Hostname: page-component-8448b6f56d-mp689 Total loading time: 0 Render date: 2024-04-18T06:08:28.269Z Has data issue: false hasContentIssue false

Addressing Fundamental Uncertainty in Benefit–Cost Analysis: The Case of Deep Seabed Mining

Published online by Cambridge University Press:  10 February 2021

Kerry Krutilla*
Affiliation:
O’Neill School of Public and Environmental Affairs, Indiana University, Bloomington, IN, USA
David Good
Affiliation:
O’Neill School of Public and Environmental Affairs, Indiana University, Bloomington, IN, USA
Michael Toman
Affiliation:
World Bank Group, Washington, DC, USA
Tijen Arin
Affiliation:
World Bank Group, Washington, DC, USA
*

Abstract

Mineral deposits of base metals, precious metals, and rare earth elements have been discovered on deep seabeds, and the commercial exploitation of these resources seems poised to begin after faltering for many years. The development of seabed resources could be socially beneficial if all goes well, but the industry faces daunting challenges and uncertainties. Emerging regulations and contracting mechanisms are the principal means for managing these uncertainties. This article recommends a complementary approach: the use of ex ante benefit–cost analysis of proposed seabed mining contracts that incorporates a fundamental uncertainty evaluation. We argue that such an ex ante evaluation will improve the state of information for the decision-making, reducing the risk of regulatory noncompliance or costly contract disputes after seabed mining begins.

Type
Symposium: Papers from the 2019 European Meeting of the Society for Benefit-Cost Analysis
Copyright
© The Author(s), 2021. Published by Cambridge University Press on behalf of the Society for Benefit-Cost Analysis

