Sustainability of the extraction of coal in Colombia

In the last five decades, most of Colombia’s exports have been commodity-based. Along this time, coffee ceased its role in the Colombian balance of trade as the largest product commodity; in first decades of the 21st... [ view full abstract ]

In the last five decades, most of Colombia’s exports have been commodity-based. Along this time, coffee ceased its role in the Colombian balance of trade as the largest product commodity; in first decades of the 21st century, non-renewable resources, coal and oil, are among the main goods that Colombia exports to the rest of the world. No matter the price, Colombian government has boosted the extractions of oil and coal. Moreover, recent evidence shows that those departments of Colombia with high economic dependence of minerals and oil, which are also the departments with the lowest levels of per capita GDP, have a higher rate of economic growth. This evidence shows that a high concentration in the mineral and oil sector has had a positive effect on the rate of growth per capita GDP of those departments. Nonetheless, it is still unknown whether this condition and this rate of extraction is sustainable for this country. Using available data for the 2004-2011 period, this paper shows an application of K.G. Maller’s Value of Natural Capital method in discrete-time. Maller’s method is used to answer the question of whether coal extraction has been sustainable for Colombia. Consumer surplus and producer surplus are computed with the estimation of a demand function for coal in Colombia, and using the financial statements of coal companies in Colombia respectively. The sum of these surpluses is used as a measure of social welfare, which together with the environmental discount rate for Colombia determines the shadow prices under two models of resource allocation (autonomous and non-autonomous). The analysis of results suggests that the extraction of coal in Colombia for this period has shown an unsustainable path.

Keywords: Intergenerational well-being; coal;  value of natural capital; shadow price, sustainability.