Intergenerational Equity Case Study: Iron-ore Mining in Goa

In an ongoing public interest litigation (PIL) around iron-ore mining in Goa, the Supreme Court is examining how to implement the intergenerational equity, that is, the principle that future generations must inherit at least as much as the present inherited. The petitioner, the Goa Foundation, an environmental non-profit organisation, is advocating a comprehensive framework for intergenerational equity.

The Supreme Court has already ordered that a permanent fund must be set up—to our knowledge a global judicial precedent (Goa Foundation v UOI and Ors 2014). There are a number of other aspects being examined as well. In parallel, the Goa Foundation has launched a broader campaign, the Goenchi Mati (“Goan Earth”) movement, to implement the intergenerational equity in a comprehensive manner for all minerals in Goa. The eventual goal is to apply the framework across the globe, and for a broader class of inherited assets.

Goa is a small state in India, sandwiched between the Arabian Sea on the West and the Western Ghats—a steep escarpment rising 3,000 feet on the East, a mere 40 km away. While famous for its beaches, the interior of Goa is a landscape of rich, endemic biodiversity. Nearly two-thirds of Goa is covered by forests. Goa has nine major ecosystems including complex estuarine environments with combined agri-pisci-culture, lateritic (clayey, rich in oxides) plateaux, and the Western Ghats, one of the biodiversity hotspots of the planet. At the same time, Goa has large deposits of iron-ore, which it has exported in large quantities for over 50 years.

Mining was a major economic activity in Goa, but it was also Goa’s biggest environmental and social problem. As long ago as 1985, the benthic (bottom-dwelling) life of the rivers, including the iconic windowpane oyster, was almost wiped out because of the iron-ore covering the river beds (Parulekar et al 1986). Many other adverse effects have occurred, including disappearing hills, forests, fauna, and springs; increases in respiratory disease, deaths from unsafe roads, and iron-ore dust blanketing fields.

The China boom created a sharp increase in iron prices from 2007 onwards. This led to a reckless expansion of mining in blatant violation of applicable laws. The Shah Commission, a committee headed by M B Shah, appointed by the central government to inquire illegal mining of iron and manganese ores in Goa, in its report, revealed a bleak picture of government complicity. It said:

From the inquiry conducted by this Commission, it is apparent that all modes of illegal mining, as stated in the above Notification, are being committed in the State of Goa.

It is pertinent to state here that such illegal act can’t happen without connivance of the politicians, bureaucrats and lessees. There is a complete collapse of the system. (Shah Commission Report 2012)

At a time when the state budget was about ₹6,000 crore ($1 bn), the Shah Commission estimated that iron ore mining outside lease areas alone cumulatively amounted to ₹35,000 crore ($6 bn). It also estimated that, with the approved rate of extraction, the known reserves would be exhausted in nine years. What would future generations do?

Goa Mining Case

In 2012, the Goa Foundation, an environmental non-profit organisation, filed a PIL—the “Goa mining case”—in the Supreme Court, asking for a thorough investigation of the industry, and for a permanent mining ban on account of the severe environmental damage in a biodiversity hotspot and the imminent exhaustion of the ore. However, the Government of Goa opposed a permanent ban on account of the economic dependence of the state and the government on mining.

The Supreme Court has been proactive in matters of the environment, intergenerational equity and the public trust doctrine. It has ruled that four principles—intergenerational equity, sustainable development, the precautionary principle and polluter pays principle—are part of the right to life according to the Constitution. It has also ruled that the public trust doctrine extends to all natural resources, and that the state is a trustee for the people, and especially for the future generations.

The Supreme Court has recognised the intergenerational equity principle (future generations must inherit at least as much as the present inherited) in the context of conservation of scarce resources like minerals. In the Goa mining case, the Supreme Court wanted to implement intergenerational equity on the grounds of the exhaustion of the iron-ore reserves as well as the widespread damage to the Goan environment and social fabric. It has appointed an expert committee to examine this issue and recommend a cap on mining. In parallel, the Goa Foundation has developed a framework for implementing intergenerational equity, and recommended this to the expert committee.

