United States: EPA Proposes Financial Responsibility Requirements For Hardrock Mining Industry

Amy L. Edwards is a partner and Aaron S. Heishmanis an associate at the Washington DC office

The Proposed Rule Could Set a Precedent for Other Industries and Directly Impact Financial Institutions

HIGHLIGHTS:

  • The U.S. Environmental Protection Agency (EPA) has issued a pre-publication version of a proposed rule to require hardrock mining facilities to demonstrate their financial ability to clean up releases of hazardous substances. EPA will formally publish the proposed rule in the coming weeks.
  • The proposed rule will apply to approximately 221 facilities nationwide that extract, beneficiate and process metals (such as copper, gold, iron and uranium) or non-metallic, non-fuel minerals (such as asbestos, sulfur and phosphate rock). The rule will not apply to coal mines, former operations, or many hardrock operations that extract or process non-fuel commodities such as granite, marble or lime.
  • EPA is soliciting regulatory comments from all industry sectors that may be subject to similar financial responsibility requirements in the future, as well as financial institutions that provide financial responsibility instruments such as insurance, surety bonds and letters of credit.
  • EPA also announced its intent to evaluate the need for similar financial responsibility requirements for the following industry sectors: chemical manufacturing; electric power generation, transmission and distribution; and petroleum and coal products manufacturing.

U.S. Environmental Protection Agency (EPA) Administrator Gina McCarthy on Dec. 1, 2016, signed a pre-publication version of a proposed rule that seeks to establish financial responsibility requirements for approximately 221 facilities nationwide that extract, beneficiate and process metals or non-metallic, non-fuel minerals. EPA expects to formally publish the proposed rule in the Federal Register in the coming weeks, a step that will trigger a 60-day public comment period.

EPA's legal authority for the proposed rule is Section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which directs the agency to require classes of facilities to maintain evidence of financial responsibility to cover the costs associated with releases or threatened releases of hazardous substances. The proposed rule was set in motion by a 2008 lawsuit filed by environmental advocacy organizations that sought to require EPA to evaluate the need for financial responsibility regulations in the hardrock mining sector and a follow-up lawsuit in 2014 that sought a court order requiring EPA to publish proposed financial responsibility rules. As part of the most recent lawsuit, EPA agreed to publish a proposed rule by Dec. 1, 2016, and a final rule by Dec. 1, 2017.

Rationale for the Proposed Rule

EPA estimates that it spent approximately $1.1 billion from 2010 to 2014 cleaning up contamination at hardrock mining operations. The agency believes that the proposed rule will make hardrock mining owners and operators more likely to provide funds to address CERCLA liabilities at their facilities, rather than shifting the cleanup burden to EPA and taxpayers.

Hardrock Mining Operations Covered by the Proposed Rule

In total, EPA said it believes that 221 facilities owned by 121 parent companies will be subject to the rule. The proposed rule will apply to classes of facilities that extract, beneficiate and process metals (such as copper, gold, iron and uranium) and non-metallic, non-fuel minerals (such as asbestos, sulfur, and phosphate rock). Owners and operators of such facilities will be required to demonstrate an amount of financial responsibility consistent with the degree of risk the facility poses through its treatment, production, transportation, storage and disposal of hazardous substances.

The rule will not apply to coal mining operations and facilities associated with 59 non-fuel hardrock commodities such as cement, granite, marble and lime.1 Also excluded from the proposed rule's coverage are abandoned facilities, mines engaged in only exploration activities, placer mines that do not use hazardous substances to extract ore, and mining operations of less than 5 acres that are not located within 1 mile of another area of mine disturbance that occurred in the past 10 years.

Methods of Demonstrating Financial Responsibility

The proposed rule will allow entities to use the following financial instruments, alone or in combination, to demonstrate financial responsibility: insurance, guarantees, surety bonds or letters of credit. An owner or operator can use a single financial instrument to cover multiple facilities.

EPA is also soliciting public comment on whether to allow owners and operators to use self-insurance, through a credit rating-based financial test and corporate guarantee, to demonstrate financial responsibility. EPA has expressed reservations about self-insurance, noting that self-insuring operations that experience sudden financial difficulties may then have trouble securing financial responsibility instruments from third parties.

CERCLA Claims Against Financial Responsibility Instruments

Financial responsibility instruments can be used to satisfy final judgements from a federal court ordering a facility to pay CERCLA response costs, health assessment costs or natural resource damages. The financial responsibility instruments will cover all types of CERCLA actions, including actions brought by government claimants such as EPA or private claimants. If the culpable owner or operator becomes bankrupt or unavailable, the proposed rules allow a CERCLA claimant to bring an action directly against the third-party financial institution. Representatives of the surety industry and banking community have already expressed concern about the proposed direct action provision. Therefore, EPA is specifically soliciting public comment from financial institutions about this element of the proposal.

EPA's proposed financial responsibility rule will be distinct from other financial responsibility requirements under state, federal or tribal laws. For example, a hardrock mining facility currently subject to federal reclamation bonding requirements will nevertheless have to demonstrate additional financial responsibility under CERCLA Section 108(b).

Owners and operators will have to remain covered by financial responsibility instruments until EPA releases them from that obligation. The agency will release an owner or operator that transfers a facility to a new owner or operator that demonstrates financial responsibility. An owner or operator may also escape the financial responsibility requirements by demonstrating to EPA that the risk associated with the facility's production, transport, treatment, storage and disposal of hazardous substances is minimal. EPA proposes a site-by-site evaluation of the facility's risk before releasing it from CERCLA Section 108(b) requirements. Any release determinations will be subject to public notice and comment.

Calculating Amount of Financial Responsibility

The proposed rule includes a formula for calculating the amount of financial responsibility that each hardrock mining facility must demonstrate. The formula assigns values to an individual facility's characteristics, such as open pits, waste rock, process ponds, water management and monitoring. The formula is designed to calculate the approximate costs if a Superfund action were required at the facility. By implementing environmentally protective practices, the proposed rules allow a facility to reduce the amount of its financial responsibility instrument. EPA proposes that a facility recalculate its financial responsibility amount every three years and within 60 days after a successful CERCLA claim against its financial responsibility instrument.

Potential Financial Responsibility Requirements for Other Industries

Alongside EPA's proposed rule on financial responsibility requirements for the hardrock mining industry, the agency also released a pre-publication Regulatory Determination Notice explaining that the agency intends to evaluate whether financial responsibility requirements are appropriate for the chemical manufacturing, electric power generation/transmission/distribution, and petroleum and coal products manufacturing industries.

EPA has explained that the regulatory framework developed for hardrock mining operations will serve as the model for other industry sectors that the agency determines should also demonstrate financial responsibility. Therefore, even though EPA's proposed rule for hardrock mining applies to only a few hundred facilities nationwide, other industries that are likely to be subject to similar requirements in the future should take this opportunity to comment on the soundness of the EPA's proposed regulatory framework.

Footnotes

1.A full list of the excluded facilities is available at Mining Classes Not Included in Identified Hardrock Mining Classes of Facilities (U.S. EPA Memorandum, June 29, 2009).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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