receipts between US$250 million and US$850 million. This is what the host government has to give away to participate more fully in windfall outcomes.

This numerical example shows that resource rent at the inception of what may be a substantial copper mining project is likely to be small, regardless of political risk. This is due to the high risk of project failure, which at the first exploration stage was 90%. If resource rent is not taxed away in a lump sum at project initiation, resource rent taxation later in the project’s life must necessarily be low enough so that its expected present value is the same small value as what a lump-sum tax would be. The low level of resource rent is in large part due to the risk associated with mining projects. In another industry, such as manufacturing, with no project failure risks but with the same long lead time between investment and cash flow, and with identical capital costs but half the net cash flow due to an absence of scarcity rents, the calculated resource rent for the project at inception rises from US$6.3 million to US$95.4 million. The absence of project failure risk means that cash flows during operations could be taxed at an effective rate of 32%, rather than 23%, without affecting investment. The corresponding profits tax difference is 41% versus 26%.

The goal of mining taxation should be to tax only resource rent because this does not distort investment decisions. Nevertheless, given the difficulty of measuring resource rent on either an ex-ante or ex-post basis, we recommend using progressive profits taxes and royalties that are admittedly distortionary but lend themselves to tax regime stability, another important element for investors. There is much to recommend that mine profit tax rates should be lower, not higher, than in other sectors of the economy because mining rents at successful projects are likely lower as a result of technical project risks that other sectors do not face. If they are to be taxed, rents should be targeted using a customized approach appropriate for each industry,<sup>40</sup> and technical project risks are relatively high in the mining sector. The most neutral profits taxes are those with generous allowances for depreciation, and these have been recommended as the best means of taxing mining rents at the appropriate, modest rate (Davis and Smith, 2020).

As it is, it is likely that a substantial number of marginal mining projects are being killed by tax rates being higher in the mining sector due to tax supplements to standard income taxes like royalties and profits surtaxes and the regressive nature of these taxes.<sup>41</sup> Because these are marginal projects, the loss of tax revenues will not be large. More important is the lost employment and local development via backward multiplier effects, the output effects referred to in the title of this work. In the case of green minerals, the objective of maximizing output is key for the energy transition and corresponds to maximizing the tax base for host countries. Otherwise, projects that proceed under high tax rates do so only on the hope of finding an ultimate Mineral Reserve that can survive high tax rates, leaving substantial deposits unexploited.

To avoid this outcome, Chile has adopted the strategy of imposing the lowest mining sector base tax level in Latin America at 35% of profits, with generous tax shielding allowances (Davis and Smith, 2020, and

> 40 Nellor (1983) makes several arguments as to why we should reconsider taxing mining at a higher rate than other sectors and predicted the fiasco that followed Australia’s imposition of a special resource rent tax on the mining sector.

> 41 ICMM shows that royalties, despite their deductibility for profits taxes, add about 6 percentage points to the effective profits tax rate.

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