Environment and Economic Sustainability Case Analysis Written Case Analysis They may take the form of a memorandum to your supervisor but the exact format

Environment and Economic Sustainability Case Analysis Written Case Analysis

They may take the form of a memorandum to your supervisor but the exact format of the analysis is up to the team. The analysis must be two pages long not including the cover page, with one-inch margins at all sides, 12-point Times New Roman font and one-and-a half spaced. The cover page should contain the name of the case, the number of your team, and the names of the team members. You may include up to three exhibits as additional pages. Longer submissions will be returned unread for revision. The case analysis is due on the date indicated on the Blackboard post (at midnight). Your write-up should be uploaded to Blackboard in the appropriate dropbox. Your file should be labeled as CaseStudy#_teamX

The case should contain the following elements:

Identification of the problem/question/theme – Identify a particular problem/challenge presented in the case that a country or company is facing and address your comments to a particular problem. You can formulate it as a question to be answered or problem to be solved.
Develop criteria for solving the problem/answering the question – State your approach to solving the problem. What are the relevant considerations? How do you choose among the alternative solutions? This step allows you to demonstrate your ability to critically analyze the situation. If a solution already exists, would you do it differently? Could you suggest a different approach?
Apply the criteria to the potential solution(s) and make your recommendation. Or justify your answer to the question with the relevant criteria. Don’t shy away from taking a position.

In most of the cases there is not “one correct” answer/problem/challenge. Hence, I place emphasis on how well you justify/argue your position base on your criteria (e.g. economic principles, or objectives of business strategy, development goals, etc.) The Journal of Environment &
Development
http://jed.sagepub.com/
Can Extractive Industries Promote Sustainable Development? A Net
Benefits Framework and a Case Study of the Marlin Mine in Guatemala
Lyuba Zarsky and Leonardo Stanley
The Journal of Environment Development 2013 22: 131 originally published online 23
April 2013
DOI: 10.1177/1070496513483131
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research-article2013
JED22210.1177/1070496513483131Journal of Environment & DevelopmentZarsky and Stanley
Article
Can Extractive Industries
Promote Sustainable
Development? A Net Benefits
Framework and a Case
Study of the Marlin Mine in
Guatemala
Journal of Environment & Development
22(2) 131­–154
© The Author(s) 2013
Reprints and permissions:
sagepub.com/journalsPermissions.nav
DOI: 10.1177/1070496513483131
jed.sagepub.com
Lyuba Zarsky1 and Leonardo Stanley2
Abstract
This article develops a framework to evaluate net benefits from mining and utilizes it to
assess the Marlin mine in Guatemala. The framework integrates “weak” and “strong”
sustainability principles. Under weak sustainability, a net gain in human welfare can
substitute for the loss of nonrenewable resources. Under strong sustainability,
nature’s life-support systems are not substitutable. We define “net benefits” as the
joint generation of net gains to human welfare, defined as local acceptance and high
economic benefits, and low risks to the resilience of environmental life-support
systems, especially water, evidenced by best practice management standards. We find
little evidence that the Marlin mine meets either weak or strong sustainability criteria:
there is strong local resistance to the mine and economic benefits are low, while
environmental risk is high, especially in terms of potential long-term contamination of
life-supporting ground and surface water.
Keywords
sustainable development, extractive industries, Guatemala, Marlin mine, mining and
development
1Monterey
2Center
Institute of International Studies, Monterey, CA, USA
for the Study of State and Society (CEDES), Buenos Aires, Argentina
Corresponding Author:
Lyuba Zarsky, Monterey Institute of International Studies, 608 San Miguel Ave, Berkeley, CA 94707, USA.
Email: lzarsky@earthlink.net
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Journal of Environment & Development 22(2)
Introduction
Extractive industries have boomed in the last decade, spurred by a cyclical rise in commodity prices. Developing countries throughout Africa, Asia, and Central and South
America have been flooded by a wave of foreign investment in mines deemed marginal when prices were low.
The commodities boom has sparked new waves of political resistance, economic
nationalism, global norm-building, and scholarship, all focused in one way or another
on the relationship between mining and development. Given high environmental and
human rights impacts, the central question is whether and under what circumstances
large-scale mining projects can promote development.
