Environmental misallocation in the copper industry

Abstract

We use mine-level data from the international copper industry to quantify environmental misallocation. We define this concept as the ratio between the observed carbon dioxide (CO2) emissions in the industry and the level reached by a social planner that allocates the current aggregate output across mines so as to minimize emissions, conditional on some well-defined extraction rules. We find that CO2 emissions from the world copper industry are reduced by 47% under the planner's allocation. We also provide evidence suggesting that a cleaner environment is not necessarily tied to lower levels of productive efficiency.