The Social Cost of Sub-Soil Resource Use

Abstract

This paper presents a market-price-based method to value sub-soil resources in environmental Cost-Benefit Analysis and Life Cycle Assessment. The market price incorporates the privileged information of the market agents, explicitly or implicitly anticipating future applications of the resource, future backstop technologies, recycling potentials, the evolution of reserves and extraction costs. The market price is therefore considered as the best available integrated information reflecting the actual values of these parameters. Our method is based on the Hotelling rule and the fact that private agents discount future costs and benefits at a higher rate than society as a whole. In practice, the price of the last resource unit sold is calculated with the Hotelling rule using a market discount rate. Then, the price at depletion is retropolated with a social discount rate smaller than the market discount rate. The resulting corrected “socially optimal” price is higher than the market price. The method allows to calculate the social cost of resource exhaustion, which is applicable in Cost-Benefit Analysis and Life Cycle Assessment. The method is applied to mineral and fossil resources and the results are compared with other recent methods that seek to place a monetary value on resource depletion.

Mineral resources in life cycle impact assessment: part II – recommendations on application-dependent use of existing methods and on future method development needs

“…Limitations of recommended methods have been made transparent to justify the level of recommendation and to propose methodological improvements. Also methods published after the Pellston Workshop® in June 2018 (e.g., Bulle et al 2019;Vogtländer et al 2019) could not be considered for recommendation but have been included in the discussion if the methodological concepts have been available to the task force (e.g., Huppertz et al 2019). Since most method developers contributed actively to this task force and partly participated in the Pellston Workshop®, it is unavoidable that methods get recommended whose developers were involved in the recommendation process.…”

“…The LIME2 method is recommended given that it incorporates uncertainty data and was the only peer-reviewed method available in this category at the time of the Pellston Workshop®. A few months later, the future welfare loss method was published (Huppertz et al 2019), which describes a complementary impact pathway to the one modeled in LIME2. While LIME2 assesses the potential externality of lost future income due to a hypothetical lack of investment of earnings from the sale of finite resources, the Future Welfare Loss method assesses the potential externality of lost hypothetical rents due to current overconsumption of the resource.…”

Green Consumer Behavior in the Cosmetics Market

“…A reason for social concern in environmental awareness is the depletion of mineral and petrochemical resources, which is also used as reasoning to create a more circular (closed material and energy cycle) economy [32]. In this process, the role of Life Cycle Assessment (LCA) is highly important, since it deals with the analysis of effects products have on the environment, taking the entire production chain, and the product's whole shelf-life into account [33].…”

Mineral resources in life cycle impact assessment—part I: a critical review of existing methods

“…Instead, they are based on mineral resource prices and economics, directly modeling economic relationships. Although the future welfare loss (Huppertz et al 2019) and the LIME2 endpoint approach (Itsubo and Inaba 2012) both start from prices, they have differences. Since the economics-only methods are much less discussed in literature than other methods and internal discussions about their differences were more intense than for other methods, the two methods are described in more detail below.…”

“…The future welfare loss approach (De Caevel et al 2012;Huppertz et al 2019) takes its starting point in the recognition that a part of the future scarcity value of a resource is already included in the current price of the resource, more specifically as the economic rent. The rent is the net present value (NPV) of the expected future revenue from extracting the resource and can be estimated as the difference between the price and the extraction cost of the resource.…”