Commercial Lunar Ice Mining: Is There a Role for Royalties?

Abstract

This paper explores the impacts of a potential royalty mechanism by considering the effects of different royalty and tax rates on the economics of a hypothetical commercial lunar ice mining project. The study also examines the conceivable benefits that could be generated from a royalty regime from a global perspective and considers the possible impacts of royalties on operational decision making in a commercial lunar ice mining context. There has been substantial debate since the signing of the Outer Space Treaty in 1967 regarding how to ensure the international community benefits from the commercial exploitation of space resources, should these activities eventuate. This includes the recent initiative by the Legal Subcommittee of the UN Committee on the Peaceful Uses of Outer Space to establish a Working Group to explore potential models for a legal framework to govern space resource activities. No formal proposal to include a royalty mechanism has yet been made; however, it is apparent that part of the mandate of the Committee on the Peaceful Uses of Outer Space Legal Subcommittee could be to explore the issue of benefit sharing, and it is possible that a royalty mechanism or something similar could ultimately be proposed. After considering the impact of royalties on a hypothetical lunar ice mining project, this paper finds that royalties, in particular ad valorem royalties, could have a meaningful impact on the economics and operational parameters of a commercial lunar ice mining project, in turn potentially impacting the ability to raise the funding required to develop such projects. The study also finds that under plausible scenarios, the benefits generated on a per capita basis would be negligible, even assuming significant industry growth rates over 50 years. The study, therefore, concludes that the rationale for imposing a royalty mechanism on space resource activities for the purposes of benefit sharing through direct monetary distribution to recipients would need to be carefully examined should such a royalty mechanism ever be proposed.