Authors: White, B; Doole, G; Byrd, D; Pannell, D

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White, B, Doole, G, Byrd, D & Pannell, D 2009, 'An economic analysis of environmental bonds in the Western Australian mineral sands industry', in AB Fourie & M Tibbett (eds), Mine Closure 2009: Proceedings of the Fourth International Conference on Mine Closure, Australian Centre for Geomechanics, Perth, pp. 167-174,

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Environmental bonds applied as insurance policies, bank guarantees or other forms of financial instrument or insurance contracts are used in most countries to reduce the risk of governments incurring the costs of mine site remediation. Despite their widespread use and the high cost of bonds to mining companies, the incentive effects of bonds to encourage timely mine restoration is a neglected topic. This paper presents a case study based on the mineral sands industry in Western Australia. The analysis indicates that the imposition of environmental bonds affects the profitability and mineral output of the firm through time. Depending upon the bond mechanism used and how it is implemented, the rate of mine restoration can be optimal, too slow, or too rapid. In setting the bond rate, key factors that the regulator should account for include the profit from mining, restoration costs, the social cost of environmental damage, the discount rate and the probability that the firm will be bankrupt prior to mine closure.

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