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Optimal extraction policy when the environmental and social costs of the opencast coal mining activity are internalized: Mining District of the Department of El Cesar (Colombia) case study

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  • Calvo, Jorge Andrés Perdomo
  • Pérez, Ana María Jaramillo

Abstract

Several articles have confirmed the social and environmental consequences of opencast coal mining. The main purpose of this study is to simulate the optimal extraction policy of coal mining with and without the internalization of the environmental and social monetary costs that occur in the Mining District (located in the central part of the Department of El Cesar) using discrete dynamic programming (backward recursion, discrete state Markov decision model and Bellman equation). Results indicate that the private optimal of the overproduction policy for the terminal phase of the resource extraction program can be reduced once the negative externalities produced by mining practices are internalized into the cost function of the mining investment companies in Colombia. This means that if there is an increase in the total cost of extraction to offset the environmental and social impacts generated, the negative externalities would be less than or equal to the current level. Likewise, profits would continue being positive for the mining firms at the Mining District.

Suggested Citation

  • Calvo, Jorge Andrés Perdomo & Pérez, Ana María Jaramillo, 2016. "Optimal extraction policy when the environmental and social costs of the opencast coal mining activity are internalized: Mining District of the Department of El Cesar (Colombia) case study," Energy Economics, Elsevier, vol. 59(C), pages 159-166.
    • Handle: RePEc:eee:eneeco:v:59:y:2016:i:c:p:159-166
    DOI: 10.1016/j.eneco.2016.07.016
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    Cited by:

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    2. Aristizabal-H, Gustavo & Goerke-Mallet, Peter & Kretschmann, Jürgen & Restrepo-Baena, Oscar Jaime, 2023. "Sustainability of coal mining. Is Germany a post-mining model for Colombia?," Resources Policy, Elsevier, vol. 81(C).

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    More about this item

    Keywords

    Optimal extraction policy; Opencast coal mining practices; Environmental and social monetary costs; Dynamic simulation analysis; Markov decision model; Bellman equation;
    All these keywords.

    JEL classification:

    • L72 - Industrial Organization - - Industry Studies: Primary Products and Construction - - - Mining, Extraction, and Refining: Other Nonrenewable Resources
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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