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Making matters more complicated, 'posting a bond' might not be enough legally speaking. The Supreme Court of Canada has ruled that some environmental-cleanup regulations are, in bankruptcy, treated like any other creditor.

On the other hand, this is ultimately an insurance problem and it could be regulated along those lines. Cleanup is a large, uncertain, and long-term liability, so it would make sense for operators to post not a fixed-size bond for cleanup but instead to submit proof of a current insurance contract that covers clean-up liability. The insurance contract and insurer would out-live any single mining operator.

This would also promote a virtuous cycle in resource extraction itself. At the moment, mine operators have every incentive to disregard future cleanup costs in favour of current profits, since the latter can be remitted to investors and the former can be left for bankruptcy. If the mine operators needed to maintain cleanup insurance, however, then the insurer would have financial incentives to ensure best environmental practices, and it would have the leverage (via the premium) to push those costs onto the mine operator.

"This is a way of solving a GRAVE moral hazard problem"


I presume this was not an intended pun? :-)

Is reclamation an eventuality for all sites, or only for those that suffer a spill/accident? I ask because if all sites will eventually incur the costs of repayment, development should be taxed like any externality. Something in the neighbourhood the $3,880,000/hectare realized in Sydney.

But if this is a low probability event, isn't the Mine Financial Security Programme an insurance programme? In that case, the fair premium per hectare is loss*probability of loss. If the probability of an accident is low (say 1%), they might be paying a fair premium at $43,000/hectare

Treating it like any old actuarially fair insurance sounds right to me in theory, but something about it feels wrong.

Nikola: "Is reclamation an eventuality for all sites"

I'm not sure how to answer your question. Are you asking: does reclamation always happen? The answer to that question is definitely no. Often sites are simply abandoned, and no remediation is done unless there is an immediate danger to human health. But unfortunately the dangers associated with mining operations might not be realized until years after the mine has closed - see, for example, this article describing homes in danger of collapsing because they were built over mines that closed over 100 years ago.

"Treating it like any old actuarially fair insurance sounds right to me in theory" - but in practice no one knows either the probability of an accident, such as a tailing pond dam collapse, occurring, nor the size of the loss that would be incurred if, say, the waste from one of the tailing ponds leaked into the Athabasca River. This is a situation of Knightian uncertainty, not risk. No one wants to sell this insurance.

Henry: "I presume...." Er... that would be a strong presumption.

Majromax: Your point about bankruptcy laws is a really interesting one - I didn't know that.

"This would also promote a virtuous cycle in resource extraction itself."

Interesting idea. In some ways the various mine financial security programs are intended to act like an insurance program, but governments are too gutless to charge anything like an actuarially fair insurance premium - indeed, it's not obvious that mining would be financially viable if operators had to buy actuarially fair clean-up costs insurance.

Isn't Actuarially Fair insurance outcome-dependant under Knightian uncertainty? This would mean not only a higher premium, but ex post payments from mining companies depending on the size of the realized loss.

That might be more politically palatable than a premium that makes mining companies insolvent prior to loss.

Having been involved in the mining/exploration business for a good part of my professional life, I am acutely aware of the issues in involved.

There is not only heavy metal pollutants to be concerned about as Frances mentioned, there is also acid producing species in mine wastes which inevitably leak out into water systems if not adequately controlled.

There is also the physical stability of waste containment systems. For instance, the collapse of the Samarco Mine tailings storage facility had deadly consequences.

There is also the general despoiling of land and ruination of its environmental amenity.

Environmental destruction can also take place with the consent of local authorities. The wholesale disposal of tailings from the OK Tedi mine in PNG into a river system also had a devastating impact.

Not all mining companies are cavalier in their attitude to environmental matters. However, they are probably in the minority.

Frances said: "it's not obvious that mining would be financially viable if operators had to buy actuarially fair clean-up costs insurance."

