An Review of the Costs and Benefits of Deepsea Mining and How a Pollution “Tax” Could Work

1. Introduction

This paper discusses the broad advantages and disadvantages of deep-sea mining. It begins with a review of the rise of the ocean economy and its driving forces based on the expanding demand for critical metals and their strategic and geopolitical importance to mineral importing countries. Why deep-sea mining is controversial is then discussed focusing on its’ possible negative externalities on deep-sea ecosystems Emphasized is that the royalty and profit rates could be controlled by ISA to reduce deep-sea pollution. If it turns out that that pollution levels are seriously high – which is at present unknown despite a substantial amount of research by ecologists – royalty and/or tax rates could be increased. This is a more practical alternative than banning deep-sea mining after companies have been granted mining licenses. The legal implications of the latter could be serious. Even so, deep-sea mining is likely to have beneficial economic effects for the low-income countries that will host deep-sea mining companies and share, along with other developing countries, in the royalties the companies will pay to the International Seabed Authority.

2. The Rise of the Ocean Economy

‘Clean energy’ use is becoming more important, and it is affecting global trade, manufacturing, and geopolitics – see Wehbi (2024) and Qusay et al., (2024). The demand for critical minerals is rising strongly for industrial uses (Calderon, 2024), for national security reasons, and technological direction as argued by Reich and Simon (2025) and Vivoda et al. (2025). Interest in deep-sea mining specifically has grown because many minerals - such as cobalt, nickel, copper, and manganese – that are essential for technologies in, for example, electric vehicle batteries, wind turbines, and solar panels (Bhatla and Kathpalia, 2023) can now be mined from the deep-sea bed. Because of these developments deep-sea mining is now an area of geopolitical and economic interest (Li Xuewei and Yu Zongyao, 2025).

Deep-sea mining focuses on three main types of underwater environments that contain high concentrations of valuable minerals. These are abyssal plains - the huge flat regions of the deep ocean floor located about 4,000 to 6,000 meters below the surface - that are covered with polymetallic nodules, the small, rock-like formations rich in manganese, nickel, copper, and cobalt. Seamounts, which are underwater mountains where cobalt-rich ferromanganese crusts have formed on exposed rock surfaces. And hydrothermal vents, areas where superheated water rises from cracks in the Earth’s crust. The escaping fluids deposit mineral-rich sulfides containing metals such as copper, gold, silver, and zinc.

Deep-sea mining relies on advanced engineering systems. The three main components are: the collector - a large machine that travels across the ocean floor collecting mineral deposits. Depending on the resource type, it may use suction systems to gather nodules or cutting tools to break apart crusts and sulfide deposits. Once collected, the material is moved through a pipe - called a riser - from the seafloor to a ship. Powerful pumps move the mixture of water, sediment, and minerals upward over several kilometers. Onboard the ship, the minerals are separated from seawater and sediment. Waste material, including fine sediment and water, is emptied back into the ocean, creating sediment plumes – that is, pollution, that may spread over large distances.

3. Expanding Demand for Critical Minerals

Demand for minerals such as lithium, cobalt, nickel, copper, and rare earth elements is being driven by, first, as Leal Filho et al. (2023) point out, the global energy transition has generated growing demand for battery materials and electrification infrastructure. Electric vehicles and large-scale energy storage systems require substantial quantities of lithium, nickel, and cobalt, while renewable energy systems such as wind turbines, solar installations, and transmission networks are highly dependent on copper and rare earth elements. And, secondly, defense industries rely heavily on these materials. Rare-earth elements are needed for military technologies, including missile guidance systems, jet engines, radar systems, and communications equipment (Butler, 2014). They are also essential for semiconductors and other components that underpin the rapid expansion of artificial intelligence and digital infrastructure (Roy, 2025).

According to projections by the International Energy Agency (2025), demand for minerals used in clean energy technologies may increase fourfold by 2040 to meet global net-zero objectives. Moreover, it noted that “The average market share of the top three refining nations of key energy minerals rose from around 82% in 2020 to 86% in 2024 as some 90% of supply growth came from the top single supplier alone: Indonesia for nickel and China for cobalt, graphite, and rare earths. Given the geopolitical competition between China and the USA it is understandable that supply sources will be diversified” (page 6).

4. The Strategic Appeal of Seabed Resources

Bostock (2024) points out that the limited number of rare earth mines outside of China face rising production costs and several are not profitable at market prices. As many terrestrial mining operations confront declining ore quality, rising production costs, environmental opposition (Ali, 2014) and social conflict (Martin and Iles, 2021), attention has increasingly turned toward the deep seabed the largest untapped mineral reserves.

