The United States Environmental Protection Agency (U.S. EPA) issued a proposed rule on December 1, 2016 requiring hardrock mines to provide financial assurance demonstrating they are able to fund the costs associated with the future cleanup of the mines under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), the federal statute designed to address releases of hazardous substances and the cleanup of hazardous waste sites nationwide. The new regulations, if finalized by the stated deadline of December 1, 2017, would add an additional regulatory obligation to an industry already required to provide financial assurance to multiple agencies, including the U.S. Forest Service, the U.S. Bureau of Land Management, and state agencies.
Pursuant to Section 108(b) of CERCLA, U.S. EPA is required to promulgate regulations under which certain classes of facilities must establish and maintain evidence of financial responsibility so that the owners and operators of those facilities, not public funding sources, bear the financial burden of cleaning up releases from those facilities. U.S. EPA was required under Section 108(b) to prioritize classes of facilities for regulation but missed its statutory deadline decades ago in 1983, leading a number of environmental organizations to file suit to enforce this provision. This proposed rule is a product of that litigation.
Under the new rule, owners and operators in the hardrock mining industry, which is defined as the extraction, beneficiation, or processing of metals and non-metallic, non-fuel minerals, would be required to provide proof of financial responsibility for traditional response costs, natural resource damages, and health assessment costs. The proposal excludes facilities that present a lesser risk of injury, including: (1) mines conducting only placer mining activities; (2) mines conducting only exploration activities; (3) mines with a disturbance of less than five acres not located within a mile of mine disturbance that occurred in the prior 10-year period and that do not employ hazardous substances in their processes; and (4) mineral processors with less than five acres of surface impoundment and waste pile.
Mine owners and operators would be required to first notify U.S. EPA that they are covered by the new requirements. Then, those owners and operators would need to select one or more of the alternate mechanisms of demonstrating financial responsibility: 1) a trust fund; 2) a letter of credit; 3) a surety bond; 4) an insurance policy; 5) the corporate financial test (essentially a method of self-insuring where the company demonstrates substantial net worth and U.S. assets); or 6) a corporate guarantee. The dollar amounts that mines are required to guarantee are substantial: U.S. EPA’s estimates suggest the median financial responsibility for a hardrock mining facility under the new rule would be $37 million. If self-insurance is not an option for a facility, the cost to purchase a financial instrument would average, per U.S. EPA’s estimates, between 1.1 percent and 4 percent of the financial assurance amount, depending on the company’s credit-worthiness.
A formula contained in the rule would provide a basic structure setting the financial assurance dollar amounts required. Those amounts could be reduced if a facility is able to provide certain evidence demonstrating that risk-reducing site controls are being implemented, either voluntarily or under other regulatory programs, that lessen the likelihood of releases. The cost determination could not be made by the facility independently: a qualified professional engineer would need to certify the financial responsibility amount submitted to U.S. EPA.
The financial assurance obligation would be a continuing one, as facilities would be required to recalculate their financial responsibility every three years. Once a facility was no longer covered under the rule, it would need to obtain U.S. EPA approval – which could be withheld unless the risk presented by the facility is minimal – before the facility would be released from its obligation to provide financial assurance.
The impact of the rule, if finalized, could be far-reaching within the industry: U.S. EPA estimates that 221 facilities in 38 states would be subject to the new requirements. There are signs that the hardrock mining industry is not being singled out. In December, U.S. EPA also formally announced its intention to consider implementing financial assurance requirements for three other types of facilities: chemical manufacturing; petroleum and coal products manufacturing; and electric power generation, transmission, and distribution. Whether U.S. EPA will actually implement parallel financial responsibility rules for these facilities, and which of the three classes it would prioritize first, remain to be seen.
Comments on the new rule are due by March 13, 2017. Critics of the rule are concerned that it is unduly burdensome and places unnecessarily duplicative financial restrictions on the hardrock mining industry, while supporters insist that the additional environmental restrictions are necessary. Whether this proposed rule will withstand the promises by President Trump to gut environmental regulations during his administration remains to be seen. In January, President Trump’s Chief of Staff Reince Priebus issued a memorandum entitled “Regulatory Freeze Pending Review” to all federal executive departments and agencies implementing a regulatory freeze on new and pending regulations. Whether and how the regulatory freeze impacts the hardrock mining rule is unclear since it is merely a proposed rule without an effective date and since the rule was ordered by a federal court. It is possible that U.S. EPA, under the President’s direction, could significantly alter the rule as currently drafted, if not reverse it altogether. Although the President has not publicly discussed this rule in particular, he has made clear his intentions to protect and promote traditional mining industries and repeal regulations and policies that hinder growth in those industries.