If ALL mining jurisdictions applied the same strict rules and conditions, there would be no escape for any mining companies. The cost of environmental liabilities would/could then be passed on (without competitive disadvantage) to the consumers of mineral products. That must occur otherwise the viability of the mining industry could/would be in question and there might/would be no investment in mining projects. If the world's consumers want mineral products, they have to bear the costs, all of them, ultimately.

Nikola: "but ex post payments from mining companies depending on the size of the realized loss."

The problem is that by the time it comes for the ex post payments to be made, the operators have long since disappeared, so the taxpayer ends up paying the bill.

If it's not profitable to extract resources and at the same time set aside an amount that covers future clean-up costs, perhaps those resources shouldn't be extracted in the first place.

The mine cleanup is certainly a potential problem.

In my mind, there is a parallel with unfunded pensions for employees, especially government employees. In both cases, the eventual liability falls on future wage earners.

The best solution that I can see is to build, as we mine, a very long lasting, stable environment. For pensions, the same by expecting each retiree to provide the vast majority of his own retirement.

Purely on the presentation, I think 3-D bar charts are pretty universally disliked for distorting size comparisons even if they look fancier than 2-D ones.

Also if the cleanup funds are per hectare, why bother graphing the size? (Graph the size and the total cleanup fund?)

Maybe better to have bars for the two different sites grouped together, and separate the size/fund comparisons, rather than vice-versa.

And to be really picky, having "$43" on the label and then having to figure out it is actually $43,000/hectare is a bit annoying.

Sorry these are more negative than constructive suggestions. Maybe an "infographic" style picture would be better than a straight graph. This might not fit the Macleans format, although "The income tax system and low-income households" is not a chart at all.

In general I found the Macleans charts pretty horrible for readability (compared to the Economist, say). Much too complicated and messy.

@Roger Sparks:

Regarding pensions, Canada is cleaning up its act there. At the federal level, government-worker pensions were split into a legacy unfunded component prior to 2000 and an advance-funded component accruing thereafter.

For very long-lived entities such as governments, advance-funded defined-benefit pensions make sense as a beneficial transfer of risk. Workers have variable and shortening horizons making them collectively risk-adverse, whereas governments can invest in a risk-neutral manner

@Declan is right about the presentation. If you are going to do charts you should invest some time in reading Edward Tufte's books.

You should also figure out how to make them required reading for your students.

Macleans graphics people should be hit with a big cluebat and these books.

On the substance, given the current power relations do you see any hope for a solution to this problem?

Jim -

It's easy to write "you should". The problem is not figuring out what a nice graph *should* look like, the problem is figuring out how to make some program create that graph.

What I'd really appreciate is if you could download the data - there's a link to the spreadsheet in the post above - and explain how to use excel to make a prettier diagram.

If what "you should" really means is "you should spend a a month learning such-and-such language" or "you should spend hundreds of dollars on such-and-such software" then, sorry, not going to happen.

Jim - on the substantive point you raise...


Jim - on the required readings for students issue - I am teaching a professional practice course next term, so am grateful for any and all suggestions. Edward Tufte's stuff looks great - my concern is that it would be a bit over the head of my students, who need to be taught basic good practice e.g. labelling axes.

Frances said: "If it's not profitable to extract resources and at the same time set aside an amount that covers future clean-up costs, perhaps those resources shouldn't be extracted in the first place."

I said: "If the world's consumers want mineral products, they have to bear the costs, all of them, ultimately."

I might walk back a little from my comment. Mining, like any other enterprise produces social benefit/costs, environmental costs (probably no environmental benefits) as well as private benefits/costs. The equation can be extremely complex from a range of view points which I won't go into. So who should bear the costs?

The social costs (demise of a way of life) of the Panguna copper/gold mine, for instance, became too much to bear for the local communities on Bougainville. They took up arms and forcibly closed the mine down, fighting a war with the national PNG government over the issue. The local people prevailed - the mine has remained closed for 30 years or so, yet it is one of the biggest copper/gold resources on the planet.

