Quantifying the economic, environmental and social costs and benefits of extraction

EITI Global Conference: Partner Event

Session Summary

Building on the continuing EITI effort to go beyond fiscal transparency, including via incorporation of more information on environmental impacts management and monitoring, this session showcased several more integrated modelling and measurement of environmental and social impacts, alongside fiscal impacts, to enhance policymaking in the extractive sector. Fiscal impacts, and environmental and social impacts are generally modelled, assessed and monitored by different regulatory bodies, in separate processes, which can lead to an incomplete understanding of the economic costs and benefits of extraction. Participants shared experiences working on this issue to date, through the development of new models or capacity building, to collectively determine if and how to further our work and ensure relevance with policymaking.

Speakers

Moderator: Nicola Woodroffe, Senor Legal Analyst at NRGI

Speakers:

  • Ms Perrine Toledano, Head, Extractive Industries Department at CCSI (Columbia Center on Sustainable Investment)

  • Mr Jeff Geipel, Founder and Managing Director of Mining Shared Value.

Experience sharing:

  • Ms Alexandra Readhead, Technical Advisor, IISD

  • Ms Andrea Shaw, PhD Candidate, Center for Social Responsibilty of Mining-Sustainable Minerals Institute, University of Queensland

  • Mr Chris McDonald, Policy Analyst, Regional Development Policy Division, OECD 

  • Prof. Roelof Makken, Professor at Brock University 

  • Mr Per Stromberg, Senior Economist, Swedish Environmental Protection Agency

  • Ms Hélène Piaget, CEO of Responsible Mining Foundation

  • Ms Hanna Haul, Federal Institute for Geosciences and Natural Resources (BGR)

Discussion participants:

  • Mr Simon Taylor, co-founder and Director of Global Witness

  • Ms Vanessa Baudin Sanchez, Development Gateway

  • Ms Melanie Richards, Trinidad and Tobago EITI

  • Mr Keith Matanda, Malawi EITI

Session Details

As many other sectors, the extractive industries have fairly established practices to measure fiscal and monetary impact of extractives: Financial modelling used by NRGI and IMF for instance. At the same time, the sector can generate a range of other economic, environmental and social impacts that are yet to be captured by the analysis tool at the disposal of the stakeholders (local content, shared-use infrastructure, community wellbeing). Some of the actors in the sector have been attempting to quantify or model “overall” environmental costs and benefits of extraction, (such as a study in the Philippines to carry out a total economic valuation of the environmental impact of mining operations in three mining provinces).  Other studies have looked at the monetized effect of specific impacts of extraction (for example, the effect of air pollution from gold mining resulted in an average annual loss in productivity for agriculture superior to the mining project in Ghana (Aragon and Rud, 2016).

Nicola Woodroffe from NRGI opened the session by introducing the holistic thinking by NRGI. A mapping from them found 58 different frameworks worlwide to measure social and environment impacts, with only a minority linking to monetary values (that could be integrated to financial modeling for instance).

Perrine Toledano presented the work CCSI did to disclose non-fiscal positive linkages to extractive industry investments often reviewed/negotiated separately, but which may be of key importance to both parties. She added that Negative externalities, risks and opportunity costs are not priced into project appraisals even if these externalities are particularly relevant for impacted regions. She detailed the Camlron project (Cameroun), where an iron ore mine combined to a railway line and a port are being built. To compensate carbon emissions, the operating company pledged to protect the forest near the concession (to offset Co2 emissions, see PPT).

Jeff Geipel recalled that there is a significant number of actors that will be interested in information on local procurement such as mine sites, for their own internal management purposes, but also mining associations, NGOs aid programs, etc... The holistic approach requires to grab not only the area focus but the global impact. It should also draw on existing systems to avoid creating a new database for each indicator/request.

Helene Piaget (RMI) noted that the EITI is currently facing the same size and holistic challenge than the rest of data practitioners. When it comes to measuring and impact, three keys components need to be considered:

  1. Monitoring: EITI has a set of expectations for companies, but there is no monitoring to see if there’s a response to the expectations: without monitoring, there’s little need for measuring anything.

  2. Aggregated information allows to hide too much, disaggregated data as provided by the EITI are extremely valuable.

  3. Capacity building for Civil Socitey, to disseminate the data produced by the companies.

The EITI is such an opportunity, because it brings together the 3 sides. Companies are powerful parts of this ecosystem and even if they can be the source of many disruptions, they also represent a very powerful resource to create civil space or enhance analysis framework.

Prof. Roelof Makken insisted on the fact that the countries have to own the process, and reminded the challenges to force them to adopt an holistic model if it doesn’t reflect their sovereign choices or priorities.

He also emphasize the fact that taking a holistic approach may at the end reveal that a mining project is beneficial for the local communities (health, child death rate, litteracy, etc.).

Hanna Haul touched upon the LION (Local Investment Opportunities in Natural Resource Projects) Model: the Federal Institute for Geosciences and Natural Resources (BGR)has developed an innovative approach blending primary data about mines‘ cost split percentages for individual procurement categories with publicly available cash operating costs. Total procurement spent hovers around US$ 5 billion per year in the Copperbelt (Zambia & Democratic Republic of Congo), and slightly more than half for gold mining in West Africa, that is US$ 2,6 billion, where the tool was initially developed.

Vanessa Baudin Sanchez from Senegal (Development Gateway) noted the ask from local communities in West Africa to get their capacity built. Due to the lack of monitoring, companies are not responding to their commitments to disclose data or building infrastructures. Disclosures often take the form of raw data orseveral hundred-pages long report. She therefore underlined the necessity to draw upon needs and constraints of local community when developing a new analysis framework.

Notable Remarks

“Let’s not run again the narrative of the resource curse. It is not a curse, it’s a blessing.” Roelof Makken

"The expanding scope of the standards adds to the value of the EITI but it should be systematically supported by capacity building and align with other monitoring mechanisms." - Jeff Geipel

"Monitoring mechanisms are lacking to assess whether companies deliver on their commitments on transparency and social responsibility." Hélène Piaget

"We have been working on the corruption in the extractive because we believe there is a resource curse and it is getting worse." – Simon Taylor