Ernie Niemi | Social costs of bauxite-alumina production in Jamaica

“Jamaica is unique and wonderful!” I heard this exclamation again and again over the past several months, whenever I told colleagues that I was examining economic issues associated with the bauxite-alumina industry in Jamaica, for JET’s Red Dirt publication. Just the mention of Jamaica, and everyone – everyone! – responded with an ear-to-ear smile and stories about the beautiful island, the people, the culture, the food, the athletes, the music, and more.

From an economic perspective, though, Jamaica is neither unique nor wonderful. Instead, Jamaica looks like countless other places with large mining and manufacturing industries that degrade the natural environment. The industry itself receives a lot of attention because it generates important economic benefits: exports, jobs, sales and income for local vendors, and government revenue. But, the more important story is that the environmental degradation imposes widespread, larger costs on workers, families, businesses, communities, and future generations.

DIMINISH WELL-BEING OF SOCIETY

Economists use the term “social costs” to describe these costs, because they diminish the well-being of society as a whole. They materialise through several mechanisms, including, for example:

• Loss of life, health, security, social harmony, or quality of life. Pollution from the bauxite-alumina industry and related activities can make people sick, and industry-caused dislocation of families from their homes can disrupt cherished patterns of social interaction.

• Reduction in the supply of an existing good or service. Pollution from the industry imposes costs on farmers and consumers whenever it decreases the size of locally produced crops.

• Constraints on other industries. The industry imposes costs on business owners, workers, and communities associated with the tourism industry whenever its activities and pollution diminish Jamaica’s attractiveness to potential visitors, causing some to spend less while in Jamaica and inducing others to stay away.

• Increase in the cost of living. When the industry displaces families and communities, some Jamaicans incur higher costs to visit relatives, conduct business, attend school, and find good jobs.

• Increase in risk. Individuals, families, businesses, and communities experience a reduction in well-being when subjected to industry-based risks. These include risks of death, injury and property damage if mud-lake dams were to fail. Industry-related activities at the port that involve handling of hazardous materials, create risks of accidents, spills, or explosions that would injure or kill individuals, poison the environment, and keep people from engaging in their preferred activities.

The full list of the different social costs borne by Jamaicans is almost endless. Which raises important questions: How big are the industry’s social costs, and how do they compare with its benefits?

To measure the social costs, economists look at the economic value of the reductions in well-being that Jamaicans experience. Some components of this value can be measured in a straightforward manner: the money people pay to secure healthcare when they and their children are made ill by the industry’s air pollution, for example. Many components, however, are more difficult to measure, because they are not traded in markets and have no price. These include the pain and suffering that people endure when they are made ill by air pollution, as well as the reductions in well-being that result from degradations in the water, air, forests, soils, marine systems, etc.

AIR POLLUTANTS

Jamaica has not compiled data to estimate the industry’s social costs. But data from different sources show that three air pollutants from the industry – small particulates, sulphur dioxide, and nitrogen oxides – generate social costs of about US$2.9 billion-US$13 billion each year. These costs occur through premature death, hospital admissions, asthma, acute bronchitis, lost days of work, absence from school, and restrictions on outdoor activity, to name a few.

Additional social costs materialise whenever the industry’s actions degrade an ecosystem. Research conducted for the World Bank shows that, for each hectare of forest degradation, just four types of negative effects – on water, recreation, non-wood forest products, and habitat and protection for species – generate social costs of about US$2,340.

Social costs also occur as the industry’s emissions of CO2, about one tonne for every five tonnes of bauxite, intensify the climate crisis. Recent, peer-reviewed analyses of the social cost per tonne indicate that, in 2018, when the industry emitted about two million tonnes of CO2, those emissions will cause social costs to Jamaicans and others of about US$0.8 billion-US$6.6 billion.

So how do these social costs compare with the industry’s economic benefits? A common measure of the benefits is the industry’s contribution to Jamaica’s gross domestic product (GDP), which has been about US$1 billion per year. Some industry supporters claim other benefits should be added to the mix, but so far have not produced any credible numbers. Even if benefits other than GDP were added to the mix, it seems likely that the benefits are just a fraction of the three estimates of the social costs outlined in the previous paragraphs (and there are many others that haven’t been quantified yet). Some of the social costs will jump if the industry goes forward with plans to mine within Cockpit Country, as defined by the Cockpit Country Stakeholders Boundary.

Many of the social costs and their harmful effects have been known for decades. Why hasn’t the industry eliminated them – or at least some of them – or compensated the Jamaicans who are harmed by them? With high bauxite-alumina prices expected to continue for a while, corporate owners have a choice. Will they convert the additional revenue per tonne of bauxite and alumina into higher profits for themselves, and maybe use the high prices as an excuse to expand operations, thereby imposing even greater social costs on Jamaicans? Or, will they keep their profits unchanged and use the additional revenue from the higher prices to lessen and compensate for the social costs?

Sure, profits are important, as are the wages for workers, revenues for government, etc., but the industry’s social costs are so large that, until the industry acts decisively to reduce them, Jamaica will never be as unique and wonderful as it deserves to be.

- Ernie Niemi is President of Natural Resource Economics, Inc. The content and opinions expressed herein may change as new information becomes available. This is the third in a series of articles by the authors of RED DIRT, a review of the bauxite-alumina industry, which was commissioned by the JET. Send feedback to columns@gleanerjm.com.