ECOS3997

Media Presentation

SID:
Semester 1, 2020

The University of Sydney
I am writing a podcast segment for Planet Money, in order to educate the everyday person (i.e. non-
economic specialist) about the issue of abandoned mines in Australia and how it may affect them
personally. My aim is to start a broader and more frequent conversation surrounding these issues, as
I believe that they aren’t frequented enough in mainstream media. In order to facilitate this
conversation, I have adopted an informal and conversational tone, in the hopes that the listener may
integrate what I am saying into everyday discussions.
Episode #1005: Australia’s Abandoned Mines: How They Got Here, What’s Being Done About Them
and How They Affect You

A week ago, my dad spat burning hot coffee into my face. Why? I mistakenly told him over breakfast
that there are more than 60,000 abandoned mines in Australia alone.
[audio insert] “60,000?! But why doesn’t the government intervene?”
That’s my dad, and he has a point…But the government does intervene…well, sort of.

[intro music]

Today on the show: How there are tens of thousands of abandoned mines around Australia, what the
government is doing about them and how they may affect you in the long run. You’re joined by
economic journalist and Australian correspondent Tilly Penton. For those of you who are new to my
segment, I’m a resource economics reporter for Planet Money who’s been studying economics for
the past four years, and this subject in particular for the past 13 weeks. Let’s dive straight into it.

When we think of mines, we think of big, gaping holes in the earth, surrounded by machinery, trucks
and people – so how it is possible that they can just become ‘abandoned,’ without responsibility
falling on the party that dug the hole in the first place? Well, here’s the thing: for decades, mining
companies have been able to slip through legislative loopholes; by placing the mine in “care and
maintenance” or simply running it at a loss, they’re essentially able to shirk the responsibility of
rehabilitation until their lease runs out and the land once again becomes the property of the
government, sometimes leaving billions of dollars of rehabilitation costs in their wake (Lock the Gate,
2016).

So – what exactly is ‘mine rehabilitation’ and what does it entail? According to ecologist Dr. Romane
Cristescu and biologists Dr. Céline Frère and Dr. Peter B. Banks (2012), in order for a mine to officially
‘close,’ the land must be restored to meet the satisfaction of public interest. This means that a range
of physical factors, such as land topography and water quality, and flora standards, such as replanting
native trees, must be met.

Sounds pretty easy, right? Fill in the hole and germinate the land to grow some trees. Or better yet,
turn the abandoned site into a solar farm, like we’ve seen in Cornwell, in the UK, where an old tin
mine was transformed to home 6,000 solar panels (Jones et al., 2014).Unfortunately, the process is a
lot more complicated than that, and a whole lot more expensive than it sounds; some mines can have
much more catastrophic effects than others, including soil contamination, erosion and water

pollution. Not only that, but it can also sometimes be hard to pinpoint the source of these damages
and hold the offender accountable.

This then begs the questions: if mine abandonment is such common practice, why don’t governments
put precautionary measures in place to either stop miners from doing so, or at least have some form
of insurance in place if the company becomes bankrupt and can’t afford to clean up the site
themselves?
There are several policies that governments have been using to try and curb the habit of big
corporations from dusting off their hands and walking away from a mine when they feel like it. The
first is bonds: in the same way you might forfeit up a few thousand dollars prior to renting a house in
case of any unforeseen damages you may cause, the party that takes up the lease to mine the land
also has to deposit a bond. There are a few benefits to bonds, as outlined in the paper ‘Limits to
Environmental Bonds,’ (Shogren et al, 1993): they place a real dollar value on environmental assets at
the site (this could be deciding that a tree is worth $20), they give the firm a reason to be more
conscious of the land (like not dumping harmful waste into rivers) and they provide a definite amount
of cash that can be used to restore the environment in case the company defaults on its obligations
of rehabilitation. However, as the title suggests, there are also limitations to these bonds: the
company may not have the lump sum of cash to forfeit initially, there are limitations that the
company can be held liable to their actions, and moral hazard. Moral hazard: the propensity for an
individual to engage in more risky behaviour, knowing that there is insurance in place to look out for
them if something goes wrong (Pauly, 1968). In this instance, if the company ‘only has to pay a bond’
and their damages exceed the value of the bond, then they have no incentive to not damage the land
any further.