Trust for Future Generations

The public trust doctrine makes natural resources a part of the commons, owned equally by all, and legally owned by the state of Goa (in the most part). The intergenerational equity principle is quite simple: the resources and opportunities that the present generation have inherited must be available to future generations in perpetuity. Old civilisations, religions and cultures have a simple rule of thumb—if you inherit something, you are merely its custodian. Your inheritance must be passed on to the next generation. A change in form is permissible—you can sell ancestral gold and purchase land—but not a diminution in value. In India, this rule of thumb is an integral part of the culture and inheritance law for most of the population (Dalal 2016).

The first step in implementing intergenerational equity is to enumerate the assets (affected by mining) that the present generation has inherited. Three assets immediately come to mind. First is the opportunity to mine the iron ore, which will deplete to zero in nine years. Second are the environment and social fabric, which are being destroyed and degraded to different degrees depending on which aspect we examine, proximity and other factors. Third is the mineral itself, which has value, and prior to mining, is part of the public trust, a part of the commons. A more thorough analysis will bring forth other assets. For instance, the decision of when to sell the mineral is a real option with a significant value due to the high volatility in commodity prices. There are many minerals associated with the iron ore, including manganese ore, gold, rare earths, bentonite and manganiferous clays; indeed, it has been estimated that associated minerals may be much higher in value than the iron ore.

All of these inherited assets deplete with mining. Therefore, the state, as the trustee for the people, and especially future generations, must ensure that the full value be captured and new assets of at least equal value be created. If there is a diminution of value, it is in effect a tax on the people applied equally—a per head tax or a poll tax. Such wealth losses are contrary to the public interest. Further, to the extent that the mineral value is captured by private mining entities, they constitute a transfer of wealth from the public that makes a few rich. This violates equality, and is anti-socialist (and anti-capitalist for that matter).

Safeguarding the Inherited Assets

For the first asset, the opportunity to mine, the Goa Foundation has recommended an extraction cap of 1/200th of the proven reserves. This cap would currently be around 5 million tonnes per annum (mtpa), compared with the peak extraction of over 50 mtpa. This will ensure that the mineral opportunity lasts at least for 200 years, nearly seven generations. Technically, this will not ensure intergenerational equity as the opportunity is capitalised by some individuals, not the state as a whole. This implies a loss from the commons. However, the cap is something that can be implemented in practice, and would be an improvement on present practice.

Environmental damage can range from breaking off a single leaf all the way to denuding the Western Ghats. One is trivial, the other is catastrophic. There are a number of mechanisms to deal with marginal damage, essentially an application of the “polluter pays” principle. New trees must be planted to replace those cut, the environment must be restored after mining, etc. This principle can be extended to many impacts of a single mine.

There are additive effects, however, especially since nearly 100 mines were operating, and using common public infrastructure like roads. A cap-and-trade system would be incredibly complex to administer, considering the vast number of factors, locations and users. What the Goa Foundation has recommended is an initial industrywide cap set at 12 mtpa, which was the extraction level at which the benthic life very nearly became extinct (Parulekar et al 1986). Various environmental parameters would be continuously monitored. Breaching of thresholds would trigger an automatic reduction in the cap. Applying the precautionary principle, the cap would drop easily, but rise cautiously. Little is lost in a multigenerational perspective if mining slows down: the next generation can still extract the mineral. This approach should ensure that no permanent damage occurs, and any temporary damage is also compensated under the polluter pays principle.

The third asset, the value of the mineral itself, has a relatively simple solution. When minerals are extracted, create a permanent fund for the future generations. This is the gold-to-land strategy. There are three essential steps. First, the owner (state of Goa) must ensure that it receives the full value of its mineral—the economic rent. Second, it must invest this entire amount into the permanent fund. Norway and Botswana currently do this. The permanent fund would mirror the public trust—the state as trustee, the people and future generations as beneficiaries. Traditionally, inheritances were saved in “non-wasting” assets, such as precious stones, metals and land. A permanent fund must reinvest to the level of inflation in order to ensure that it is also “non-wasting.” In the third step, any real income (after reinvesting for inflation) should be distributed as a common dividend, a citizen’s dividend, as Alaska already does. By implementing these three simple steps, we are reducing intergenerational inequity as well as intragenerational inequity, at least as far as the mineral value is concerned.

Should We Exhaust the Minerals?