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Asian Development Bank. 2015. “An Introduction to Financial Analysis of ADB-Financed Investment Projects in VietNam.” Socialist Republic of Vietnam: Asian Development Bank and Ministry of Finance.Google Scholar
Adner, R., and Levinthal, D. A. 2004. “What Is Not A Real Option: Considering Boundaries for the Application of Real Options to Business Strategy.” Academy of Management Review, 29(1): 7485.CrossRefGoogle Scholar
AMC Consultants Pty Ltd. 2018. “Preliminary Economic Assessment of the Solwara Project, Bismarck Sea, PNB.” Technical Report compiled for Nautilus Minerals Niugini Ltd.Google Scholar
Arin, T., and Rozenberg, J. 2018. “Evaluating the Benefits and Costs of Coastal Resilience Investments Under Deep Uncertainty: The Case of Ebeye, Marshall Islands.” Working Paper.Google Scholar
Arrow, K. J., and Fisher, A. C. 1974. “Environmental Preservation, Uncertainty, and Irreversibility.” The Quarterly Journal of Economics, 88(2): 312319.CrossRefGoogle Scholar
Atkinson, G., Braathen, N. A., Groom, B., and Mourato, S. 2018. Cost Benefit Analysis and the Environment: Further Developments and Policy Use. Paris: OECD.Google Scholar
Bhave, A. G., Conway, D., Dessai, S., and Stainforth, D. A. 2016. “Barriers and Opportunities for Robust Decision Making Approaches to Support Climate Change Adaptation in the Developing World.” Climate Risk Management, 14: 110.CrossRefGoogle Scholar
Cardno. 2016. “An Assessment of the Costs and Benefits of Mining Deepsea Minerals in the Pacific Island Region: Deep-sea Mining Cost-Benefit Analysis.” Sponsored by the European Union and the Pacific Community.Google Scholar
Christian, J. M. 2009. “The Effects of the Financial Crisis on Metal Markets.” World Bank Extractive Industries Week.Google Scholar
Crépin, A. S., Biggs, R., Polasky, S., Troell, M., and de Zeeuw, A. 2012. “Regime Shifts and Management.” Ecological Economics, 84: 1522.CrossRefGoogle Scholar
Dixit, A. K., and Pindyck, R. S. 1994. Investment Under Uncertainty. Princeton, NJ: Princeton University Press.CrossRefGoogle Scholar
Dunn, D. C., Van Dover, C. L., Etter, R. J., Smith, C. R., Levin, L. A., Morato, T., Colaço, A., Dale, A.C., Gebruk, A.V., Gjerde, K.M. and Halpin, P.N., 2018. “A Strategy for the Conservation of Biodiversity on Mid-Ocean Ridges from Deep-Sea Mining.” Science Advances, 4(7): eaar4313.CrossRefGoogle ScholarPubMed
Durden, J. M., Lallier, L. E., Murphy, K., Jaeckel, A., Gjerde, K., and Jones, D. O. B. 2018. “Environmental Impact Assessment Process for Deep-Sea Mining in ‘the Area.” Marine Policy, 87: 194202.CrossRefGoogle Scholar
Ellis, J. I., Clark, M. R., Rouse, H. L., and Lamarche, G. 2017. “Environmental Management Frameworks for Offshore Mining: The New Zealand Approach.” Marine Policy, 84: 178192.CrossRefGoogle Scholar
Farrow, S. 2004. “Using Risk Assessment, Benefit Cost Analysis, and Real Options to Implement a Precautionary Principle.” Risk Analysis, 24(3): 727735.CrossRefGoogle ScholarPubMed
Gollier, C., Jullien, B., and Treich, N. 2000. “Scientific Progress and Irreversibility: An Economic Interpretation of the ‘Precautionary PrincipleJournal of Public Economics, 75(2): 229253.CrossRefGoogle Scholar
Gollier, C., and Treich, N. 2003. “Decision-Making Under Scientific Uncertainty: The Economics of the Precautionary Principle.” Journal of Risk and Uncertainty, 27(1): 77103.CrossRefGoogle Scholar
Gómez-Lobo, A. 2012. “Institutional Safeguards for Cost Benefit Analysis: Lessons from the Chilean National Investment System.” Journal of Benefit cost Analysis, 3(1): 130.CrossRefGoogle Scholar
Haasnoot, M., Kwakkel, J. H., Walker, W. E., and ter Maat, J. 2013. “Dynamic Adaptive Policy Pathways: A Method for Crafting Robust Decisions for a Deeply Uncertain World.” Global Environmental Change, 23(2): 485498.CrossRefGoogle Scholar
Hadka, D., Herman, J., Reed, P., and Keller, K. 2015. “An Open Source Framework for Many-Objective Robust Decision Making.” Environmental Modelling & Software, 74: 114129.CrossRefGoogle Scholar