This article probes the relationship between extractive industries and sustainable
development. Part II develops an analytical framework which defines sustainable development in mining as the generation of “net benefits,” a composite of high net human
welfare gains and low risk to environmental life-support systems. Parts III to V apply the
framework to assess the net benefits of the Marlin gold and silver mine in Guatemala.
Part III introduces the Marlin mine and examines the local resistance and social conflict
it has engendered. Part IV assesses the economic benefits generated by the mine. Part V
evaluates environmental risk. Part VI presents findings and conclusions.
Marlin offers an insightful case study on several counts. Although it has generated
intense local resistance and international condemnation on human rights grounds, the
owner and operator of the mine, the Canadian multinational Goldcorp, has positioned
itself as a “responsible mining” company. Moreover, as a condition of a US$45 million project loan from the International Finance Corporation (IFC), Goldcorp was
required to produce and make public Environmental and Social Annual Monitoring
Reports (AMRs).1 These reports, along with a Human Rights Assessment (HRA)
commissioned by Goldcorp in response to a request by shareholders, provide rare
access to project level data and form the foundation for our analysis of the mine’s
economic benefits (On Common Ground, 2010). We also conducted a wide-ranging
literature review, including IFC, government, scientific, academic, and NGO documents; and we conducted informal interviews with a variety of stakeholders, including Goldcorp, the government of Guatemala, and NGOs and local government
officials in cities and towns near the mine, including San Marcos, San Miguel
Ixtahuacan, and Sipicapa in July, 2010.
A Net Benefits Framework
Based on nonrenewable resources, extractive industries are inherently unsustainable
economic activities. A “strong sustainability” principle, which requires that current
human activities do not eliminate future options, would rule out mining as a sustainable development strategy. The “weak sustainability” principle, however, posits that
different forms of capital—natural, human, social, productive—are substitutable.
Extending neoclassical economic growth theory, the weak sustainability paradigm
considers natural resources, both renewable and nonrenewable, as a factor of
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Zarsky and Stanley
production (Dasgupta & Heal, 1974; Solow, 1974). Rational utilization of exhaustible
resources entails optimizing the trade-off between current consumption and investment in produced capital for future consumption (Hartwick, 1977). One formulation is
the Hotelling’s rule, namely, for a given stock of a nonrenewable resource, rents must
rise at a rate equal to the interest rate (Blignaut & Hassan, 2001).
Extending the paradigm further, economic activities can be considered “sustainable”
if the overall stock of capital is at least not diminished and preferably augmented.
Accordingly, mining can be considered to promote sustainable development if “it gives
rise to long-term benefits (environmental, social, and/or economic) that equal or exceed
the values that existed prior to exploitation” (Amezaga et al., 2011, p. 21).
Many environmental economists, however, argue that natural capital is not substitutable, requiring that a “strong sustainability” principle be employed to manage its
use today and in the future. Following Ekins et al. (2003) and Pearce and Turner
(1990), Neumayer (2010) differentiates the degree of substitutability according to four
functions of natural capital. The most opportunity for substitution derives from the
“provisioning” function of natural capital—raw materials, including minerals. On the
other side of the spectrum, “life-support functions” on which human (and nonhuman)
life depend—such as water, air, global climate regulation—are “almost certainly
impossible to substitute” (Neumayer, 2007, p.619). Two other functions of natural
capital—waste assimilation and amenity services—may be somewhat substitutable.
Integrating the weak and strong sustainability principles, we conceptualize sustainable development in mining as a linear maximization problem, that is, maximizing
human welfare gains subject to a natural capital constraint. We define “net benefits” as
the creation of net social and economic gains in human welfare while maintaining the
resilience of essential natural life-support systems. Moreover, given that environmental risks and social costs are borne by local communities, we define “net benefits” as
the provision of welfare gains to local communities.
The concept of “human welfare gains” can be assessed largely using a cost–benefit
analysis (CBA), though it encompasses a wide variety of potential social, economic,
and cultural benefits (or costs). Many studies have drawn on cost–benefit methodology to define and measure a complete set of social, economic, and environmental
“sustainability indicators,” including those specific to the mining and minerals industry (Azapagic, 2004; Kumah, 2006; Laurance, 2011; Withmore, 2006; Worrall, Neil,
Brereton, & Mulligan, 2009).
We focus our analysis on four indicators that are central to assessing whether a mining project is likely to deliver net economic benefits to local communities over the
operating and postclosure life of a mine.
