Serving Northern St. Louis County, Minnesota

Study: Copper mining would have economic costs

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REGIONAL— A newly-released study by two PhD economists has put economic data and analysis behind the arguments of sulfide mining opponents in the region, namely that boosters of copper-nickel mining have failed to adequately consider the economic costs associated with a major industrial expansion in the heart of the Superior National Forest.

The study, by Key-Log Economics LLC, challenges the claim by mining supporters that copper-nickel mining in the Boundary Waters watershed can co-exist with what it refers to as the Arrowhead’s “amenity-based” economic model, which is focused on outdoor recreation, a pristine natural environment, and high quality of life.

The study highlights the degree to which the economy of the region, which it describes as St. Louis, Lake and Cook counties, has transitioned away from one heavily dependent on mining to one that is much more diversified and more typical of the rest of Minnesota than in the past.

It predicts the loss of thousands of jobs and hundreds of millions of dollars of annual income to the region if copper-nickel mining were to become established along the edge of the Boundary Waters, as fewer people visit or move to the region, either permanently or seasonally. Those job losses would offset any job gains seen as a result of new mining activity, the study’s authors contend.

The study, commissioned by the Campaign to Save the Boundary Waters, has been in process for several months and was released as the U.S. Forest Service and the Bureau of Land Management are in the midst of the scoping for their own two-year assessment of the impacts of a proposed 20-year withdrawal of 234,000 acres of the Superior National Forest from the federal mineral leasing program. The study offers a number of recommendations to the two federal agencies, including commissioning a “statistically robust poll of business owners, residents, visitors, and others” to gain a better understanding of how the opening of copper-nickel mines near the Boundary Waters Canoe Area Wilderness could affect the allure of the region for visitors, seasonal residents, retirees, and entrepreneurs.

The study’s authors include Spencer Phillips, an applied research economist with a PhD from Virginia Tech, who served as staff economist at the White House Council on Environmental Quality during the first Bush administration, and later at the Wilderness Society. Carolyn Alkire is an environmental economist with 35 years of experience in research into the economics of land and resource management. She holds a PhD from George Washington University and previously worked as senior regional economist with San Diego’s metropolitan planning organization and was a resource economist with the Wilderness Society.

Major job impacts predicted

The study challenges a key argument made by mining boosters that the region can have both copper-nickel mining near the Boundary Waters and a healthy tourism-based economy. “Those making this claim point to the continued existence of the taconite mining industry during the now decades-long expansion of amenity-based development in the region as proof that northeastern Minnesota can, in essence, ‘have it all,’” state the authors. The economists agree that the arguments of mining boosters might be valid if the environmental risks associated with copper-nickel mining were equivalent to the risks associated with taconite, and if the proposed copper-nickel mines weren’t located within the watershed of the wilderness. Instead, argue the authors, the impact of such mining near the wilderness would create losses of existing jobs and slow the creation of new jobs in several sectors.

“Proponents of sulfide-ore copper mining would do well to recall the famous aphorism from Nobel Laureate Milton Friedman: “There is no such thing as a free lunch.” Decision makers, in other words, should not forget that there is an “opportunity cost” to the introduction of sulfide-ore copper mining into the watershed of the Boundary Waters. This cost includes lost visitor spending and the jobs and income associated with it, lost economic development throughout the economy as sulfide-ore copper mining makes the region less attractive as a place to live and do business, and lost property value as residents flood the market with first and second homes located in places where it is no longer desirable to visit or reside.”

While acknowledging that such predictions are inherently imprecise, since they are often dependent on perceptions, the authors point to a separate study from the University of Minnesota-Morris, that suggests mining in the Ely area could lead many residents of surrounding townships to leave the area. That 2014 study surveyed residents in Morse, Fall Lake, Eagles Nest, and Stony River and found that solitude and the quality of the natural environment were the primary reasons that the vast majority of residents chose to live in the area. When asked what factor would make them leave the area, mining led the list, with 23 percent indicating it was a factor that would cause them to leave. While the study noted that a handful of those respondents indicated their answer reflected a desire for more mining, it stated that those views were in the overwhelming minority.