Hallegatte, S., Shah, A., Lempert, R., Brown, C. and Gill, S., 2012. Investment decision making under deep uncertainty-application to climate change. The World Bank.CrossRefGoogle Scholar
Hammitt, J. K., Lempert, R. J., and Schlesinger, M. E. 1992. “A Sequential-Decision Strategy for Abating Climate Change.” Nature, 357(6376): 315318.CrossRefGoogle Scholar
Heffernan, O. 2019. “Deep-Sea Dilemma: Mining the Ocean Floor Could Solve Mineral Shortages—And Lead to Epic Extinctions in Some of the Most Remote Ecosystems on Earth.” Nature, 571: 465468.CrossRefGoogle Scholar
Hein, J. R., Conrad, T. A., and Dunham, R. E. 2009. “Seamount Characteristics and Mine-Site Model Applied to Exploration- and Mining-Lease-Block Selection for Cobalt-Rich Ferromanganese Crusts.” Marine Georesources & Geotechnology, 27(2): 160–176.CrossRefGoogle Scholar
Hein, J. R., Mizell, K., Koschinsky, A., and Conrad, T. A. 2013. “Deep-Ocean Mineral Deposits as a Source of Critical Metals for High- and Green-Technology Applications: Comparison with Land-Based Resources.” Ore Geology Reviews, 51: 114.CrossRefGoogle Scholar
Hund, K., La Porta, D., Fabregas, T. P., Laing, T., Drexhage, J. 2020. Minerals for Climate Action: The Mineral Intensity of the Clean Energy Transition. Washington, DC: IBRD.Google Scholar
ISA (International Seabed Authority). 2019. Draft Regulations on the Exploitation of Mineral Resources in the Area. https://ran-s3.s3.amazonaws.com/isa.org.jm/s3fs-public/files/documents/isba_25_c_wp1-e.pdf.Google Scholar
Jenkins, G. P., Kuo, C. Y., and Harberger, A. C. 2019. Cost-Benefit Analysis for Investment Decisions. Cambridge, MA: Cambridge Resources International, Inc.Google Scholar
Jobstvogt, N., Townsend, M., Witte, U., and Hanley, N. 2014. “How can we Identify and Communicate the Ecological Value of Deep-Sea Ecosystem Services?PLOS One, 9(7): 100646 CrossRefGoogle ScholarPubMed
Joubert, A. R., Leiman, A., de Klerk, H. M., Katua, S. and Aggenbach, J. C. 1997. “Fynbos (Fine Bush) Vegetation and the Supply of Water: A Comparison of Multi-Criteria Decision Analysis and Cost-Benefit Analysis.” Ecological Economics, 22(2), 123140.CrossRefGoogle Scholar
Knight, F. H. 1921. Risk, Uncertainty, and Profit. Boston, MA: Hart, Schaffner & Marx; Houghton Mifflin Company.Google Scholar
Krutilla, J. V. 1967. Conservation Reconsidered. The American Economic Review, 57(4): 777786.Google Scholar
Krutilla, K., and Graham, J. D. 2012. “Are Green Vehicles Worth the Extra Cost? The Case of Diesel-Electric Hybrid Technology for Urban Delivery Vehicles: Are Green Vehicles Worth the Extra Cost?Journal of Policy Analysis and Management, 31(3): 501532.CrossRefGoogle Scholar
Kwakkel, J. H., Haasnoot, M., and Walker, W. E. 2016. “Comparing Robust Decision-Making and Dynamic Adaptive Policy Pathways for Model-Based Decision Support under Deep Uncertainty.” Environmental Modelling & Software, 86: 168183.CrossRefGoogle Scholar
Le, J. T., Levin, L. A., and Carson, R. T. 2017. “Incorporating Ecosystem Services into Environmental Management of Deep-Seabed Mining.” Deep Sea Research Part II: Topical Studies in Oceanography, 137: 486503.CrossRefGoogle Scholar
Lempert, R., Kalra, N., Peyraud, S., Mao, Z., Tan, S. B., Cira, D., and Lotsch, A. 2013b. Ensuring Robust Flood Risk Management in Ho Chi Minh City. Policy Research Working Paper. 6465. Washington, DC: World Bank.CrossRefGoogle Scholar
Lempert, R. J. 2014. “Embedding (Some) Benefit Cost Concepts into Decision Support Processes with Deep Uncertainty.” Journal of Benefit cost Analysis, 5(3): 487514.CrossRefGoogle Scholar
Lempert, R. J., Popper, S. W., and Bankes, S. C. 2003. Shaping the Next One Hundred Years: New Methods for Quantitative, Long-Term Policy Analysis. Santa Monica, CA: RAND.CrossRefGoogle Scholar