First and foremost, is evidence of “free, prior, and informed consent,” that is, that
local communities have been informed of benefits, costs, and risks and have demonstrated acceptance of the mine. A “willingness to accept” suggests that local communities have evaluated complex economic, social, and cultural trade-offs and have
themselves determined that the mine will bring net welfare gains. The demonstration
of a “willingness to accept” is especially important when there is potential harm to a
nonsubstitutable cultural value, such as the maintenance of an indigenous lifestyle and
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Journal of Environment & Development 22(2)
identity.2 Moreover, the rights of indigenous people to prior consultation and consent
in enshrined in international law in ILO 169 and the UN Declaration of the Rights of
Indigenous Peoples.3
The overarching aim of mining is to generate economic benefits. Sustainability
requires that economic benefits are substantial enough to outweigh social, cultural,
financial, and environmental costs and are productively invested to support livelihoods after the mine is closed.
Mines generate a wide range of social, health, and cultural impacts. We argue that
three metrics should be considered in estimating economic benefits:
1) The share of total mine revenues and earnings captured by host governments
and local communities as royalties and taxes, as well as voluntary social investment by the mining company;
2) The total cash injections into local communities during the operating life of the
mine, including via direct and indirect wages and local procurement;
3) Investment in future productive capacities, including spillovers to other
industries and public (and private) investment in physical or social
infrastructure.
The natural capital constraint requires that the resilience of life-support systems be
maintained over the operating and postclosure phases of a mine. In the mining context,
the most vulnerable life-support system is surface and ground water (and air, if blasting is involved). Given uncertainty and lack of scientific knowledge, the appropriate
measure is risk, which is a function of the quality of care reflected in management and
oversight, and the adoption of a precautionary approach. We assess risk as a function
of the robustness of company and government environmental management and oversight, especially of the water resources surrounding a mine. Robust management is
evidenced by the adoption of best practice environmental and health standards in the
design, construction, operation, and closure of the mine, as well as in transparency,
stakeholder engagement, and third-party monitoring.
In the “net benefits” framework, four outcomes are possible from a mining project:
net human welfare gains could be high or low, each coupled with high or low risk of
damage to essential natural life-support systems (see Figure 1). For mining to generate
net benefits and thus to promote sustainable development, net human welfare gains
must be high while risk is low.
The Marlin Mine
The Marlin mine is located in the western indigenous highlands of Guatemala and
straddles two Mayan municipalities: San Miguel Ixtahuacan (SMI), (37,000 inhabitants), and Sipacapa, (14,000 inhabitants, 2003 census).4 The people in the small agricultural communities bordering the mine live literally on or near its edge—a primary
school overlooks the mine’s tailings pond.
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Zarsky and Stanley
Welfare gains
^
High
High
Low
High
*Net benefits
Low
Low
Low
High
Environmental risk >
Figure 1. Net benefits framework.
Marlin is Guatemala’s first major mining investment in 20 years and has been in
operation since 2005.5 The primary ore is gold, with silver produced as a by-product.
The mine spans 5 sq km and includes two open pits, one underground tunnel mine, an
ore processing facility using cyanide VAT-leaching techniques, a smelter, a tailings
storage dam and pond, and a waste rock facility.
Guatemala’s economy, workforce, and exports have traditionally been centered on
agriculture and more recently, services. Mining contributes less than 1% to GDP and
only about 4% of exports (CIEN, 2009). Agriculture contributes only about 14% of
GDP but absorbs about half the labor force and accounts for three quarters of export
earnings. However, the returns to agriculture dropped precipitously in the last decade,
with value-added as a percentage of GDP falling from around 23% in 1998 to 12% in
2009 (Trading Economics).
Mining is attractive as an alternative to agriculture for several reasons. Over half of
Guatemala’s population lives in poverty and wages in mining are about three times
higher than in agriculture. Most importantly, it provides a source of direct fiscal revenue to the state. At 13% of GDP, Guatemala’s tax revenues are among the lowest in the
world and fall significantly below the Latin American average of 17.4% (Organisation
for Economic Co-operation and Development [OECD], 2009).6
Local Response to the Marlin Mine
The first condition for a net benefits assessment is credible evidence of local acceptance and support for the project. In the Marlin case, there is ample evidence of widespread local opposition to the mine.