I am not saying that Albertans should take up arms or alternatively sit back and do nothing, but at least should look at the complete equation and weigh up the considerations. In Australia, there has been a huge fight over coal seam gas and shale oil/gas. Apart from the environmental considerations there is the competing commercial interests of farmers and miners. Another complication on the equation. The farmers are winning in many jurisdictions.

The mining industry is by and large a dirty business and should be held to book, but the equation is not that simple.


I made something in Excel that I think looks better, I tried sending it to your Carleton email but in case it gets spam filtered or something:

1. Switch from 3-D to 2-D

2. Switch rows and columns in 'Select Data' (so the size and cash comparisons have the 2 sites side by side).

3. Use a log scale so the Sydney site size doesn't disappear

4. Do absolute size in hectares as well as/instead of the $/hectare

5. Write the labels manually in text boxes so you can pick your own units without messing up the scale and readers don't need to look at the legend to figure them out - not too much work with 4 or 6 data points (I was too lazy to actually do this though)

I don't know if this is 'prettier' but I think it gets the point across better - the oil sands are about 200 times bigger but only about twice as much in the cleanup fund.

The Supreme Court of Canada has ruled that some environmental-cleanup regulations are, in bankruptcy, treated like any other creditor.
Well it has to be that way, otherwise we would need some reason why this particular operation was unique.

But actually, the problem runs to all limited liability corporations, which is effectively a magic power bestowed by government that people operating under the legal framework of a corporation can do things that flesh and blood individuals would not legally be able to do. There are regular arguments amongst libertarians on this topic.

When an Ontario cemetery operator sells a burial plot, they must side aside 40 percent of the money they receive into a "care and maintenance account". This is a way of solving a grave moral hazard problem: operators might sell plots, and then walk away from their maintenance obligations.

Seems to me that the only effect of this is to ensure plots are more expensive than otherwise, and that the money in the "care and maintenance account" does get spent at some stage (possibly some of it might even go towards care and maintenance). There's no way for the dead guy to complain about the quality of the upkeep, and the remaining living relatives have already handed the money over.

Tel: "But actually, the problem runs to all limited liability corporations,"

Which is as good a reason as any for having a corporate tax - and one that I very rarely hear discussed.

I totally agree with second point about the further moral hazard problems created by the existence of an anti-moral-hazard care-and-maintenance account.

I've been asked to write a more extended piece on this issue, and that's one thing I'll have to deal with.

Frances: Apologies for doing a hit and run. I didn't track this for a while.

Without seeing it, it looks like Declan has dealt with the major issues with that chart.

Tufte is an amazingly clear and entertaining writer, if he is over anyones head, they are as thick as two short planks. OTOH a short and basic intro might well fit into the time constraints of a course better, but then they would miss the pleasures of reading and looking at Tufte's work.

Jim - I've posted Declan's charts above. Tufte has a whole bunch of books - which is the one you'd recommend to start with?


I would go with the first chart. People are better at comparing lengths than areas. Simplicity is a virtue.

I own "The Visual Display of Quantitative Information", so it's the one I am most familiar with. I believe it's his first book length publication. Without doing a detailed comparison I think that would be the best introductory work.

OTOH he has spent a lot of time teaching courses since then so a later work might be better

Upon consideration, given the small number of numbers you wish to display, I think a chart is a bad idea. Use a table. I think the following table tells the story (I think it is accurate, but I am not absolutely sure of the Sydney contributions by the company).

Site        Size(hectares)  Cost/hectare       Total Cost            Fund        Shortfall
Sydney                 100     4,000,000      400,000,000               0      400,000,000
Tar Sands           22,000     4,000,000   88,000,000,000   1,000,000,000   87,000,000,000

With respect to Tufte, he includes "The Visual Display of Quantitative Information" in his teaching package, so I am pretty sure the it is the best introduction/overview. Spending an afternoon(evening?:)) skimming the 4 books might be worthwhile.

The link below is to a talk by David Suzuki. Part way thru the talk (start at 35:10) he relates about an encounter with the CEO of one of the tar sands companies. It might be of interest to people here. It shows what you're up against. (The rest of the talk is pretty good too.)


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