Social Benefit-Cost Analysis of a Queensland mining proposal

The Issue

The proposal involved a project that would extend the operating life of an existing coal mine, which was due to close in 2017 when the resource became depleted. The proposed mine was estimated to enable mining to continue for another 12 years.

The Environmental Impact Statement (EIS) submitted by the proponent and approved by Queensland’s Coordinator General, contained information on an array of environmental, social and economic impacts. While the EIS presented insights about the nature and scale of impacts, there was no unifying framework to compare costs and benefits with and without the mine.

The objective of the Synergies’ analysis was to identify the major impacts of the mine from ‘pit to port’, quantify these impacts in dollar terms where possible, identify how benefits and costs are distributed across different stakeholder groups, and to draw evidence-based conclusions about the relative magnitude of impacts.

The Solution

Costs and benefits of the project were evaluated using a standard, social benefit-cost framework.

The evaluation involved the following steps:

• definition of the baseline (conceptualising a relevant ‘without project’ baseline against which to measure the impacts of the project);
• identification of major impacts;
• identification of impacted stakeholder groups or industry sectors;
• assessment of market and non-market impacts; and
• consolidation of annual benefits and costs.

In order to assess the economic impact of the proposed mine, we adopted a baseline scenario in which the existing mine closes, with consequent retraction of the regional economy.

The economic benefits of the proposed mine included the retention of mining-related jobs, regional income, net operating revenues, royalties. Because the annual output of the mine was expected to be somewhat greater than the existing mine, the economic contributions of the proposed mine were considered to more than offset the loss in economic activity following the closure of the existing mine.

Environment and social impacts were also evaluated in the benefit-cost framework.  Environmental impacts included in the analysis were effects on greenhouse gas emissions, air quality, noise, flood risks and ecological systems. Social impacts included decreased housing affordability and increased commuter traffic resulting in congestion and inconvenience.

Synergies’ analysis showed that the project was expected to yield a positive net impact (‘net present value’), with net operating revenue from the mine estimated to be the dominant benefit. While there were some environmental and social costs to the community, these were not sufficiently large to outweigh the economic benefits.

Synergies tested its results through sensitivity analysis on the modelling parameters. This showed that factors such as the coal price, exchange rate, mine output and mine operating costs were the major determinants to the overall estimated economic impact of the project. Variations of these inputs (in the order of up to a 20% difference) still yielded a large, positive net benefit.

The Benefits

Synergies’ advice was rigorous, independent and enabled policymakers to proceed with its decision-making process for the mining development.