The people in SMI and Sipicapa are poor: 97.5% live in poverty and 80% in absolute poverty (Van de Sandt, 2009). The major industry is subsistence farming, but
peasants supplement earnings by seasonal labor in coastal sugar cane and coffee plantations. However, the major source of income is remittances from family members
who have migrated to the United States (Van de Sandt, 2009).
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Journal of Environment & Development 22(2)
As a condition of its loan, the IFC required Glamis and its wholly owned affiliate
Montana Exploradora to hold consultations with local communities in SMI and
Sipacapa. Some 3,000 people participated in a series of informational workshops,
which the company interpreted as signaling a high level of popular endorsement.
Many residents, however, had deep objections to the mine and perceived the workshops as informational rather than consultative. Tensions erupted in January 2005
when a group of mine protestors confronted trucks carrying equipment to the mine
(Stevenson, 2005).
In March 2005, communities in Sipacapa filed a complaint with the IFC’s
Compliance Advisor Ombudsman (CAO) raising concerns that the Marlin mine would
reduce access to and contaminate local water supplies. The complaint also alleged that
the project was being developed without adequate consultation and that it exacerbated
social tensions (CAO, 2005).
In June, 2005, Sipacapa held a consulta—a traditional plebescite—on the Marlin
mine. In the presence of 75 national and international observers, 11 communities
rejected mining, almost unanimously, while one supported it and one abstained. In
total, 98.5% of some 2,400 people participating in the referendum voted no to mining
activities in their territory (BIC, 2005).
The roots of local resistance are complex. The region experienced the most intense
fighting during the civil war of the 1990s and indigenous peoples continue to be generally excluded not only from development planning but from government services.
Like in other mining conflicts in Latin America, the Marlin megaproject is considered
to undermine indigenous concepts of development—which, in the Mayan highlands,
are based largely on agriculture—and to threaten indigenous territory and identity
(Stetson, 2012). The greatest long-term risk, however, is the potential loss of access to
water—the Marlin mine consumes about 2.2 billion L annually—and contamination
of water needed for irrigation and animal husbandry (Goodland, 2012). Without water,
Mayan communities cannot live in the highlands and retain their Mayan identity.
A Guatemalan court judged the Sipacapa referendum to be legal but not binding.
Guatemala is a signatory to ILO 169 which binds governments to seek “free, prior, and
informed consent” of indigenous peoples ahead of any development projects which
affect them. However, Guatemala has not enacted domestic laws or adjudicative processes to implement the obligation.
The consulta fuelled local opposition and ignited international attention.7 The
Catholic Church in nearby San Marcos launched an information campaign and began
monitoring waters near the mine. Indigenous groups allied with NGOs in Guatemala
City, Canada, and the United States and reached out to international organizations.
Pressed by shareholders, Goldcorp commissioned an independent HRA which identified seven areas of concern: social conflict, consultation, environment, land acquisition, economic and social investment, security, and access to remedy (On Common
Ground, 2010).8
In its assessment of the Sipacapa complaint, the CAO found significant gaps in the
IFC’s own Environmental and Social Impact Assessment (ESIA) of the Marlin project.
The most telling was the failure of the IFC to undertake “a thorough consideration of
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the governance and country context and the balance of risks and benefits accruing as
a result of this investment” (On Common Ground, 2010, p. 39, emphasis added).
Economic Benefits of the Marlin Mine
The capture of economic benefits is the overarching rationale for a mining project.
This section first examines the total flow of mine revenues and earnings, that is, mine
productivity and then assesses: (a) the share of total mine revenues and earnings
flowing to Guatemala and to local communities as direct benefits—royalties and
taxes, as well as company social investment; (b) the total cash injections from the
mine as wages, local procurement, indirect jobs, and induced income; and (c) investment in sustainable, postmine productive capacities including spillovers to other
industries.
Mine Revenues and Earnings
Gold mining became a highly lucrative business in the last half decade. Between 2006
and 2011, the market price of gold rose by more than 150%, hitting a high of about
US$1900 in November, 2011 (GoldPrice). Silver prices have also risen from US$10
per ounce in mid-2006 to a high of over US$48 per ounce in early 2011. The high price
has produced a bonanza for gold companies, including Goldcorp, and their shareholders. Between 2000 and 2010, the value of Goldcorp stock increased by over 1,400%,
more than doubling the performance of other senior gold producers and tripling…
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