WATER POLLUTION AND WATER QUALITY*
By Pedro Herrera Catalán
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The growing concerns about water pollution generated by extractive industries have prompted researchers to accommodate joint production of good outputs (saleable market good) and bad outputs (pollution effects) into models of productivity and efficiency analysis. According to Ball et al. (2000) measures of productivity growth that disregard joint production of good and bad outputs will exaggerate the ‘social benefits’ of production. Hence, a revised measure of efficiency performance and growth that captures the cost associated with environmental externalities is a must.
This study analyses the environmental efficiency performance of mining producers in Peru for the years 2008 and 2009. In doing so, we use the conceptual framework of Environmental Efficiency (Pittman, 1981, 1983; Färe et al., 1993, 2003) that identifies the economic costs of mining pollution as the firms’ trade-off between increasing production that is saleable at market prices (desirable output) and reducing the environmental pollution that emerges from the production process (undesirable output).
The environmental performance of Peruvian mining firms are expressed in terms of the economic costs of reducing the production of good outputs given a fixed level of inputs given that some inputs must be diverted from the production of goods to the reduction of bads. These economic costs were calculated from parametric and nonparametric production possibility frontiers for 28 and 37 mining units in 2008 and 2009, respectively. These mining units were under the scope of the National Campaign for Environmental Monitoring of Effluent and Water Resources, conducted by the Energy and Mining Investment Supervisory Agency (OSINERGMIN).
The results show that the economic costs of mining pollution on water resources were U.S. $ 814.7 million and U.S. $ 448.8 million for 2008 and 2009, respectively. These economic costs were highly concentrated in a few mining units, within a few pollution parameters, and were also higher in mining units with average/low mineral production. Taking into account that the current System of Financial Sanctions in the mining sector is based on administrative criteria, this study proposes a System of Environmentally Efficient Sanctions based on economic criteria so as to establish a preventive mechanism for pollution that create the necessary incentives for mining companies to internalise the negative externalities that arise from their production process.
* Final results of research project awarded 1st Place by CIES/CIDA/IDRC, National Research Grant Competition, Economic and Social Research Consortium, 2009. Lima, Peru.