Saturday, April 6, 2013

The Political Economy of Asteroid Mining

Photo Credit: NASADenise Watt
Some asteroids floating around in space are estimated to contain massive quantities of valuable metals and water ice (the latter useful as an input to other space ventures). Two private companies, Planetary Resources and Deep Space Industries, have raised money and publicly announced plans to begin exploring the process of extracting resources from asteroids and returning them to Earth. Skeptics have raised concerns that such a business might be self-defeating given the dynamics of the global commodity market. If the quantities of resources brought back are as large as some experts suggest, it might create gluts in the markets where supply massively outstrips demand. If the prices crash too much, mining companies won't be able to recoup their expenses and will go bankrupt.

This scenario sounds very feasible, and it's hard to understand why these companies were formed in the first place, or how they secured so much capital from seemingly profit-oriented investors. One possibility is that the relevant parties are simply altruists with a penchant for futurism: they want to push forward the technological boundaries of humanity by employing the institutions of financial capitalism. Even if an asteroid mining enterprise destroys itself by lowering prices below cost, this might be viewed as a "successful" Pyrrhic victory: previously scarce resources would now be abundant, a global welfare benefit that greatly outweighs the investment losses of a few venture capitalists.

Another possibility is that successful asteroid miners plan on using their huge stock of resources to engage in a monopoly pricing strategy. By temporarily flooding the commodity markets and lowering prices just enough to put their Earth-bound competitors out of business, they could corner the market. Investors would likely accept a period of losses in the expectation that prices would later rise to capture windfall profits. Government regulators surely won't be blind to such a strategy, and would be legally justified in intervening. But it's possible that some future shift in the intellectual climate would see regulators unwilling to erect such a disincentive towards private space innovation and simply let it slide. Theoretically anti-trust rules exist to help out consumers, but in reality regulators respond to a host of weird incentives and anything can happen.

Lastly, and perhaps most plausibly, current asteroid mining enterprises see a coming irreversible commodity price rise based on hard geologic limits and seek a first-mover advantage in skilled-labor and know-how. Behind-the-scenes lobbying has surely influenced NASA's recent interest in asteroid exploration, and private mining groups are well-positioned to free-ride off this publicly-subsidized research and talent creation. Although the wisdom of being the first to acquire patents and experience for a likely inevitable growth industry seems undeniable, I see three commonly overlooked hurdles: recycling, efficiency and substitution. While it's probably true that in the next 100 years some virgin mineral extraction will become uneconomical, asteroids aren't necessarily the obvious next step. Price increases caused by scarcity will make recycling previously-mined resources economically feasible, as well as increasing the value of finding ways to use existing resources more efficiently. In the extreme case, eliminating entirely the need for super-scarce resources by substituting new technologies and materials will become a high-return innovation sector. The possibility of a profitable asteroid mining operation should be balanced against these more mundane considerations.

No comments :

Post a Comment