Lempert, R. J., Popper, S. W., Groves, D. G., Kalra, N., Fischbach, J. R., Bankes, S. C., Bryant, B. P., Collins, T. M., Keller, K., Hackbarth, A., Dixon, L., LaTourrette, T. Reville, R. T., Hall, J. W., Mijere, C., McInerney, D. J. 2013a. Making Good Decisions Without Predictions: Robust Decision Making for Planning Under Deep Uncertainty. Santa Monica, CA: RAND Corporation. Available at https://www.rand.org/pubs/research_briefs/RB9701.html.Google Scholar
Levin, L. A., Mengerink, K., Gjerde, K. M., Rowden, A. A., Van Dover, C. L., Clark, M. R., Ramirez-Llodra, E., Currie, B., Smith, C.R., Sato, K.N. and Gallo, N.2016. “Defining ‘Serious Harm’ to the Marine Environment in the Context of Deep-Seabed Mining.” Marine Policy, 74: 245–259.CrossRefGoogle Scholar
Liski, M., and Salanié, F. 2019. Tipping Points, Delays, and the Control of Catastrophes. Working Paper.Google Scholar
Mahnovski, S. 2007. “Robust Decisions and Deep Uncertainty: An Application of Real Options to Public and Private Investment in Hydrogen and Fuel Cell Technologies.” PhD diss., The Pardee RAND Graduate School.Google Scholar
Miller, Kathryn A., Thompson, Kirsten F., Johnston, Paul, and Santillo, David. 2018. “An Overview of Seabed Mining Including the Current State of Development, Environmental Impacts, and Knowledge Gaps.” Frontiers in Marine Science 4: 418.CrossRefGoogle Scholar
Morgan, M. G., Vaishnav, P., Dowlatabadi, H., and Azevedo, I. L. 2017. “Rethinking the Social Cost of Carbon Dioxide.” Issues in Science and Technology, 33(4): 4350.Google Scholar
Van Nijen, K., Van Passel, S., Brown, C. G., Lodge, M. W., Segerson, K., and Squires, D. 2019. “The Development of a Payment Regime for Deep Sea Mining Activities in the Area through Stakeholder Participation.” The International Journal of Marine and Coastal Law, 34(4): 571601.CrossRefGoogle Scholar
Ochoa, C. 2020. Contracts on the Seabed. Yale Journal of International Law. forthcoming.CrossRefGoogle Scholar
Perrings, C., Folke, C., and Mäler, K. G. 1992. “The Ecology and Economics of Biodiversity Loss: The Research Agenda.” Ambio, 21(3): 201211.Google Scholar
PWC. 2012. Corporate Income Taxes, Mining Royalties and Other Mining Taxes: A Summary of Rates and Rules in Selected Countries. Google Scholar
SRK Consulting. 2010. “Offshore Production System Definition and Cost Study.” Prepared for Nautilus Minerals. Document No: SL01-NSG-XSR-RPT-7105-001.Google Scholar
Sussman, F., Grambsch, A., Li, J., and Weaver, C. P. 2014a. “Introduction to a Special Issue Entitled Perspectives on Implementing Benefit Cost Analysis in Climate Assessment.” Journal of Benefit Cost Analysis, 5(03): 333346.CrossRefGoogle Scholar
Sussman, F., Weaver, C. P., and Grambsch, A. 2014b. “Challenges in Applying the Paradigm of Welfare Economics to Climate Change.” Journal of Benefit Cost Analysis, 5(03): 347376.CrossRefGoogle Scholar
Toman, M. 2014. “The Need for Multiple Types of Information to Inform Climate Change Assessment.” Journal of Benefit Cost Analysis, 5(03): 469485.CrossRefGoogle Scholar
Toman, M. A. 1994. “Economics and ‘Sustainability’: Balancing Trade-Offs and Imperatives.” Land Economics, 70(4): 399413.CrossRefGoogle Scholar
Wakefield, J. R., and Myers, K. 2018. “Social Cost Benefit Analysis for Deep Sea Minerals Mining.” Marine Policy, 95: 346355.CrossRefGoogle Scholar
Walker, W. E., Lempert, R. J., and Kwakkel, J. H. 2013. “Deep Uncertainty.” In Encyclopedia of Operations Research and Management Science, edited by Gass, S. I. and Fu, M. C., 395402. Boston, MA: Springer US.CrossRefGoogle Scholar
Washburn, T. W., Turner, P. J., Durden, J. M., Jones, D. O. B., Weaver, P., and Van Dover, C. L. 2019. “Ecological Risk Assessment for Deep-Sea Mining.” Ocean & Coastal Management, 176: 2439.CrossRefGoogle Scholar
World Bank. 2017. “Precautionary Management of Deep Sea Minerals.” Pacific Possible Background Paper No. 2. Google Scholar
World Bank. 2018. “Study of the Application of the Precautionary Approach to the Regulation of Deep-Seabed Minerals in the Pacific Region.” Discussion Draft.Google Scholar