Of particular interest are polymetallic nodules. Large concentrations of these nodules are found in the Pacific Ocean’s Clarion–Clipperton Zone (CCZ). These deposits contain commercially valuable quantities of nickel, cobalt, manganese, and copper, often at concentrations that compare favorably with many land-based deposits. The CCZ also has more deep-sea leaseblocks than any other parts of the oceans.

Nickel and cobalt are important inputs for advanced battery technologies, manganese is important in both steelmaking and battery production, and copper remains indispensable for global electrification and digital infrastructure. The multi-mineral composition of these nodules makes them especially attractive from an economic perspective. MORE ON THIS

Beyond their commercial value, seabed minerals have acquired growing geopolitical significance (LaTourrette, 2025). For the United States, the European Union, and allied states, deep-sea mining represents a potential means of reducing dependence on concentrated on-land supply chains and avoiding weaknesses associated with mineral monopolies. Recent years have therefore seen an expansion of “mineral diplomacy,” including agreements and partnerships with Pacific Island states aimed at securing future access to seabed resources (Sammler, 2016).

Supporters of seabed mining argue that offshore extraction may avoid some of the severe social problems associated with land-based mining, including labor exploitation, displacement of local communities, and environmental degradation. A single large-scale seabed mining operation could provide enough critical minerals to satisfy a significant share of a nation’s industrial demand, effectively functioning as a strategic reserve of essential materials – see Koschinsk et al. (2018) and Alam, et al. (2025).

5. Who Are the Main Actors?

Deep-sea mining involves a combination of international organizations, private companies, and national governments. The main ones are: The International Seabed Authority (ISA) which is a United Nations–affiliated organization based in Jamaica. It regulates mining activities in international waters and is responsible for balancing resource development with environmental protection. Commercial mining companies - private firms, such as The Metals Company, that are developing mining technologies and seeking exploration rights. Many operate through partnerships with small island nations such as Nauru and Tonga. National Governments including China, India, and Japan that support their own deep-sea mining programs to secure long-term access to critical minerals. As will be discussed in section 9, an important issue is how deep-sea mining profits are to be shared between the developing country members of International Seabed Authority and the mining companies. The requirement for profit sharing is written into international law under the UNCLOS Article 82 paragraph 4 where it is stated that “The payments or contributions shall be made through the Authority, which shall distribute them to States Parties to this Convention, on the basis of equitable sharing criteria, taking into account the interests and needs of developing States, particularly the least developed and the land-locked among them”.

6. Industrial Necessity Versus Environmental Protection

Despite its economic and strategic advantages, seabed mining continues to be controversial. Debates over deep-sea mining are continuing as governments, corporations, scientists, and environmental organizations face questions about sustainability, governance, and ecological risk (Berman, Owley, and Broad, 2026).

A central issue is the development of a regulatory framework for commercial seabed mining. The International Seabed Authority, established under UNCLOS, is still to finalize a Mining Code governing commercial operations in international waters.

At the same time, a growing coalition of 32 states, including 6 in the Pacific Ocean, environmental groups, and some multinational corporations has called for a pause on deep-sea mining activities (see Singh et al., 2025). Critics argue that scientific understanding of deep-sea ecosystems remains incomplete and that mining operations may cause irreversible damage to biodiversity, disrupt fragile habitats, and interfere with the ocean’s role in long-term carbon storage. Sediment plumes created during mining may spread through the water and harm deep-sea organisms, especially filter-feeding species (Wilber and Clark, 2001). Scientists are also concerned that many deep-sea habitats recover extremely slowly - if at all - because biological growth rates in the deep ocean are very low (Weddings, 2015). Although technologies capable of collecting seabed nodules have evolved (Gunasekara, 2025), mitigation technologies intended to reduce environmental harm - particularly sediment plumes remain experimental and insufficiently tested (Yao et al., 2025).

Moreover, there is the matter of whether countries granted deep-sea mining permits by the International Seabed Authority will adhere to the rules and regulations, including those designed to minimize negative externalities. Petrossian and Lettieri (2024) assess whether 21 countries that have ratified 17 key international conventions including on illegal, unreported, and unregulated fishing, mitigation of climate change, and transnational organized crime, performed a case study to find the worst performers by ratification status. Their analysis shows a general lack of commitment to international obligations. As Petrossian and Lettieri (2024) point out, these results should serve as a warning to the international community and to the International Seabed Authority, which issues permits for deep-sea mining.

7. Why Is Deep-Sea Mining Controversial?

Deep-sea mining has become the subject of global debate at least in part because scientists still know very little about deep-ocean ecosystems. A clear analysis of this is offered by Petersen et al. (2016) who found that deep-sea minerals cannot be properly evaluated because there is insufficient information about their size, distribution, and composition. A later study by Vysetti (2023) made a similar finding. Nevertheless, it is evident that manganese nodules and cobalt-rich ferromanganese crusts represent an enormous resource base, and their extraction could significantly influence global metal markets (Huang and Fu, 2023).

