Multidimensional Societal Targets, Risks, and Government Intervention in the Mining Industry

50 Pages Posted: 30 Jun 2021

See all articles by Anni Huhtala

Anni Huhtala

Government of the Republic of Finland - VATT Institute for Economic Research

Olli Tapani Ropponen

Government of the Republic of Finland - VATT Institute for Economic Research; University of Helsinki - Department of Political and Economic Studies

Date Written: June 29, 2021

Abstract

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. Our simulation results for government revenues from alternative policy packages over the lifecycle of the mine provide important information for policy implementation and the design of taxation and liability payments.

Keywords: royalty, fines, liability payment, surety bond, Pigou tax, ad valorem tax, excess corporate tax

JEL Classification: Q31, Q38, Q52

Suggested Citation

Huhtala, Anni and Ropponen, Olli Tapani, Multidimensional Societal Targets, Risks, and Government Intervention in the Mining Industry (June 29, 2021). USAEE Working Paper 21-501, Available at SSRN: https://ssrn.com/abstract=3875962 or http://dx.doi.org/10.2139/ssrn.3875962

Anni Huhtala (Contact Author)

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Box 1279
Helsinki, 00101
Finland

HOME PAGE: http://www.vatt.fi/en/researcher/huhtala-anni

Olli Tapani Ropponen

Government of the Republic of Finland - VATT Institute for Economic Research ( email )

Arkadiankatu 7
P.O Box 1279
Helsinki, FIN-00531
Finland

University of Helsinki - Department of Political and Economic Studies ( email )

P.O. Box 54
FIN-00014 Helsinki
Finland

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
15
Abstract Views
46
PlumX Metrics