This is why some regulators choose to tax the miner themselves: Some researchers suggest that a
damaged land tax is optimal. This would mean that the company would have to pay a certain amount
of money (i.e., a tax), for every hectare of land it leaves unrehabilitated (White et al., 2012). Others
(Stoianoff & Kaidonis, 2005) draw on the incentives created for companies to rehabilitate by being
provided with a tax deduction. For example, for every hectare of land they rehabilitate, they’re
allowed to pay $10 less in tax.

In my humble opinion, a mixed bond/tax system would be most effective, as they close some of each
other’s loopholes, but it also comes with its faults: if a mixed bond/tax system is being used, it means
that the tax deduction must be so considerable, that the cost of rehabilitating the land, minus the tax
deduction, must be less than the bond the company has forfeited, otherwise they have no incentive
to rehabilitate because of that ‘moral hazard’ thing we talked about earlier. This is why it is so
important that bonds are valued correctly in the first place, which is unfortunately not always the
case. Take the Hazelwood Mine in Victoria: a $15 million bond is being held for rehabilitation
purposes, but as of 2015, it is estimated that the rehabilitation liability is sitting at $73.4 million
(Wines, 2015) – that’s almost five times the amount of the bond!

There are other financial instruments that can be used, such as other insurance policies or when
surety is transferred to the regulator, but unfortunately, there’s no perfect solution as of yet, and as
long as the Australian economy and its governments are screaming and grabbing for mining revenue,
as a baby would its mother’s milk, mining (and mine abandonment) will continue to occur. You

should also take into account how much the government actually benefits from mining – in 2017-18,
“Australian mining companies paid $30.6 billion in company tax and royalties – the equivalent of all
Federal Government spending on Australian schools, universities and vocational training,” (Constable,
2019) (I’ve also popped a simple snapshot in the show notes of some of the other benefits the
industry upholds). This might be one of the reasons that the government has turned a blind eye to
mine abandonment in the past, not to mention that significant figures in business tax reform have
subsequently found themselves on the boards of several major mining companies (Stoianoff &
Kaidonis, 2003). It also seems strange that the Australian Government’s recent report on mine
closure and sustainable development was majorly contributed to by Rio Tinto, one of the country’s
largest mining companies and who, by the way, only last week blew up a 46,000-year old Aboriginal
site. In this instance, there’s no hope for ‘rehabilitation,’ because the site’s beauty and historical
significance to the nation’s first peoples can never be replaced.

By now, you’re probably wondering how Australia’s abandoned mine problem affects you, and what
you can do about it.
If you live in (or are thinking of travelling to) Tasmania, you should consider the detrimental effect
mining has had on local water systems. A plethora of research indicates that more than a hundred
million tonnes of toxic mine waste has leached into rivers and deltas across the state, rendering the
water unsuitable for human consumption or agricultural use (Gault et al., 2005) (Tyler & Bbuckey,
1973).
If you’re a NSW taxpayer, you might be shocked to discover that even if you reside in a town directly
affected by mines or their subsequent abandonment, the taxes collected from these operations go
straight to the state government, with local municipalities struggling to collect the funds themselves
to direct towards fixing the imposed damages (Drew et al., 2018).
Or perhaps you live on potentially resource-rich land – after all, it’s Australian law that you don’t own
the minerals or dirt below your property (unless of course you have a mining license or lease for your
own property) (Australian Law Reform Commission, 2016).

Clearly, the problem is spread across the country, as can be seen in the image I’ve placed in the show
notes. It’s our duty, as the public, to keep the government accountable for their lack of action in
enforcing the clean-up or rehabilitation of abandoned mines in the country. How can we do this? We
need to start a conversation. Be conscious of the mining operations being proposed, look into your
local rallies against them, and make sure you check out your local politician’s stance on mines and
their rehabilitation. (Also, planting a tree never hurt).

That’s all we have time for today. I’d love to hear your thoughts on anything and everything mining
related; has Australia’s abandoned mine problem already affected you? Tweet me at
@tilly_planet_money and let’s talk about it.