At least since the turn of the century concern has been stated about the environmental impact of deep-sea mining – see Morgan et al. (1999) who pointed to impacts on sea-bed creatures from the removal of nodules, and on near surface creatures caused by plumes of waste jettisoned by mining ships. Ever since, marine biologists have been expressing concerns, largely because of limited research in the deep oceans. Glover et al. (2026) pointed to the geophysical and biological effects of deep-sea mining lasting for several decades, but that some animal ensembles had recolonized their deep-sea habitats. Durden et al. (2018) point out that environmental impact assessment (EIA) are essential for assessing the risks of deep-sea mining and that the International Seabed Authority requires that they be done before any mining begins in the Area, but that its requirements are incomplete. They argue for much more complete requirements for the screening, scoping, and assessment phases, prior to mining beginning along with the writing of clear environmental management plans.

Yao et al. (2025) also call for much more complete assessments of the environmental effects of deep-sea mining. Amon et al. (2022) offer a comprehensive literature review of research on the environmental effects of deep-sea mining combined with their discussions with deep-sea mining companies. They conclude that there are few categories of publicly available scientific knowledge comprehensive enough to enable evidence-based decision-making regarding environmental management. And this included whether to continue with mining in regions where contracts had already been granted by the International Seabed Authority. In a similar manner Washburn et al. (2019) point to the lack of reliable knowledge on the environmental impacts of deep-sea mining, even so, suggesting the impacts will be severe and negative.

As suggested, the debate surrounding deep-sea mining is often framed as a balance between economic benefits and environmental risk – see for example Ashford et. al. (2025), and Alam et al. (2025). The latter paper argues, with empirical support, that improved recycling of minerals (the so called ‘circular economy’) could increase the supply of minerals as effectively as deep-sea mining but without the possibly severe negative externalities of increased deep-sea pollution. This claim is supported by Simas et al. (2022) who calculate that the potential of reducing the demand for seven important raw minerals that can be supplied by deep-sea mining by 58% between now and 2050 through the adoption of new technologies, recycling, and demand reduction techniques (page 6367). Earlier, Harris et al. (2021) questioned the modeling of resource savings through recycling because the modeling between microeconomic and macroeconomic effects is inadequate, as is the relationship between scientific evidence and quantification. The Harris (2021) paper has not been refuted. Jaeckel et al. (2016) though argue that deep-sea mining could help developing nations strengthen their economies and participate in the growing clean-energy industry.

8. Profit Sharing Issues

This section emphasizes that royalty and profit tax rates can be adjusted to affect deep-sea mining companies’ net profit rates and, therefore, their rates of mining production – higher royalty and/or profit rates reducing rates of production. This could be of great importance should the negative external effects of deep-sea mining turn out be seriously negative.

That the International Seabed Authority has the right to adjust royalty and profit rates is stated in the Annex to Section 8, Financial Terms of Contracts, Part C in The United Nations Convention on the Law of the Sea and its Implementing Agreements, United Nations, 2025. Thus:

“The [economic rent sharing] system should not be complicated and should not impose major administrative costs on the Authority or on a contractor. Consideration should be given to the adoption of a royalty system or a combination of a royalty and profit-sharing system. If alternative systems are decided upon, the contractor has the right to choose the system applicable to its contract. Any subsequent change in choice between alternative systems, however, shall be made by agreement between the Authority and the contractor”.

As was discussed in section 6, although many researchers have investigated the possible negative effects of deep-sea mining, the true seriousness is at present unknown. Possible legal problems could arise if negative externalities turn out to be serious but the International Seabed Authority has granted legal title to deep-sea mining companies to mine geographically defined areas of the deep seabed. Short of revoking those legal rights which, even if legal, would be contentious when mining companies have invested large sums of money into it, royalty and profit tax rates could be adjusted to optimize the scale of deep-sea mining.

An advantage of variable royalty and profit tax rates is therefore that they can be used to optimize, or, at least, reduce the extent of negative externalities. If negative externalities are serious, royalty and/or tax rates can be increased. Thus, the International Seabed Authority’s powers over royalty and tax rates can in theory at least, be used to balance the benefits and environmental costs of deep-sea mining. That environmental taxes can be effective in reducing water pollution is a well research conclusion – see for example Yue Zhang et al. (2023), Ye Xu et al. (2023) and Qianqian Wang et al. (2024).

