Salt Taxes and the Management of Minewater Discharges from Coal Mines in the Upper Hunter Valley of New South Wales: A simulation study

Abstract

In the Upper Hunter Valley of New South Wales, river salinity levels are causing widespread concern among irrigators, municipalities and other water users. Many factors influence the level of salt in the river, but saline discharges from coal mines represent a significant factor. The purpose of this study is to explore the possible effects of various tax policies on a range of variables associated with salt discharge from mines in the Hunter River system. A simulation model is developed to explore the effects of different tax policies in a dynamic and stochastic river system, which attempt to achieve a predetermined level of salinity (environmental standard) at minimum cost. The merits of a variable tax over a flat tax are investigated. The different tax policies allow a thorough examination of ways that tax costs can be reduced in order to achieve an environmental standard cost efficiently. It is shown that the tax rate must vary widely to accommodate the dynamic and stochastic nature of the river system. On-site minewater storage reservoirs increase the complexity of achieving an environmental Standard using a tax setting. It is concluded that load based salt taxes are not suitable for the Hunter River system, but that some aspects of free discharge which were included in the various tax policies could be used in alternative policy tools such as a system of transferable discharge permits.