The impact of coal mining on the economy and environment of South Kalimantan province, Indonesia

This report analyses the impact of coal mining on the economy and environment of South Kalimantan Province, one of the most important coal producing regions in Indonesia. It uses a Social Accounting Matrix (SAM) to evaluate the impact of the coal mining industry on the economy and to simulate policy alternatives to assess their suitability for the economy and for environmental sustainability.

The report suggests that policy-makers need to consider measures to reduce the level of coal exploitation to save the environment and intoduce investment policies that support agricultural based activities that generate high employment.  An option is to impose taxes on coal mining to slow down mining activities and then use this tax revenue as transfer payments such as subsidies and direct transfers “in kind” such as, rice or farming equipment to support the needs of lower income households in the province.

Simulations of five alternative policies were performed to find the most favourable strategy for coal mining management in terms of economic improvement and environmental sustainability. The policies included:

• stricter regulation of small-scale miners
• enforcing more stringent codes of mining management practices on all miners in the region
• redistributing royalties and other revenues to lower income families in the region
• implementing land rehabilitation programs
• introducing mine rehabilitation bonds

Of the five hypothetical policies simulated, two stand out:

• redistributing royalties and other revenues to lower income families in the region is the most favourable strategy economically, but results in increased environmental destruction
• regulation of small-scale miners produces the largest favourable environmental impacts for all indicators but has some negative economic effects

The report concludes that there is therefore no “win-win” solution but rather a trade-off between an economy-friendly policy and an environmentally-friendly one. Of the policies assessed, regulation of small-scale mining seems preferable as it produces the best environmental performance of the five options investigated. It does have economic costs but these would be borne by those most able to afford them.