Under the United Nations Convention on the Law of the Sea, resources found in international seabed areas are considered the common heritage of mankind. In principle, this means that profits generated from mining activities should benefit humanity broadly, including developing nations. The 1994 Implementing Agreement Section 8(1)(c) states that the International Seabed Authority should use a royalty system or a combination of a royalty and profit-sharing system. It gives contractors flexibility in how they structure payments, aiming to match standard tax and profit regimes found in land-based mining. However, as argued in Hallwood (2025) it is entirely unclear as to what the percentage rate of royalty payments and/or tax rates should be because different expert groups have argued for substantially different percentage rates.

The economics of the existing royalty-taxation interaction is as follows. Begin by writing a deep-sea mining company’s profit net of both corporation taxes - paid in the country where its headquarters is registered,1 and royalties paid to the International Seabed Authority as:

Net Profit = [PQ(1 − r) − C](1 − t)

(1)

where Net Profit is net of corporation tax, t, and royalty rates, r. P is the market price of a unit of a mined metal, Q is quantity produced per period, and C is the unit cost of production. Multiplying through and rearranging gives:

Net Profit = PQ(1 – r – t + rt) – C(1 − t)

(2)

And dividing through by Q yields

Net Profit per unit of production = P(1 – r – t + rt) – C(1 – t)/Q

(3)

which states that net operating profit per unit of production equals net price per unit of production – the first term, minus net unit cost of production.

For a given market price, P, and unit cost of production, C, net profit per unit of production faces a tradeoff between the royalty and tax rates, respectively, r and t. Higher royalties reduce net profits and can therefore be expected to reduce production. It is also relevant that deep-sea mining companies will have ‘shopped around’ to set up their HQs in low profit-tax jurisdictions.

There is therefore a three-way tradeoff between the entities enjoying the economic rents from deep-sea mining: the International Seabed Authority and the countries it shares its royalty revenues with; the low tax jurisdictions where deep-sea mining companies register their Headquarters and deep-sea mining company shareholders. Yan Li et al. (2021) makes this clear when calculating that higher royalty rates reduce internal rates of return, implying that royalty costs will be borne by either or both the profit-flow to the countries where the mining companies are registered and deep-sea mining company shareholders.

The effect of higher royalties on reducing the rate of production depends upon marginal production costs – as can be seen in the last term in equation (3).2 If marginal production cost, C/Q, falls by little, then net profit falls by a disproportionate amount, and it may be assumed that so will production. An ad valorem royalty does not reflect either changing production costs or changing profits with the result that contractors bear profit risks if production costs turn out to be higher than expected or market prices are lower than expected. Other things equal, higher market prices for minerals cause both higher profits and royalties paid; but lower prices, while leading to lower royalties paid may be associated with negative profits. Looking from the side of the International Seabed Authority, when metals prices are high, a pure royalty system may leave the mining companies with large profits that the International Seabed Authority members cannot share in.

With respect to potential deep-sea environmental damage, as discussed above, there is a lot of concern about negative externalities that may be caused by deep-sea mining. In this case, increased royalties can be seen as being an implicit ‘pollution tax’ – reducing both the level of production and amount of pollution.3 In fact, a feature of the standard operating contract (when one comes into existence) deals with possible negative externalities of deep-sea mining.4 Contractors have a contractual obligation to minimize environmental damage – a requirement consistent with international agreements regulating pollution at sea by ships (see Hallwood 2014, chapter 20). And if any objects of an archaeological or historical nature are discovered they are not to be disturbed - a requirement that is consistent with UNESCO’s Convention on the Protection of the Underwater Cultural Heritage, 2001 that calls for the in-situ protection of historical wrecks, structures, and artifacts – see Hallwood and Miceli (2005).

As can be seen from equation (3), higher royalty payments, because they reduce mining companies’ net rates of return, can be seen as both a form of pollution tax as well as an income redistribution scheme benefiting people in low-income countries.

9. Conclusions

This paper began with a discussion of the sharply rising demand for rare earths and how land-based mines may not be able to meet it. It was argued that the likely huge availability – even using current technologies - of rare earths on the ocean floor will likely meet this rising demand.

However, it was emphasized that the ecological effects of deep-sea mining are unclear mainly because industrial scale deep-sea mining has not yet begun. Nonetheless, some ecologists warn that it could have severe ecological effects damaging deep-sea ecosystems that may take decades or more to recover. It has been argued in this paper that the royalty and profit tax system presently in place under the auspices of the International Seabed Authority could be used in response to negative external effects, raising rates if needed to reduce deep-sea mining production per period of time. Importantly, given that deep-sea mining companies have legal rights to defined deep-sea leaseblocks and that they will have invested heavily in research and development, it is argued in this paper, that banning deep-sea mining is of questionable legal merit. Adjustment of royalty and profit tax rates is a possible alternative. Another possibility is that as leaseblocks are granted only for fifteen year periods, if negative externalities turn out to be severe, the International Seabed Authority could end the process of granting leaseblocks.