regions in transition: changing economic and social drivers john rolfe cquniversity

Why the economic and social impacts of this resource boom are different

Issues for discussion– Macro economic effects – Competition between land resources– Regional economic effects uneven– Social Impacts

• Workforce location and commuting • Housing • Community attitudes

A: MACRO ECONOMIC EFFECTS

• Resources boom has significant macro economic effects – Higher exchange rate – Interest rates higher to curb inflation

• Significant impacts on other economic sectors, particularly– Sectors that export (tourism, agriculture,

manufacturing)– Sectors that are subject to competition from

imports (tourism, manufacturing)

Classic case of Dutch Disease

• Dutch Disease occurs when rapid growth in one industry sector causes offsetting losses in other economic sectors

• Typically caused by both – Macro effects (higher exchange rates and interest

rates) – Micro effects (higher prices for skilled labour and

other inputs)

• Need to distinguish between longer term structural adjustment and short term growth pains

B. COMPETITION BETWEEN LAND USES

• Increasing concern over allocation of land – Good agricultural land – Darling Downs in Qld– Rural lifestyle land – Qld and NSW– Cultural heritage – WA– Environment

• Many resources are traded through market systems – Price mechanism used to identify who can generate

highest net benefits

• Cost benefit analysis can be used to capture both private and public benefits and costs

• Land use in Qld in 2010

• Land use by resources industry is 0.09%

• How should land be allocated in the future?

Coal mine case study in Qld

• Medium sized mine in Bowen Basin• 4 Mtpa of coking coal • 16 years of mine life • Footprint to cover 2,030 ha of grazing country

– Major tradeoff in resource use is between using land for cattle production or for coal mining

Annual revenue and costs

Coal generates nearly 200 times the economic return from the land

How does the same analysis apply to Coal Seam Gas in Surat Basin?

– Well footprint of about 60m x 60m (.4ha) when drilling, and 15mx15m (.02ha) post drilling

– assume 1ha/well with pipelines and roads

– At 750m grid spacing, loss of productive land is 1.7%

– Ag. Land prices range from $950/ha to $6000/ha

Australia Pacific LNG example

• Plans to develop up to 10,000 wells in Surat basin over 30 year period– Up 10,000 hectares out of agricultural production

(for 20 years) • At average land price of $3500/ha = $35M in perpetual

lost Ag. profits

• Annual increase in Gross State Product of > $900M in Surat Basin for 30 years

• Assuming 20% of GSP is profit and royalties, PV at 10% discount rate is $1.7B.

• CSG generates > 20 – 40 times economic return of agriculture

• About 100 – 200 times return on grazing

Why the level of protest?

Given the economics of allocating land to CSG in the Surat, why the level of protest?

Three key groups of reasons

1.Distribution effects 2.Social impacts3.Environmental risks

C: UNEVEN ECONOMIC DISTRIBUTION

• Concern is that regional areas will not share in the wealth

• But resource developments + employment + business spending is widespread

• CQU team did assessment of resource expenditure in every LGA in Qld in 2010.

• Results show that there are already large impacts of resource industries across Qld

Salary payments in Queensland LGAs with top ten expenditure areas labelled

Supplier expenditures in Queensland LGAs with top ten expenditure areas labelled

Total addition to Gross Regional Product by LGA

The importance of the resources sector in the Surat

• Employment in 2009/2010– 6.1% of DD region– 11.5% of Maranoa– 4.2% of Toowoomba– 21.6% of Western

Downs

• Job Multipliers– Maranoa – 2.3– Toowoomba – 6.7– Western Downs – 4.3

Distribution of economic impacts

• Increasing share of population growth and economic benefits going to major centres and coastal zones– Home location of workforce and contractors– Spending flows in business supply chain– In Qld, > 50% goes to Brisbane– Increasing economic leakages as wealth increases

and population becomes more mobile

• While regional areas benefit from major projects, only a share is retained– Level of expenditure capture appears to be falling in

mining and smaller communities – Will decline sharply with FIFO and automation

Predicting population changes – conservative

• Assumptions about workforce moving to local areas:

– Central Highlands: 25%– Barcaldine: 5%– Isaac: 15%– Gladstone: 66%

• Assumptions about location of FIFO workers

– Rockhampton: 10%– Mackay: 15%– Bundaberg: 5%– Outside CQ: 70%

D: SOCIAL IMPACTS

• CQU team have been using several novel methods to assess some of the tradeoffs around local development and impacts

• Asking people if they would prefer to give up the income and employment to avoid project impacts

• Asking people how long they plan to live in a community – and how their plans would change if some positive or negative impacts occurred

Reasons why mining employees don’t move to mining towns

Per

cent

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

The life cycle hypothesis

• Living locally and commuting are options for people at different stages in life cycle

