# **5.1. The EU-Sponsored BCA**<sup>**17**</sup>

The EU BCA is conducted from the stakeholder perspective of the Pacific Island Countries, who would be sponsoring DSM in their national waters. The study uses the “predict-then-act” decision structure, framing the choice as whether to undertake seabed mining in the present, based on predictions of future conditions. In making this judgement, the BCA relies on information from hypothetical mining prototypes assembled from technology concepts provided by mining companies (e.g., Nautilus) and consultant reports (e.g., SRK Consulting, 2010). Prototypes are described for mining seafloor-metal sulfides (SMS); manganese nodules, and cobalt-rich crusts.

The EU BCA assumes that countries will contract with a private mining company to conduct the seabed mining, and use a combination of taxes, fees, and royalties to recover a share of the gross profits from the mining activity. If the country takes an equity stake in the mining operation, it will also receive a profit share from its ownership position.

The first step of the EU BCA is to assess the commercial viability of the mining prototypes from the private mining company perspective. The net present value of the gross private profits from the mining operation are computed, less some external costs that the mining firm is assumed to be required to internalize in the lease agreement. The revenue side is estimated from assumed output rates, the expected composition of the output (in terms of mixes and concentrations of recovered minerals excavated at each location) and the expected prices of the minerals. The cost side is derived from estimates of the costs of exploration activities (which are assumed to occur for several years before the mine site becomes operational), fixed investment, and operations. The external costs that the mining firm is expect to internalize include the purchase of offsets for the CO2 releases associated with fuel consumption; the costs of technology to reduce sedimentation and the risk of nutrient-rich water returns in the water column close to the surface; and insurance for any financial liability that might arise from potential fuel spills or accidents. It is also assumed that the lease agreement will require the mining firm to internalize the administrative costs that the host government incurs to develop and issue seabed mining regulations, as well as to monitor and enforce these regulations.

Using this revenue-cost structure, the net present value of profits is computed for each seabed site. If the profits are found to be positive, the analysis proceeds to a next step, which assesses environmental impacts and cultural effects within a larger “social benefit-cost analysis” (Wakefield and Meyers, 2018). An attempt is made to monetize the environmental costs, while the social costs are treated qualitatively. It is assumed that the burden of these costs will fall exclusively on the host country. Thus, from the host country perspective, the benefit-cost analysis becomes a comparison of the profit share received from the mining activity to the cost of local environmental and social impacts. The social impacts are differentiated by the local stakeholder groups potentially affected by seabed mining, including traditional peoples with seabed ownership claims, subsistence fishers potentially impacted by environmental effects, workers potentially affected by employment shifts, and the general population potentially influenced by changes in societal norms.

> 17  Information in this section is drawn from Wakefield and Myers (2018) and Cardno (2016).

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