PC News - August 2014

The Productivity Commission was asked to undertake a public inquiry into non-financial barriers to mineral and energy resource exploration in Australia. The inquiry examined the exploration approval systems and processes within and across jurisdictions, their effectiveness and efficiency, and the costs associated with the regulation of exploration activities. It also assessed the impact of non-financial barriers on the international competitiveness and economic performance of the sector. The Commission's final report, released in March 2014, recommended a range of reforms to improve the regulatory environment for exploration activities.

Mineral and energy resource exploration represents a small share of the economy, but it is an essential prerequisite for mining and energy resource extraction. Exploration expenditure was just under $8 billion in 2012-13, equivalent to about 0.5 per cent of GDP, whereas resource extraction accounted for 9 per cent of GDP. Resource exploration is not a large employer, accounting for only 0.2 per cent of Australian employment, but it can have a substantial impact on employment at a local level, and is an important source of economic activity for some regional and remote economies.

Why should governments regulate exploration?

The Commission identified three key reasons why governments regulate the mineral and energy resource exploration industry in Australia:

• the mineral and energy resources are owned by the Crown
• exploration could directly impact on existing and future agricultural and other land uses or damage sites of environmental and heritage significance
• exploration may have effects beyond the area being explored.

The policy context

Governments have a number of mechanisms by which they seek to influence the level and nature of exploration. The levers include:

• Availability of, and access to, land. Governments, in controlling large tracts of Crown land and in regulating the use of private land, can influence what land is available for exploration activity and what access conditions apply where exploration is allowed. There are also legislative requirements set by governments relating to access to land where native title exists.
• Regulation of exploration. This involves providing licences to undertake exploration and establishing the terms and conditions of these licences as well as regulation of environmental impacts and heritage protection.
• Geoscience. Government provision of pre-competitive geological information such as geoscience maps, databases and information systems can facilitate exploration by identifying potentially prospective locations.
• Skilled labour. Governments can influence the availability of skilled labour through the tertiary education system and migration programs.
• The taxation treatment of exploration activities. Taxation concessions and other incentives relating to exploration activities can reduce the cost and raise expected returns. Taxation of extraction may also impact on the level of exploration.
• Subsidies to exploration activities. Governments can provide direct subsidies to exploration activities, for example, through government funded drilling programs and co-drilling programs in partnership with exploration companies.
• Support for innovation. Governments can provide support for innovation in exploration activities, such as through the funding of Cooperative Research Centres associated with developing exploration technologies.

Industry concerns with the regulatory landscape

In undertaking the inquiry, the Commission found that many stakeholders were dissatisfied with the current regulatory arrangements. Some explorers claim that governments are discouraging exploration by increasing compliance costs, take too long to grant approvals and increasing regulatory uncertainty. Some community groups claim that regulations are insufficient to protect heritage, environmental and community values and agricultural uses of the land, and that regulators are not being sufficiently diligent in protecting those values and land uses.

Improving the regulatory framework

The Commission report argues that regulatory processes that impose unnecessary burdens on resource explorers or inhibit exploration can be reformed by:

• ensuring stronger and simpler coordination, and more timely, transparent and accountable approvals processes for exploration licences
• making land access decisions that take into account the benefits of exploration to the wider community, and that are appropriate to the level of risk posed by exploration as informed by sound evidence
• improving access for approved parties to the existing knowledge of Indigenous heritage and accrediting state and territory government processes which meet Australian Government standards of Indigenous heritage protection
• addressing state, territory and Commonwealth environmental approvals processes that are duplicative and are not commensurate with the risk and significance of the environmental impacts of exploration.

The performance of the exploration industry is declining

• The number, size and quality of resource discoveries in Australia is declining over the longer term, and the exploration sector is experiencing rising costs and lower productivity

  The number of giant and major discoveries is falling as exploration expenditure has risen^a

  

  ^aMineral discoveries and exploration expenditures (excluding iron ore, coal and petroleum).

• Drilling costs are rising
  Cost per metre drilled, 2012 prices

  

• Australia's share of global non-bulk mineral exploration is falling
  (Excludes iron ore and uranium)

  

Mineral and Energy Resource Exploration

• Read the Inquiry Report released March 2014