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PUBLIC POLICY INTELLIGENCE REPORT 01.03.2007 Oceans Policy: Key Issues in 2007 By Bart Mongoven The price of precious metals increased dramatically in 2006. Gold prices shot up by nearly 25 percent; copper by 35 percent and lead by almost 60 percent, while zinc and nickel prices more than doubled for the year. While this was, on the surface, good news for the finance departments of global mining companies, it also drew the attention of many toward a troublesome question of exploration and public policy. In periods of rising commodity prices, industry tends to seek out cheaper substitute materials where possible -- and to search out new sources of expensive commodities for which substitutes cannot be found. Today, for mining companies seeking to expand capacity, the ocean floor is emerging as a focus of attention. Particularly in the eastern Indian and western Pacific oceans, the ocean floor contains a number of boulders rich in minerals like gold, nickel and copper -- a tempting prospect for those who think they can develop the technology to bring those rocks to the surface. The fact of the matter is that routine, cost-effective and profitable mining of the ocean floor remains years away, though corporations have made rapid progress toward this goal during the past decade. By 2009, some mining companies expect to be operating on the floor in both the Pacific and Indian oceans.. However, venturing into this sphere will mean launching operations in the murky waters of unproven public policies. For instance, there currently is a global system for awarding exploration blocks to companies, but few rules exist to govern how the mining is done. The mining industry's growing incentive to expand operations to the ocean floor is one of only several factors that we expect will imprint the international debates over oceans policy more deeply on the public's consciousness during the coming year. The media and policymakers in the West have been devoting more attention in the past two years to a number of other oceans-related issues, and this attention will increase markedly in 2007. For example, international negotiators are working on treaties devoted to protecting fish stocks, curtailing certain types of fishing practices, reducing mercury pollution in the oceans and pollution from land-based sources, and even controlling piracy and the misuse of flags-of-convenience on the high seas. This increased attention to the oceans' problems comes at the same time that interest in the oceans' possibilities is gaining traction among mining companies. This confluence is leading governments and industry to revisit current laws relating to the exploitation of resources in the oceans. The Business of Maritime Mining If conceptualized as an industry that, essentially, picks valuable things up from the bottom of a very large and deep swimming pool, ocean mining would seem an obvious response to rising minerals prices. After all, oceans cover more than 70 percent of the earth's surface, and most of their precious resources -- apart from oil and natural gas -- remain virtually untapped by industry. Naturally, this would be an oversimplification. First of all, finding valuable things on the massive ocean floor is not a particularly easy undertaking. Moreover, once a resource has been found, there is a major technological challenge in extracting it.. The pressure at the bottom of the ocean is extraordinary: more than 3,000 pounds per square foot, more than enough to crush a car into a suitcase-sized blob. That said, finding minerals and building machines that can withstand that kind of pressure is possible. It is simply very expensive -- so much so, in fact, that mining companies currently view the prospect of sea-floor operations as uneconomical. The cost-to-benefit gap is closing, however, particularly on the technology side. The upward pressure on metals prices is an incentive, certainly, but the real breakthroughs that will make sea-floor mining economically feasible will come from advances in materials and technology. If technology continues to improve, even at a modest pace, the efficiencies in 20 years will be such that metals prices would not have to rise much further from their current level before ocean mining would be profitable. The Regulatory Regime There are still other hurdles, of course, for the mining industry -- and regulatory issues loom large. The current regulatory regime governing ocean mining was put in place through the U.N. Convention on the Law of the Sea (UNCLOS in U.N.-speak, or "Law of the Sea Treaty" in layman's parlance). Under the Law of the Sea Treaty, all minerals found more than 200 miles from a country's coast (the exclusive economic zone) belong to "the commons," and their exploitation is regulated by the International Seabed Authority (ISA) in Kingston, Jamaica. ISA is a U.N.-affiliated secretariat with 40 staff members, led by a board of directors made up of representatives of member countries. ISA awards companies and sponsor governments exclusive rights to blocks of resources on the ocean floor. Recently, for instance, it awarded the Indian government a 579,000 square-mile block in the Indian Ocean. Recipients of a block pay ISA a royalty, which is distributed among various organizations and governments. Some of the money goes to promote the ISA's mission, some is added to the U.N. budget, and some is earmarked to be shared with poorer countries. Despite bipartisan support in the U..S. Congress for the Law of the Sea Treaty, the ISA has been at the center of controversy over U.S. ratification of the treaty. The Bush administration, Democrats in Congress and the oil and mining industries support passage of the treaty, but conservatives in the Senate long have held up ratification. They argue, among other things, that the treaty would whittle away at the territorial integrity of the United States and that the royalties paid to ISA are in fact a tax paid by industrialized countries (which have the technology to exploit seabed resources) and then essentially redistributed to poorer countries. The ISA has no real capability to monitor violations of the treaty and no effective enforcement arm. As with almost all international laws, it would be incumbent upon signatories to police the treaty. And ISA's inability to enforce the treaty will remain a critical issue so long as the United States -- with its unassailable naval power -- remains outside its bounds. If frictions with other states should come to skirmishes or threats of war, the United States would dominate. But with the United States bound by the treaty, policing