Such data, combined with surveys of a number of area businesses, and dozens of other studies from around the country led the authors to conclude the economic downsides of copper-nickel mining near the Boundary Waters could be very significant, potentially as high as 22,000 jobs region-wide, reflecting an annual income loss of $1.6 billion. Even if mining didn’t lead to significant loss of existing employment, the authors put the loss of potential new job growth (i.e., the opportunity cost) at over 5,000, with an estimated loss of $402 million a year in annual income to the region.

Those findings differ significantly with a narrower study commissioned by the Friends of the Boundary Waters earlier this year, which indicated that wilderness visits, by themselves, generated about 635 jobs and $57 million in income annually to communities serving the wilderness. That study had looked primarily at direct impact within the recreation/tourism sector, whereas the latest study takes a much broader view of the impact of an amenity-based economic model across a wide array of economic sectors, said study co-author Spencer Phillips.

The earlier study, notes Phillips, had looked only at income generated from visitors living outside the area while specifically visiting the Boundary Waters wilderness. But, he said, the income generated from residents attracted to the area, both permanent and seasonal, has a more significant impact on economic activity in the region, and affects a wide range of economic sectors.

The study found that approximately 58 percent of the region’s personal income comes from labor income, while nearly 42 percent now comes from investments and transfer payments, a figure that has risen by a third since 2000. The study concludes that much of that growth in non-labor income reflects an in-migration of retirees attracted to the recreational and nature-based amenities of the region. Phillips contends that because those dollars are not tied to employment, they are more easily lost if residents decide the values that brought them to the area are diminished by activity like mining.

The study argues that traditional economic methods frequently underestimate the role that tourism, writ large, can have on a region’s economy, like the Arrowhead. “Amenity-based development is economic activity in a host of industries, including recreation/tourism, construction, personal and professional services, retail, and others that arrives or stays in a region for the sake of its scenic, recreational, environmental, and quality-of-life amenities,” the authors write. Among the trends that some economists overlook, notes the study, is the degree to which an increase in retirees and others with means moving into a region for quality of life contribute to the economy just as any other wage earner.

While the region’s population has grown only slightly over the last three decades, the report notes that more than 10,000 housing units have been added in the region between 2000 and 2015, with much of the new construction being fueled by individuals building seasonal homes. The study argues that the growth in seasonal residences has significantly boosted jobs and income in construction, real estate, home maintenance, utilities, restaurants, and even health care.

The latest study also highlights the degree to which the Arrowhead economy has changed since 1970, as mining has become significantly less important in terms of income and jobs while the service sector has expanded significantly. “The steady increase in the number of jobs in service-related industries, coupled with the relative stability of the Arrowhead economy since 1988 indicates the extent to which the regional economy has moved beyond mining-dependence and does not need to favor the production of material goods for export to survive,” state the authors.

From 1970 to 2015, note the authors, total employment in the Arrowhead grew from 95,516 to 134,402, a 41- percent overall increase that erased losses sustained due to the mining-led bust of the early 1980s. The health care sector has seen the largest increase in new employment. Since 2001, the health care sector alone has added nearly 10,000 new jobs in the Arrowhead.

One potential weakness of the study is that its economic trend conclusions rely heavily on the relatively robust state of the Duluth economy as both a visitor destination, a health care hub, and as the home of increasing numbers of small entrepreneurs and others seeking the high quality of life in the community. Whether that vitality would be affected significantly as a result of mining activity 70 miles away is uncertain, which Phillips concedes.

He said most economic data is developed at the county-scale level, so separating out Duluth would have required many additional assumptions in the study. And Phillips said that many Duluth area residents do take advantage of their relatively easy access to recreational opportunities on the Superior National Forest and in the Boundary Waters, and that impacts to those areas is likely to slow in-migration regionwide.

Phillips acknowledges the uncertainty in some of the study’s conclusions. “This is not the definitive study on the subject,” he said. “But what we did want to do is put out the idea that there is more to the discussion than just the possibility of adding new jobs in mining,” he said. “These are researchable issues that the Forest Service should be exploring further,” he said.

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