Extract or conserve? The Hartwick-rule and sustainable environmental governance

Abstract

The legal safeguards for sustainable environmental governance are often inadequate, inefficient, and amenable to political maneuverings. Australia recently approved the Carmichael coal mine, rail, and expansion of the Abbot Port projects. These projects, along with many others in the region, have dire consequences for the groundwater system (Currell et al., 2017) [5], the Great Barrier Reef (Kroon et al., 2016; Grech et al., 2016) [6,7], and climate change (Taylor and Meinshausen, 2014) [8]. Here we show that incorporating the Hartwick-rule in economic analysis renders many of these projects unviable with or without the opportunity and externality costs. The Hartwick-rule dictates that exhaustible resource extraction can ensure weak sustainability if resource rents can be invested in such a way that the produced capital outweighs the consumed natural capital (Hartwick, 1977) [9]. We put forward two main arguments; one, resource rents belong to the society and many projects are only viable when these rents are invested with a certain growth rate; second, economic analysis shall incorporate the Hartwick-rule and shall be applied prior to recourse to the legal safeguards. Our analysis can be applied to any non-renewable natural resource extraction decision making.