dollar of taxation for oil and gas development-stage projects (Davis and Smith, 2020). This does not consider any beneficial effects of taxation on reduced investment and the consequent environmental benefits, known as internalizing environmental externalities, and so the true inefficiency is likely to be lower. Individual income taxation is thought to cost between 11 cents and 15 cents in deadweight loss per dollar raised. The implication is that it is not unreasonable from a policy perspective to want to fund governments’ increasing fiscal needs through increased mining project taxation rather than increased taxation on individuals. There are less distortionary and more distortionary mechanisms for mining project taxation – the former including special profits tax surcharges and the latter including gross production royalties. One would advise that the less distortionary mechanisms for raising taxes are preferable. Nevertheless, existing mine project taxation mechanisms do not appear to be highly inefficient.

- G. Tax Competition Requires Governments to Compete on Mine Tax Policy

When distortionary taxes like corporate income taxes are increased, investment generally decreases, although in mining the effect is not substantial (see Myth F). Tax competition theory holds that the investment decrease is not only because of project-level benefit-cost analysis on the investor’s part but also because investment by internationally mobile firms flees to lower tax jurisdictions. This combined effect causes investment to be quite sensitive to increased taxes. The main implication of tax competition is that if one country lowers its taxes others must follow in order not to lose investment at the current tax rate. In other words, countries are held hostage by other countries’ tax policies and do not have the autonomy to set their own taxation levels.

The disparity of mine taxation levels and mechanisms in regions like Latin America bely any notion that countries are attempting to compete on taxes. Moreover, empirical work that tests across mobile and immobile capital finds that tax differences between countries do not materially affect agriculture and mining investment flows, although they do affect manufacturing and service sector investment flows (Castillo, 2021, Genschel and Schwartz, 2011, Stöwhase, 2005). The thought is that mining firms become specialized regarding the exploration for and development of mineral reserves in a given country or even region, undermining any idea of fleeing to a lower tax jurisdiction.

The policy implication is that governments can set mining sector taxation policy autonomously, without worrying that they are in a competitive game with other resource-based countries. Higher taxes will still dissuade mining investment, but only due to diminished benefits from investment at the project level and not because there is substitutability between the domestic investment opportunities and offshore investment opportunities.

# H. Decarbonization of the Earth’s Energy Sources Will Lead to Soaring Mining Rents

In 2021, the IEA published its Net Zero by 2050 pathway to reach net zero carbon emissions by 2050.<sup>16</sup> Starting from 2010 levels, that pathway sees several-fold increases in demand by 2030 for critical energytransition metals like lithium, graphite, cobalt, and vanadium, and a doubling of demand for copper, silica, chromium, molybdenum, lead, silver, zinc, and manganese (e.g., see Figure 5). To stimulate supply to meet this demand, prices will have to rise substantially, with the IMF modeling a doubling of the price of nickel, a tripling of the price of lithium, a 60% rise in the price of copper, and a quintupling of the price of cobalt

> 16 International Energy Agency, _Net Zero by 2050: A Roadmap for the Global Energy Sector_ (Revised version, October 2021, 4<sup>th</sup> revision).

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