The authors acknowledge funding from ARC Discovery Project DP0988368.
Optimal environmental policy design for mine rehabilitation and pollution with a risk of non-compliance owing to firm insolvency*
Version of Record online: 27 MAR 2012
© 2012 The Authors. AJARE © 2012 Australian Agricultural and Resource Economics Society Inc. and Blackwell Publishing Asia Pty Ltd
Australian Journal of Agricultural and Resource Economics
Special Issue: Mineral and Energy Policies
Volume 56, Issue 2, pages 280–301, April 2012
How to Cite
White, B., Doole, G. J., Pannell, D. J. and Florec, V. (2012), Optimal environmental policy design for mine rehabilitation and pollution with a risk of non-compliance owing to firm insolvency. Australian Journal of Agricultural and Resource Economics, 56: 280–301. doi: 10.1111/j.1467-8489.2012.00591.x
Ben White (email: email@example.com), Graeme J. Doole, David J. Pannell and Veronique Florec are in School of Agricultural and Resource Economics, University of Western Australia, Crawley, WA, Australia. Graeme J. Doole, David J. Pannell and Veronique Florec are in Centre for Environmental Economics and Policy, University of Western Australia, Crawley, WA, Australia. Graeme J. Doole is in Department of Economics, Waikato Management School, University of Waikato, Hamilton, New Zealand.
- Issue online: 27 MAR 2012
- Version of Record online: 27 MAR 2012
The modified Pigovian tax approach to regulating stock and flow pollutants from a non-renewable resource firm (Farzin, 1996) provides incentives for the firm to abate optimally, but does not allow for the possibility that a firm may become insolvent. In contrast, the current environmental bond policy applied in most jurisdictions across Australia and New Zealand provides funds in the case of insolvency, but often does not provide optimal incentives for rehabilitation. This study analyses these alternative policy approaches through a theoretical model and an empirical case study. From the case study for a mineral sands firm, the policy recommendation is that, based on economic efficiency alone, a modified Pigovian tax (termed here a damaged land tax) is optimal for most combinations of parameters. However, both risk-sharing and efficiency objectives can be simultaneously addressed by a mixed policy that includes a damaged land tax and an environmental bond.