Resources Policy 1994 20 (3) 202-205

Book reviews

Environmental Economics and the Mining Industry

Wade E Martin (ed)

Kluwer Academic Publishers, Boston, 1994, Studies in Risk and Uncertainty

This is a relative short book, only 130 pages. It consists of an introduction by the editor, two chapters on valuation of environmental assets and two on global warming. Each chapter has been written by a recognized authority on the treated subject. The material covered is based

upon the John M Olin Distinguished Lectureship on Mining and the Environment. These presentations were made in 1990 at the Colorado School of Mines, but the text has obviously been updated with the addition of more recent references dating up to 1992.

The introduction by W A Martin sets the stage for the book in relation to envi- ronmental legislation in the USA. It iden- tifies as the main areas of concern, dam- age liabilities and uncertainty, and pro- ceeds by previewing the subsequent chapters.

Chapter 2 reviews valuation tech- niques as a tool in assessing damage to natural resources while Chapter 3 exam- ines the restrictions of the contingency value method. Externalities resulting from economic activity (for example mining) can prompt compensation for a decline in the value of natural assets. The estimation, however, of the extent of caused damage is made difficult for it is attempted to evaluate a perceived, rather than a market quantified, change in value.

V K Smith describes the different val- uation techniques in Chapter 2 (‘Natural resource damage assessments and the mineral sector: valuation in the courts’). This chapter is enhanced by an excellent summary of these methods in the form af an appendix. This chapter benefits from the inclusion of a mining related practi- cal example. This allows the reader to see an application of the presented mate- rial. Smith notes that valuation tech- niques are now used in legal proceed- ings. This chapter concludes by review-

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ing the incentives, created by the liabili- ties of mining firms, to consider resource management over extraction and the effi- cient use, of proceeds collected in com- pensation, for restoration of natural resource damages.

The accompanying chapter ‘Valuing environmental damages with the contingent valuation method: a critique’ has been prepared by R G Cummings, P Ganderton and T McGuckin. It reviews the contingent valuation method (CVM), a direct market method for valuation. This is timely given that the judicial system has recognized this method as a major tool.

CVM relies in securing the willing- ness of subjects to pay. The authors sug- gest that the subjects do not fully appre- ciate the goods which they are to value. Environmental policies are multidimen- sional in effect, framing of CVM value needs to be based on the awareness of relevant substitutes. Subjects must also understand the working of a hypothetical market by displaying consonance between hypothetical and non-hypotheti- cal markets. As this is not the case, for goods and market, then the reliability of any analysis is put in doubt. This chapter concludes with a discussion of outliers and protest bids that result from strategic behavior.

The next two chapters tackle global warming from two viewpoints. Chapter 4 conveys a sense of immediate urgency while Chapter 5 follows a more pragmat- ic approach. The difference in viewpoints can be traced to the degree of confidence in the climatic model hence the level of risk. The economic implications of glob- al warming are addressed under this light, relative to cost of abatements and factors such as location and rate of change.

Chapter 4 titled ‘Intergenerational fairness and global warming’ by R C d’Arge presents three arguments relating to the phenomenon of global warming. The first is that the impact of global warming will differ on a regional basis. More advanced Northern countries will not only have the ability to adapt but

some could even benefit. The second aspect relates to the speed of climatic changes. Should this shift be rapid vege- tation would not be capable to adapt and the resulting damage would be greater. The third element described is the appro- priateness of action to take, and more precisely on the motivation that could be a premise to action. These are discussed with reference to the concept of ‘moral satisfaction’.

‘The effects of global warming on the mining industry: issues tradeoffs and options’ by H S Bumess and W E Martin is Chapter 5. The physical nature of global warming is defined in relation to CO, and the need to increase the sink or decrease emissions. Given that not all

input parameters of climatic models such as oceans, clouds and urbanization are accounted this introduces uncertainty in the model. Global warming is shown to be a common property resource problem (in an open access regime). The work of W D Nordhaus on the economic implica- tions of global warming is reported along with other pertinent work. Cost-benefit analysis is developed to gain insights regarding the optimal control strategy. While the direct effects of global warm- ing to the mining industry may be mini- mal its effect could be of greater impor- tance to the energy sector.

This is a well balanced book that will make for worthwhile reading. My main reservation regarding this book is the somewhat misleading choice of title. The link between mining and environmental economic aspects is weak in Chapters 2 and 5 and absent in Chapters 3 and 4. The closest this book comes to tackling the mining reality is the Eagle River case studied by Smith. While admittedly the concepts discused are pertinent to mining they are general enough to be applicable to most resource industries.

Richard Poulin Department qf Mining and Mineral

Process Engineering University qf British Columbia

Vancouver, BC, Canada

0301-4207/94/030202-040 1994 Butterworth-Heinemann Ltd