Roland Brown and Philip Daniel' extensive damage (especially to vegetation). Develop- Introduction ment activity in either mining or petroleum entails a major industrial construction project; in mining it also Environmental protection provisions in minerals and commonly entailsthestripping, and storage or petroleum exploration and development (E & P) disposal, of large tonnages of overburden to expose con tracts substantially pre-date current fashionable mineable ore. Production operations require disposal concerns with environmental matters. Current con- (in mining) of waste, tailings and re-agents. Both cerns, however, serve to emphasis the issue and industries pose significant, but usually avoidable, perhaps to accelerate the pace of constructive thought environmental hazards: well blow-outs, failures of about it. tailings dams or leakages of toxic wastes, for example. Mineral exploration and production activity inevitably These operations are carried on in the knowledge that causes substantial disturbance to the environment and significant, and costly, environmental protection brings with it the risk of major pollution hazards. measures will nearly always be needed, and that one Mining and Petroleum Laws and mineral investment party or another will, explicitly or implicitly, assume agreements have for many years contained environ- the risk of liability for accidents or other sources of mental protection provisions and much experience has unexpected environmental trauma. been gained. Nevertheless, environmental standards Fleightenedconcernaboutenvironmentalrisks change and environmental awareness currently stands coincides with a period of rapid liberalisation in at one of its periodic peaks. One of the reasons why developing countries and former centrally-planned mining and petroleum companies are once again economies. The success of this liberalisation is, in large appraising prospects in recently neglected developing measure, predicated upon accelerated inflows of direct countries may be that the 'environmental risk' that foreign investment and the loan capital it can marshal. they perceive (in the sense of the risk that new and Countries with promising geology for discovery of more stringent environmental standards may be mineral or hydrocarbon resources are re-emphasising imposed. or that a company may be forced to accept the requirement for private foreign investment in these an unanticipated liability for environmental damage, sectors. directly or indirectly caused) is lower than itis in traditional mineral industry locations such as Canada, Environmental policy issues fall into three distinct Australia or the USA.2 categories. First, there are issues concerned with the operational management of mines, oilfields and plant Environmental problems occur at two broad levels. facilities, where the concern will be to prevent or limit There are those which involve the 'global commons' - environmental damage arising from normal operations. the ozone layer, the state of the oceans or tropical rain Second, there are issues related to the possibility that forests - and those which affect the local habitat of there will be an environmental trauma, catastrophe or humans,floraand fauna.Mostenvironmental accident. Here the problems are the degree of problems in exploration for and production of crude assumption of risk by investors and government minerals (though not necessarily in mineral processing) respectively, the circumstances in which each party occur in the second category. will be liable for damage to the environment and the Mining and petroleum operations are, by their very limits of that liability. The issues in this category give nature,asignificantdisturbanceofthelocal rise to difficult questions of law and may involve environment. Exploration activity alone can cause considering causation - the most elusive topic in English common law.3 Third, there is a special set of With acknowledgement to Alyson Warhurst for helpful discussions problems surroundingthereclamationof land and the formulation of sorne of the ideas which form the economic background to this note [Warhursi 1991]. Philip Daniel also affected by mining when operations cease, and the safe acknowledges the opportunity to consider these issues afforded by abandonment or removal of plant, equipment or his collaboration with the World Bank on an Africa Mining Policy structures that have no further use but constitute a Study. The authors atone are responsible for the views expressed. See Crowson, P., 1991, Foreign investment in natural resources: a Hart. li. L. A. and Honoré. 1985.Causation ¡n Ike Lain',2nd edition. one-way pendulons'?'.FDS Bulletin, Vol.22, t'o.2 April. Clarendon Press, Oxford. ¡OS But/eOn, 1991. sol 22 xc 4, Instituir ci Dcvrlopmrrii Studies, Susses 45 potential hazard (such as offshoreoil and gas embodied inlarge historicalcapital investment. platforms). Resources for subsequent re-investment have been scarce and so facilities now tend to be less efficient Trade-offs in Environmental Protection thanthey could from both environmental and productive efficiency viewpoints. A switchof mineral investment todeveloping The petroleum industry is probably more homogeneous countries in search of lower costs of compliance with with respect to exploration and production technology, environmental regulation or lower risk of contingent and perhaps also with respect to environmental environmental liability implies a view of mineral practices - though in E & P operations the largest production in which reduced production costs per unit companies appear to employ the more comprehensive of output tend to mean increased environmental costs. and rigorous procedures. Oil companies of all sizes In other words, the mining industry is viewed as a face the major risk of a well-publicised catastrophe 'consumer' of environmental services for which others such as the events of Piper Alpha or the Exxon Valdez. pay - the government, or those who suffer the effects of pollution. If the costs of environmental use by the In general, it is likely that the promotion of foreign minerals industry are 'internalised' (borne by the private investmentinthe mineral industries of producing company) theñ, on this view, fewer projects developing countrieswill now tend to improve are economic and the industry isless profitable environmental protection practices in addition to the overall. direct economic benefits it can bring. Whether this in fact happens depends, in part, on industry expectations An alternativeview4suggests that environmental about future environmental regulation in the region regulation in OECD countries with mineral industries and upon the kind of environmental risk-sharing (especially the USA, Canada and Australia) has provisions that evolvein mining and petroleum provided a sharp stimulus to innovation in environ- agreements. The greater is international awareness mental protection technology for the mining and about environmental protection requirements the petroleum industries. This technology then becomes more likely it is that improvements in the trade-off 'embodied' in the investment package which sub- between environmental costs and production costs stantial international mining companies bring to will be sought by innovation or acquisition of new, exploration and development in developing countries. 'best practice' technology. On thisview,itfrequently pays companies to innovate, or otherwise acquire new technology in There have been fears that governments might order to improve the trade-off between environmental compete to provide 'pollution havens' - providing damage (costs) per unit of output and production less onerous environmental obligations or regulations costs per unit of output.5 to investors than they might find elsewhere. These fears reflect the view that environmental protection This alternative view of the trade-off leads to the imposes an additional cost which must lower either proposition that production efficiency is a necessary profitability or tax receipts, or both. This is more conditionforachievement of bestpracticein likely to be the case for existing operations than for environmentalprotection.Among thedifferent new investments. The fiscal arrangements in place will categories of mineral producers it seems likely that certainly affect the incentive both to innovate and to largeinternationalminingcompaniesachieve undertake environmental protection measures. Where environmental best practice more frequently than a modern, profit-related regime is in place an investor small-scale and artisanal miners or state mineral can expect the state to meet, through tax deductibility, enterprisesindevelopingcountries.Smallscale perhaps two-thirds of the protection costina miners lack both the resources and the technical profitable mine and substantially more in the case of knowledge (and also have limited incentive) to deploy an oilfield (as a result of the generally higher marginal the best available techniques for combined productive rate of taxation on successful petroleum ventures). and environmental efficiency: hence, for example, the high-grading of surface gold deposits and excess discharge of mercury from gold recovery activity. Regulation or Incentives? State mineral enterprises (as in Zambia and Zaire) emerged from the nationalisation of privately-owned Environmental legislationin both industrial and firms, where techniques of production were already developing countries has, until recently, tended to rely on 'command and control'