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Internalisation of external costs
Full-cost accounting internalises ‘externalities’, such as the social and environmental impacts of economic activity, and thus assesses the true costs of production, which in turn should be reflected in market prices. If, for example, the full costs of pollution and greenhouse gas emissions were included in the cost of production, and in market prices, imported food might become considerably more expensive than locally grown produce. Externalities related to the coal industry in the USA in 2008 have been estimated at $US345 billion. That is $1,124 for every man, woman and child in the USA. These externalities included land disturbance, methane emissions, carcinogens, public health costs, fatalities, loss of productivity and climate damage. (Source: American Journal of Public Health, April 2008, Vol 98, No.4).
The economic valuation of non-market assets
Full-cost accounting recognises and accounts for the economic value of non-market assets that are not traded in the market economy, but which nevertheless have real economic value. In assessing the value of a forest, for example, a full set of natural capital accounts will include not only the market value of the timber (as in conventional balance sheets), but also the value of the forest in regulating the climate and sequestering carbon from the atmosphere, in protecting watersheds, in preventing soil erosion, in providing habitat for many species, and in providing aesthetic and recreational enjoyment.
From the perspective of a full-cost/benefit analysis, therefore, a ‘healthy forest’ is one that performs all these functions optimally. Indeed, the scientific evidence clearly shows that, when the non-market values of a forest are compromised, the quality of the wood cut also declines.
The replacement of fixed with variable costs to the extent possible
This essentially means that costs would vary according to usage. To give a concrete example, fixed annual payments for car registration and insurance provide no incentives for conservation, and no penalties for unsustainable behaviour. If payments varied by type of vehicle, fuel efficiency, and number of kilometres driven annually, they would reflect a far more accurate picture of the actual social, economic, and environmental impacts of driving.
The mineral development policy states (page 9):
“The adverse social and environmental impacts of mineral extraction can be prevented or mitigated only with effective administration and monitoring of the mining sector, for which creation of an autonomous body with a specific mandate is found very essential at this juncture.”
Thus, perhaps this autonomous body could be charged with the explicit responsibility of coordinating full-cost assessments of current or proposed mining operations. The cost of these assessments would be borne by the mining operators. By ignoring the value of natural and social capital and ecosystem services, GDP is in fact putting an arbitrary value of zero on these vital assets, which is not only far less accurate than an attempt to assign a proper value, but treats these assets as mere externalities that therefore do not get proper policy attention.
Case study: Coal mining in Samdrupjongkhar
A case study on the coalmine in Deothang was conducted as part of the Samdrupjongkhar Initiative research project, as an example of the kind of investigation required for all mining projects (details at www.sji.bt). The study is not to provide any kind of comprehensive overview of mining impacts, but to illustrate the potential dangers that can result when the full costs of mining are not properly considered.
When people working at the coal mine were asked about the working conditions at the mine, many of the villagers were simply happy to have work and did not want to complain. However, others talked about noise and dust created by the transportation of coal. One individual, who no longer lives in the area, but worked at the mine between 1997 and 2001, said that there were many health problems, mostly respiratory, associated with working there, as well as several work-related deaths. People also noted landslides, erosion, dust creation, reduction of agricultural productivity and houses being affected because of erosion and blasts.
While it was not possible to ascertain the health status of the employees at the mine, since no study has been undertaken, coal is known to be hazardous to health. According to the US centre for disease control, both surface and underground coal miners suffer from coal dust exposure and associated lung diseases such as pneumoconiosis (black lung) or anthracosis. The report states that at most risk are those, who cut the coal directly from the coal seams (National Institute for Occupational Safety and Health, Evidence Package for the National Academies’ Review 2006-2007), as is the case of the coal mine in Deothang.
In 2008, data from communities located near coal mines in the US were analysed by University of West Virginia researchers, who found that residents had an increased risk of developing chronic heart, lung, and kidney diseases. According to the data, people, who live in coal mining communities, had a 70 percent increased risk for developing kidney disease, a 64 percent increased risk for developing chronic obstructive pulmonary diseases such as emphysema, and were 30 percent more likely to report high blood pressure. One of the lead authors of the study concluded: “People in coal-mining communities need better access to healthcare, cleaner air, cleaner water, and stricter enforcement of environmental standards.” (Chronic Illness Linked to Coal-Mining Pollution, March 27, 2008).
Complaints about the dust created by the coal-carrying trucks during the dry season have led the coal mining company to water the roads daily to keep down the dust levels. However, in many places, the result may be just as hazardous to health. The water, when mixed with the spilled coal from the trucks, leaves an iridescent slurry coating the roads and filling the potholes. Invariably, this mixture washes down the hills, polluting agricultural fields, streams, and water sources.
A comprehensive cost benefit study, including both short and long-term costs associated with the existing mines, should be conducted, assessing the full costs of mining against the revenues to the state and employment. The study should also include a study of health impacts on mine workers.
Coal mining also brings to the fore another potentially catastrophic reality for Bhutan: Global warming has serious implications for Bhutan in terms of potentially devastating glacial lake outbursts. Thus, it is highly questionable whether a country committed to climate stability, by vowing to remain a net carbon sink in perpetuity, should be mining and exporting one of the greatest contributors to this global as well as national calamity. The question is particularly pertinent in a country that neither uses nor needs coal for its own development.
Source: Kuenselonline
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