There is an additional aspect to consider. Traditional non-wasting physical assets were affected little by the form of the economy. Land is useful in a barter, subsistence or hunter-gatherer economy. Precious stones and metals are shiny and rare, attractive to all humans. The permanent fund, however, is wholly dependent on the present financial economy and legal structure. There are many ways the permanent fund can be raided. Nauru provides the cautionary example, converting all its phosphate deposits into a $2 bn permanent fund. However, mismanagement has whittled the fund down to $50 mn. Nauru today survives as a refugee processing centre for Australia. Risk mitigation would require that only a fraction of the mineral be extracted and converted into permanent fund assets.

We would arrive at the same conclusion if we examined the real option of when to mine. In theory, the human species will last millions of years more. The China boom was certainly not the peak for all times. This raises the question of when to mine. Again, prudence would dictate that only a small fraction be extracted at the present time. However, the Goa Foundation has not made any recommendation on this aspect so far.

Incredible Losses

The Goa Foundation estimated what fraction of the full value of its minerals Goa was receiving. In one method, using the World Bank data series, over a five-year period, Goa received less than 1% of the value of its minerals. A much more refined estimate was made using the audited financial statements of Goa’s largest miner, Sesa Goa (now Vedanta). Over an eight-year period, Goa lost more than 95% of the value of the minerals (our economic rent calculations subtracted all expenses and a generous 20% post-tax return on assets for the miners). The loss was 28% of gross domestic product (GDP) and nearly two times the state government revenues for those eight years. The per capita tax (that is, the effective loss per head) was nearly three times the poverty line,1 an astounding ₹3.6 lakh ($10,000) over eight years.

Some 60% of the mineral value—more than the entire state government revenues—was captured as the excess post-tax profit for the mining companies. This helps explain why the Shah Commission found complicity of the government executive and politicians in the widespread illegalities. The resource curse had struck.

Further analysis shows that the huge losses of mineral value from the commons is a planet-wide phenomenon (World Bank 2011). It is driven by a race to the bottom by developing countries trying to attract extractors to their shores. This is a major driver of global inequality, crony capitalism, the destructiveness of mining and climate change.

Ongoing Activism

The expert committee made an interim recommendation2 to the Supreme Court of an extraction cap of 20 mtpa on the first two grounds (opportunity to mine, environmental damage), and the creation of a Goa Iron Ore Permanent Fund. The Supreme Court gave the expert committee 12 months for final recommendations. It also ordered an interim cap of 20 mtpa, and that henceforth, 10% of the sale value of iron ore must be deposited into a Goa Iron Ore Permanent Fund. To our knowledge, this is a global judicial precedent. The details of the fund were to be worked out by the Government of Goa, but approved by the Supreme Court.

The expert committee has submitted its final report,3 recommending a cap of 30 mtpa, and the extension of the Permanent Fund across India. The Goa Foundation is challenging the high level of the cap on both grounds (opportunity to mine, environmental damage). At 30 mtpa, the Shah Commission estimated that the mineral would be exhausted in 20 years. Further, many scientific studies are showing severe environmental impacts at levels as low as 12 mtpa (Parulekar et al 1986). The Government of Goa would like a higher cap and an impermanent permanent fund4—one that is largely spent by politicians, not saved for future generations. The matter is before the Supreme Court.

In parallel, the Goenchi Mati Movement is pushing for the adoption of the three essential principles—zero-loss mining, saving the entire value in the permanent fund, and sole distribution from the fund via a citizen’s dividend—and for extending it to all minerals. In essence, minerals are framed as a part of the commons, whose value must remain also as such. This is achieved through ensuring zero loss mining and saving the receipts in a permanent fund as a part of the commons. By extension, the real income is shared equally across the people as it is actually earned as a commons’ dividend, a right of ownership of the commons. This achieves intragenerational and intergenerational equity in this limited sphere. It also helps resolve some of the drivers of the resource curse, in particular the excessive profits to miners and the volatility in government revenues, while creating a stake for the people in their commons. The citizen’s dividend is a form of universal basic income5—albeit as a right of ownership, not a subsidy or a benefit.

This approach can be used by civil society all around the world to pressurise governments to adopt similar principles. Strategic PIL in order to establish these essential principles can be considered in parallel. The connection of these principles to the management of all kinds of commons and government assets is also clear.

By

Rahul Basu 

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