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Olympic Dam economics: do the benefits outweigh the costs? (The Age)

When considering whether to approve the expansion of the Olympic Dam mine, authorities should weigh up the benefits and the costs.

WHEN a company seeks approval to exploit our most significant natural resource – the world’s fourth-largest copper resource and largest uranium reserves – we ought to be sure there are benefits for Australia far beyond the life of the mine.

BHP Billiton has outlined plans in an environmental impact statement to expand the Olympic Dam mine in South Australia. Submissions close tomorrow. It wants to make Olympic Dam the largest open-pit copper and uranium mine in the world with gold and silver as valuable byproducts.

The Australian Conservation Foundation is opposed to the mining and export of uranium, but let us look purely at the economics of this project.

Australians need to be sure this project – which exploits a major non-renewable resource – will bring benefits that overwhelm the risks and costs. In 40 years, when this project is complete, will Australia’s balance sheet be stronger?

An examination of the EIS goes part of the way to showing the value of such a project to Australia. But it leaves out critical factors that prevent us from ascertaining whether this project is a good investment.

The three major components that are poorly tackled in the EIS are government-funded infrastructure costs, subsidies and, most significantly, the impact of a carbon price.

South Australia and the Northern Territory are expecting greater tax revenues from the project. But the measure of benefit is impossible to know. Estimates for required government spending – on items such as roads and ports – are either not there or are roughly estimated. An unsubstantiated figure of $100 million is used in the modelling for SA alone.

In effect, BHP Billiton is set to privatise profits for at least 40 years while directing state government spending priorities, but without providing estimates of what these might cost, despite the explicit requirement in EIS guidelines. At $100 million, this surpasses the current stream of royalties from the mine.

Another unreported cost comes in Australia's fuel-tax credits for industry. The company is set to get a subsidy of $350 million in the mine's five-year expansion phase through a diesel fuel rebate. It will continue to get an effective subsidy of $85 million a year to 2050.

But most significant is the huge greenhouse gas emissions liability. By 2020, the mine will be responsible for up to 1.4 per cent of Australia's total emissions.

This has significant repercussions. Expanding Olympic Dam will make it harder and more costly to achieve state and federal targets. International offsets for a 1 per cent increase in Australia's emissions could be worth more than $300 million in 2020.

Costs can rapidly erode benefits. It’s time to reverse this scenario. Olympic Dam can create long-term benefits to Australia.

BHP Billiton should be required to power its new mine with only renewable energy.

It was involved in a consortium with WorleyParsons that proposed building 34 solar thermal plants in Australia by 2020. These plants use existing technology, including heat storage, producing power long after the sun has gone down.

Olympic Dam is ideally located in a renewable energy hub of sun, wind and geothermal resources but this option has not been sufficiently assessed in the EIS.

Such a sizeable investment in this emerging renewable energy industry has the potential to secure much greater benefits for Australia by seeding a 21st-century economy.

Australia needs corporate and government leadership now before we are left behind with an excessive reliance on unrefined, low-value commodities.

Simon O’Connor is the Australian Conservation Foundation’s economic adviser.