Hardrock Mining Financial Assurance Rule Goes to the White House for Review—December 1st Deadline Approaching

EPA’s proposed rule for CERCLA financial assurance for hardrock mining went to the White House last week for OMB review as the December 1st publication deadline set by the D.C. Circuit rapidly approaches.

Section 108(b) of CERCLA directs EPA to develop requirements that classes of facilities establish and maintain evidence of financial responsibility consistent with the degree and duration of risk associated with the production, transportation, treatment, storage, or disposal of hazardous substances.  The proposed rule—which has not yet been publicly released—applies this statutory requirement to the mining industry and will require certain types of facilities to provide a financial responsibility instrument (e.g., a bond, letter of credit, or insurance) to EPA.  Specifically, the rule is proposed to include “extraction, beneficiation, or processing of metals (e.g., copper, gold, iron, lead, magnesium, molybdenum, silver, uranium, and zinc) and nonmetallic, nonfuel minerals (e.g., asbestos, phosphate rock, and sulfur).”

This financial responsibility will be in addition to the bonding requirements already imposed by individual states, and EPA does not intend this rule to preempt state bonding regulations. Furthermore, EPA has made clear in its discussions of the proposed rule that the CERCLA financial assurance will be wholly separate from state regulation and companies will not be able to receive “credit” for the bonds already posted with states.  Unlike state bonding requirements, EPA has explained that the proposed rule “does not include technical requirements regulating the operation, closure, or reclamation of hardrock mining facilities” nor does it “provide financial responsibility to ensure closure or reclamation requirements made applicable to hardrock mining facilities through a permit.”  Instead, the proposed financial responsibility will be available exclusively for CERCLA cleanups.

While no rule has yet been released, EPA has published slides outlining some of the features of the rule, as well as the potential costs.  As shown in the table below, which is taken from the EPA slides, the costs of providing the financial responsibility mechanism to EPA are estimated to be in the millions of dollars per year, with the size of the instrument depending on characteristics of the facility:

Potential Costs to Comply with the Rule

Commodity, Revenue, Number of EmployeesSite FeaturesEngineered Controls/Best PracticesCredit Reduction for Best PracticesTotal Financial Responsibility ($millions)Credit Rating/Least Cost InstrumentAnnualized Cost of Instrument
• Gold
• $500m-$1b
• <1500 Employees
• Open Pit ~200 ac
• Waste Rock ~700 ac
• Tailings Facility ~400 ac
• 0”-25” Net Evaporation
• Water Treatment Rate ~500 gpm
• Open Pit Alkaline Amendments
• Waste Rock Segregation
• Storm Water Diversion
~42%
~$75• BBB-
• Insurance Policy
~$4m
• Precious metals
• $500m-$1b
• >1500 Employees
• Underground Mine
• Tailings Facility ~100 ac
• 0”-25” Net Evaporation
• Water Treatment Rate ~100 gpm
• Tailings Facility Alkaline Amendments
• Paste or Filtered Tailings Deposition
• Storm Water Diversion
~80%~$25• B+
• Insurance Policy
~$1m
• Copper
• +1b
• >1500 Employees
• Open Pit ~1000 ac
• Waste Rock ~2000 ac
• Tailings Facility ~700 ac
• 75”-100” Net Evaporation
• Water Treatment Rate ~1,000 gpm
• Storm Water Diversion~24%~$525• BB
• Trust Fund
~19m

These estimated costs are based on EPA’s “Financial Responsibility Formula,” which uses “current site features” such as acreage, whether the mine is underground or aboveground, hydraulic head, distance to surface water, annual precipitation, site water flows, and whether in-situ leaching is being used to determine the level of required financial assurance.  EPA’s model also considers the use of current engineering controls to reduce the total required financial responsibility.  Notably, EPA has not yet released any information about how the model inputs (current site features and engineering controls) are translated into a dollar amount for financial assurance.  Instead, EPA has said only that it “intends the formula to reflect the relative risk of facility practices in managing hazardous substances, including reductions in risk that may result from compliance with other regulatory requirements.”  When the Proposed Rule is published on December 1, many observers will be looking for details about how EPA plans to calculate these dollar amounts, and the formula will likely be challenged by industry stakeholders.  Any such challenges will be made against the backdrop of Section 108(b), which directs the agency as follows:

The level of financial responsibility shall be initially established, and, when necessary, adjusted to protect against the level of risk which the President in his discretion believes is appropriate based on the payment experience of the Fund, commercial insurers, courts settlements and judgments, and voluntary claims satisfaction. To the maximum extent practicable, the President shall cooperate with and seek the advice of the commercial insurance industry in developing financial responsibility requirements. Financial responsibility may be established by any one, or any combination, of the following: insurance, guarantee, surety bond, letter of credit, or qualification as a self-insurer. In promulgating requirements under this section, the President is authorized to specify policy or other contractual terms, conditions, or defenses which are necessary, or which are unacceptable, in establishing such evidence of financial responsibility in order to effectuate the purposes of this Act.

42 U.S.C. § 9608(b)(2) (emphasis added).  Because the statute clearly dedicates the level of financial assurance to the executive branch’s discretion, any challengers will have a significant hurdle to clear if they hope to succeed.

The D.C. Circuit’s order also requires EPA to determine whether it will issue a new financial responsibility rule for the chemical manufacturing; petroleum and coal products manufacturing industry; and electric power generation, transmission and distribution industry by the December 1 deadline.  That is, at the same time it announces the proposed financial responsibility rule for hardrock mining, EPA will also decide whether to extend this type of regulatory program to other identified industries. The rulemaking for that decision is also currently under OMB review.

Image Courtesy of: Gord McKenna used under Creative Commons license (no changes were made to the image).