the agreement would become a somewhat more realistic option, as the United States would have a vested interest in making sure that exploration blocks are granted fairly and agreements enforced. Other Oceanic Issues While the ISA awaits the day it will emerge as an important international body, oceans policy -- in broadly defined terms -- is gaining greater attention in a number of international forums. The most pressing issue relates to fish stocks. Studies show that stocks are dwindling rapidly, as market demand encourages the development of new technology for finding and harvesting large schools of commercially important fish. Other debates involving oceans include drives to identify areas of biological significance that should be protected from commercial activity and calls for treaties reducing both mercury pollution of the oceans and, more broadly, all land-based sources of marine pollution. Finally, the "fate of the oceans" is one of the dozens of arguments activists are using to encourage swift action to avoid or minimize climate change. The laws regulating fishing practices, however, likely will prove the most potent factor in raising public awareness about the health of the world's oceans and related issues. In December 2006, the United Nations approved a new international fisheries policy that failed to address most of the most pressing issues facing the international community. The most significant issue in this "unaddressed" category was a proposal to ban bottom-trawling fishing -- a practice in which nets scrape the bottom of the ocean, taking in bottom-dwelling fish (along with whatever else is around). This practice is seen by most experts -- and most governments -- as needlessly destructive to ocean ecology. Famed American marine biologist Sylvia Earle compares the practice to using fast-moving bulldozers to hunt squirrels in a forest. While this is hyperbole, the practice is almost universally condemned -- including by the United States, Norway, Japan and other major fishing countries that traditionally have been skeptical of international fishing regulations. But Iceland, another fishing power, refused to agree to a ban on bottom-trawling at the U.N. session last month and effectively scuppered the campaign. As a compromise, states have until December 2008 to prove that bottom-trawling destroys vulnerable marine ecosystems. We expect claims that the practice is destroying certain unique ecosystems will be published (and publicized) within the coming year, however. To win a ban on bottom trawling, conservation organizations and the governments of major countries have two years to convince a U.N. panel that bottom-trawling can harm vulnerable marine populations. These groups likely will move quickly, issuing a barrage of scientific reports, news stories and documentary films, and using myriad other publicity tactics. Meanwhile, we also expect to see a determined effort, emerging from the European Union and advocated by nongovernmental organizations (NGOs) in Europe and the United States, to place mercury pollution of the oceans more squarely in the public spotlight. Negotiators from more than 80 countries have been working for the past three years toward an international convention governing mercury releases into the ocean. Mercury has become a serious policy issue in itself -- with activist groups opposing the intentional isolation of mercury for industrial uses. It also is a vector for criticism of a number of industries -- coal-fired power plants in particular, but also chemicals and mining companies, oil refining and offshore oil exploration. A treaty addressing mercury pollution of the oceans simultaneously would reduce the intentional production of mercury and its release into oceans, and would help to build the case that industrial use of mercury generally should be phased out. In sum, the campaign against mercury pulls from the energies of many different environmental campaigns and focuses these energies on the health of the oceans. The Coming Year As the concept of ocean health draws more public attention, the idea of mining in the oceans will become more controversial. Activists easily can link the term "ocean mining" mentally to the issue of bottom-trawling -- and images of bulldozers in forests. While both of these characterizations are exaggerations, they can effectively tarnish the practice in the public's mind. Due to the increased attention that ocean policy issues will receive in 2007, governments in the West can be expected to begin preparing their rhetoric for the day in the future when ocean mining becomes more common -- seeking to assure voters that the international community is addressing the public concerns. Since it is unlikely that the ISA, as it currently exists, will be capable of addressing long-term issues concerning the health of the oceans, companies and governments interested in mining the ocean floor face three strategic possibilities: * Western governments will begin work toward a new regime with broad protections for ocean ecology -- addressing fisheries management, fishing practices, mining practices and oil operations. * ISA's supporters (NGOs in the West and the governments of small states that benefit from the structure set up under the Law of the Sea Treaty) will try to assert the agency's expertise and strengths, showing that it is capable of addressing the issues raised by ocean floor mining. * The mining industry itself will develop a code <http://www.stratfor.com/products/premium/read_article.php?id=276478> of conduct that satisfies Western conservationists and politicians. The most likely path forward is the first option. Since the early 1990s, when the Law of the Sea Treaty was last revised, the prevailing view of the oceans has shifted dramatically. Where once there was broad agreement that what primarily was needed were resource-sharing agreements, it now is more commonly accepted that good governance of the world's oceans requires protection and sound resource management. Governments, NGOs and some industries are moving, albeit in different ways, toward that same conclusion. The key question, from there, is economic: whether governments' new vision of their role in oceans management will come together with a new vision of the oceans within extractive industries -- mining as well as oil exploration companies that are moving further and further into deep water. Contact Us Analysis Comments - [EMAIL PROTECTED] <mailto:[EMAIL PROTECTED]> com Customer Service, Access, Account Issues - [EMAIL PROTECTED] <mailto:[EMAIL PROTECTED]> com Was this forwarded to you? 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