly due to land rehabilitation and reclamation resulting from an environmental accident. We then go on to investigate alternative resource policy instruments for by which the government may extract resource rents, examples being an ad valorem tax on output, a mining industry-specific corporate tax rate and a royalty on the amount of ore removed. Furthermore, we evaluate the potential of a number of means to correct for environmental externalities and compensate for damages that a mine causes during its lifetime, specifically a Pigou tax on effluents, fines on environmental accidents, mandatory up-front payments to an environmental liability fund and a surety bond to cover closure and reclamation costs.

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Section: )mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?

Huhtala

Ropponen

2020

SSRN Journal

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“…9 In an earlier working paper, I informally described the possibility of charging emitters based on their greenhouse gas property left in the atmosphere (Lemoine, 2007). In a deterministic model, Yang and Davis (2018) show that incentivizing optimal mine remediation requires placing a Pigouvian tax on the stock of damaged land, not on the flow of damaged land. This result mirrors the advantage of atmospheric rental charges over Pigouvian emission taxes.…”

Section: September 2020mentioning

confidence: 99%

Incentivizing Negative Emissions Through Carbon Shares

Lemoine¹

2020

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I gratefully acknowledge an allocation of computer time from the University of Arizona's High Performance Computing (HPC) facility. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

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“…10 A number of recent papers develop optimal decision models to study different regulatory tools that address stock externalities in resource extraction. Most related to the issues in this paper are White et al (2012), Lappi (2020), and Yang & Davis (2018). 11 Common elements in their decision models include an initial known stock of a non-renewable resource, costly resource extraction, build up of a damaging stock externality, costly cleanup/remediation of the stock externality at the end of the project, costly abatement or remediation during operations, and optimal decisions regarding extraction and abatement rates and final cleanup.…”

Section: Literaturementioning

confidence: 99%

“…7 Our paper contributes to the literature on stock externalities in resource extraction, reviewed in more detail in Section 2. Recent papers related to ours include White et al (2012), Lappi (2020), and Yang & Davis (2018). Different from these papers, our focus is on the efficiency implications for cleanup costs of an environmental bond policy when bankruptcy is possible over the full life cycle of a mining project and affects decisions regarding project commencement, temporary mothballing and final abandonment.…”

Section: Introductionmentioning

confidence: 99%

Leaving Your Tailings Behind: Environmental Bonds, Bankruptcy and Waste Cleanup

Aghakazemjourabbaf

Insley

2020

SSRN Journal

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The paper studies the impacts of an environmental bond, which fully covers waste cleanup costs, on a mining firm's optimal actions when bankruptcy may shift cleanup costs to the government. A firm's stochastic optimal control problem is described by an HJB equation with the resource price modelled as an Ito process. A theoretical result is derived, showing that when a firm does not have the option to declare bankruptcy, the bond has no impact on the optimal controls. In contrast, if a firm does have a bankruptcy option and if no environmental bond is required, the firm produces too much waste relative to a benchmark case, resulting in an efficiency loss and a cleanup liability imposed on government. In the presence of a bankruptcy option, a bond ensures that the firm acts optimally and no efficiency loss is imposed on society. A numerical solution of the HJB equation is implemented for a hypothetical copper mine and results are analyzed for two different models of bankruptcy risk.

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Non-renewable resource extraction under financial incentives to reduce and reverse stock pollution

Cited by 14 publications

References 29 publications

Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?

Resource and Environmental Policies for the Mining Industry: What Should Governments Do About the Increasing Social and Environmental Risks?

Incentivizing Negative Emissions Through Carbon Shares

Leaving Your Tailings Behind: Environmental Bonds, Bankruptcy and Waste Cleanup

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