• Young and single – commute

• Young families – live local

• Teenage families – begin to commute

• Empty nesters – commute

What mining employees want - 1Va

riabl

e

Suit family

Regular hours

Block + time off

Get home each day

Increased salary

Not drive each day

Social opportunities

Stimulating job

Not live in work camp

Close to coast

No shift work

Supportive company

Larger centre

variablewise importance

6420-2-4

Married good time guys

What mining employees want - 2V

ari

ab

le

Suit family

Stimulating job

Close to coast


Block + time off

Get home each day

No shift work

Regular hours

Larger centre

Not drive each day

Increased salary

Supportive company



420-2-4

Empowered single young guys

What mining employees want - 3V

ari

ab

le

Block + time off

Close to coast

Not drive each day

Regular hours

Stimulating job

Suit family


Increased salary

Larger centre

No shift work


Supportive company

Get home each day


420-2-4

Focused female staffers

The Housing debate

• High housing costs are transmission link between economic pressures and social impacts

• Very difficult to avoid housing shortages with developments – Private investors risk adverse– Time lags with development – Costs and logistics of development– Delays in planning and approval processes

Example of tradeoffs offered to Moranbah community

Question 2: Carefully consider each of the following three options. Suppose options A, B and C were the only options available, which would you choose?

Additional annual costs to your

household

Housing and rental prices

Level of water restrictions

Buffer for mine impacts close to town

Growth in population of 5,000 people

I would choose

Potential Condition in 5 years time (Options A,B and C)

Option A (Expected outcome under current policy pressures)

$0

No change Some for households, town parks and gardens are drier than now

Moderate impacts from noise, vibration and dust

1,000 in housing, 4,000 in workcamps

Option B

$250 ($21/month)

No change None for households, town parks and gardens are drier than now

Slight impacts from noise, vibration and

dust


Option C

$1,000 ($83/month)

25% increase

None for households, town parks and gardens are greener than

now

Slight impacts from noise, vibration and

dust


Responses to town development

• Residents in Moranbah will leave up to 2 years earlier if major workcamps in town

• Up to 0.5 year earlier if dust and noise impacts

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Less than1 year

1-2 years 2-3 years 3-4 years 4-5 years 6-10 years 10-15years

over 15years

Years

A choice experiment on tradeoffs in the Surat

• Surveyed a random sample of Brisbane residents to assess views on:

• Number of jobs created locally (in the Surat Basin) in the mining industry

• Higher housing prices (housing shortages)

• Rising wage costs (labour shortages) in the non mining sector

• More independent monitoring activity and inspections

• How much people pay each year for 5 years (reduced income if mining is slowed)

How people viewed the importance of issues

0%

5%

10%

15%

20%

25%

30%

Local housing and

accommodation: Higher prices and

shortages

New local employment

opportunities

Rising local wage rates for local business (non

mining)

New local business

opportunities

Pressure on local infrastructure and services

More people spending money

in local communities

Possible environmental impacts even if they are very

uncertain

More job opportunities for

people in Brisbane

total adjusted score % of ranked 1st

Example choice set

Responses can be summarised into 5 groups

-0.2

-0.1

0.0

0.1

0.2

*** Ns ns ns ***

class 1 = 24.5%

-0.2

-0.1

0.0

0.1

0.2

*** *** *** *** ***

class 2 = 16%

-0.2

-0.1

0.0

0.1

0.2

*** *** *** ns ***

class 3 = 20%

-0.2

-0.1

0.0

0.1

0.2

** *** * ns ***

class 4 = 17%

-0.2

-0.1

0.0

0.1

0.2

*** *** *** *** ***

class 5 = 22.5%

Observations 6258

Cost

Log Likelihood -4814.88

Jobs

AIC 1.5481

Housing

McFadden R sqrd 0.2997

Business

Chi sqrd 4120

Environment

Summary of groups

• Class 1 (24.5%): Environmental concerns but very cost sensitive - only focused on environmental impacts

• Class 2 (16%): Jobs tradeoff - all non-job impacts important, prefer to reduce the negative impacts at the cost of more jobs

• Class 3 (20%): Housing concerns are most important, will trade off jobs for other improvements

• Class 4 (17%): Environmental focus and not cost conscious, will tradeoff against jobs growth

• Class 5 (22.5%): Business wages tradeoff, a balanced tradeoff / compromise between positive and negative impacts apart from business wages which are traded-off in favour of other

Preferences for bans on mining activity in certain areas

66% 67%

34%

71%

41%

9% 11%

30%

8%

17%

14% 14%23%

15%

31%

10% 8% 12% 6% 12%

0%

20%

40%

60%

80%

100%

prime agricultural land

10km residential areas

20km residential areas

protected high biodiversity on

private land

unprotected high biodiversity

(public or private)

Yes No Not sure Depends on jobs and income from mining activity

Support for distribution of royalty payments

Local region where

generated , 42%

Brisbane + SE Qld , 20%

Rest of Qld, 15%

Qld (no location

preference) , 22%

Recommendations

• Search to maximise the investment and employment benefits & minimise impacts

• Make residential location an open choice– Allow workers to choose between local, DIDO and FIFO

options

• Keep block shifts as short as possible (< 7 days)• Provide as much housing as possible at project start• Make local towns attractive for workforce to live locally

– Pay attention to infrastructure, housing, services, lifestyle

• Foster growth of supply chain in the region

regions in transition: changing economic and social drivers john rolfe cquniversity

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