[exit music].




Words: 1582 (including title)

Show Notes

Abandoned mine records, as at July 2011 (some records are incomplete in some states/territories)
(Unger et al., 2012).






References

Australian Law Reform Commission. (2016, January 13). Definition of Property. Retrieved from
https://www.alrc.gov.au/publication/traditional-rights-and-freedoms-encroachments-by-
commonwealth-laws-alrc-report-129/18-property-rights/definitions-of-property-3/.

Constable, T. (2019, March 19). Australian mining delivers record tax and royalty payments to benefit
communities and families. Retrieved from https://minerals.org.au/news/australian-mining-delivers-
record-tax-and-royalty-payments-benefit-communities-and-families.

Cristescu, R. H., Frère, C. & Banks P. B. (2012). A review of fauna in mine rehabilitation in Australia:
Current state and future directions. Biological Conservation, 149(1), 60-72.
doi:10.1016/j.biocon.2012.02.003.

Drew, J., Dollery, B. E. & Blackwell, B. D. (2018). A square deal? Mining costs, mining royalties and
local government in New South Wales, Australia. Resources Policy, 55(1), 113-122. Retrieved from
https://doi.org/10.1016/j.resourpol.2017.11.004.

Gault, A. G., Cooke, D. R., Townsend, A. T., Charnock, J. M. & Polya, D. A. Mechanisms of arsenic
attenuation in acid mine drainage from Mount Bischoff, western Tasmania. Science of the Total
Environment, 345(1-3), 219-228. Retrieved from https://doi.org/10.1016/j.scitotenv.2004.10.030.

Jones, P., Hillier, D. & Comfort, D. (2014). Solar farm development in the United Kingdom. Property
Management, 32(2), 176-184. Retrieved from https://doi.org/10.1108/PM-05-2013-0032.

Lock the Gate. (2016, October 11). Abandoned Mines In Qld. Retrieved from
https://www.lockthegate.org.au/abandoned mines in qld.

Minerals Council of Australia. (2019, June). There’s more to Australian Mining. Retrieved from
https://minerals.org.au/sites/default/files/190603%20Australian%20Mining%20Snapshot%20June%2
02019.pdf.

Pauly, M. V. (1968). The Economics of Moral Hazard: Comment. The American Economic Review,
58(3), 531-537. Retrieved from www.jstor.org/stable/1813785.

Stoianoff, N.P. & Kaidonis, M. A. (2005). Rehabilitation of mining sites: do taxation and accounting
systems legitimise the privileged or serve the community? Critical Perspectives on Accounting 16(1).
Retrieved from https://www.sciencedirect.com/science/article/pii/S1045235403000194.

Tyler, P. A. & Bbuckey, R. T. (1973). Pollution of a Tasmanian River by Mine Effluents I. Chemical
Evidence. International Review of Hydrobiology, 58(6), 873-883. Retrieved from
https://doi.org/10.1002/iroh.19730580608.
Unger, C., Lechner, A., Glenn, V., Edraki, M. & Mulligan, D. (2012). Mapping and Prioritising
Rehabilitation of Abandoned Mines in Australia. Retrieved from
https://www.researchgate.net/publication/236900961 Mapping and Prioritising Rehabilitation of
Abandoned Mines in Australia/link/0c96051a2d76100cdd000000/download.

White, B., Doole, G. J., Pannell, D. J. & Florec, V. (2012). Optimal environmental policy design for mine
rehabilitation and pollution with a risk of non-compliance owing to firm insolvency. The Australian
Journal of Agricultural and Resource Economics, 56(2), 280-301. Retrieved from
https://doi.org/10.1111/j.1467-8489.2012.00591.x.

Wines, N. (2015). Hazelwood Mine Fire Board of Inquiry: High-level Assessment of Alternative
Rehabilitation Financial Mechanisms. Retrieved from http://hazelwoodinquiry.vic.gov.au/wp-
content/uploads/2015/12/Report-of-Accent-Environmental-6.11.15-EXP.0010.001.0001.pdf.