EPA Issues Proposed Rule Requiring Financial Responsibility Requirements for Hardrock Mining Industry
Under a proposed Superfund regulation set to be published in the Federal Register any day, the Environmental Protection Agency (EPA) would require hardrock mines to provide a financial guarantee covering estimated future cleanup costs at their facilities. The proposed regulation, which was released in pre-publication form in December, would be the first of its kind under Superfund, which is predominantly a backward-looking statute addressing contamination after it has occurred. In contrast, multiple other federal and state laws designed to avoid the potential for contamination already require the hardrock mining industry and others to provide financial assurances.
EPA developed the proposal under court order owing to a nearly 30-year-old Superfund provision that has not to date been utilized, but that environmental groups assert is necessary to avoid environmental cleanup costs being left to taxpayers. Opponents of the proposal argue that the regulations are duplicative, unnecessary, and ultimately infeasible given the substantial dollar amount that companies would be required to guarantee. The future of this proposal is in question in the next administration, and the regulated industry is evaluating its options for how to respond. Under a notice released the same day as the hardrock mining proposal, EPA stated that it is evaluating financial responsibility regulations for three other industry categories, an action that was also taken under court order. Whether EPA elects to move forward with regulation for these entities is uncertain.
Section 108 of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) required the President to “promulgate 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.” This provision, which Congress passed in 1980, required identification of an initial class of facilities subject to financial assurance regulations by the end of 1983, and the implementation of financial assurance regulations “as quickly as can reasonably be achieved but in no event more than 4 years after the date of promulgation.”
EPA and the Department of Transportation (DOT), the agencies with delegated responsibility to implement this section of CERCLA, have never published rules pursuant to these requirements. In 2008, environmental groups filed a CERCLA citizen suit to force promulgation of regulations under Section 108, arguing that the deadlines under statute had long since passed and that financial assurances are necessary to avoid “orphan sites” due to bankruptcy or other inability to pay. See Environmental Groups Call for Courts to Impose new Financial Assurance Requirements. That litigation was resolved with a 2009 order requiring EPA to publish a Priority Notice, titled the “Identification of Priority Classes of Facilities for Development of Section 108(b) Financial Responsibility Requirements.” That notice provided the basis for selecting the hardrock mining industry as the first class of facilities subject to financial responsibility regulation under CERCLA. In January 2010, EPA issued an Advance Notice of Proposed Rulemaking that identified three additional industrial sectors for regulation: chemical manufacturing; petroleum and coal products manufacturing; and electric power generation, transmission, and distribution. See EPA Announces Plans to Require Financial Assurance Under CERCLA for Chemical, Refining and Electrical Industries. EPA requested public comment on whether to propose regulation for all or part of these industries and sought information regarding the facility operations, past and expected future environmental responses, and financial instruments used in or available to those industries to assist the agency in evaluating future regulation.
In August 2014, environmental groups filed a new lawsuit seeking a writ of mandamus to compel issuance of financial assurance rules for the four industry categories noted above: hardrock mining; chemical manufacturing; petroleum and coal products manufacturing; and electric power generation, transmission, and distribution. That litigation was resolved with a January 2016 court order approving the parties’ agreed-upon schedule requiring EPA to propose a rule for the hardrock mining industry by December 1, 2016 and a final rule by December 1, 2017. That order also required EPA to publish a decision regarding whether to issue a notice of proposed rulemaking for the other three sectors of industry.
The Proposed Hardrock Mining Regulation
On December 2, 2016, EPA released a prepublication version of the proposed rule, “Financial Responsibility Requirements Under CERCLA Section 108(b) for Classes of Facilities in the Hardrock Mining Industry.” The proposed rule would apply to designated classes of operating facilities within the hardrock mining industry, which is defined as the extraction, beneficiation, or processing of metals and non-metallic, non-fuel minerals. EPA proposes to exclude facilities presenting a lesser risk of injury, such as the following: (1) mines conducting only placer mining activities, per 40 CFR section 320.62; (2) mines conducting only exploration activities, per 40 CFR section 320.62; (3) mines defined in 40 CFR section 320.62 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 under 40 CFR section 320.62 with less than five acres of surface impoundment and waste pile. EPA estimates that 221 facilities in 38 states would be subject to the regulation.
EPA’s proposal would require owners and operators of covered facilities to notify EPA that they fall within the requirements. It would also impose a formula dictating the level of financial responsibility required for the facilities and obligate owner/operators to obtain, update, and maintain an approved type of instrument to demonstrate financial responsibility.
The formula in the proposed rule is intended to account for the expected costs associated with response actions, natural resource damages (NRD), and health assessments. EPA developed the numbers associated with these costs based on its review of past sites. For the response cost component, EPA included twelve remedy categories that EPA has previously undertaken at mines. NRD are calculated based on a fixed percentage of the response costs and health assessment costs are a fixed amount.
EPA intended for the formula to allow flexibility in the amount of the financial responsibility based on site controls that would limit the likelihood or magnitude of damages or costs. The facility owner or operator could submit evidence showing that reductions are warranted, such as an enforceable document from another authority showing that the facility has controls in place. EPA estimates the median financial responsibility amounts that a facility within the hardrock mining industry would need to guarantee at $37 million.
The proposal would allow parties to self-insure or use corporate guarantees by passing a financial test. Otherwise, the types of approved instruments that a party could use to show compliance are letters of credit, insurance, trust funds, and surety bonds. EPA also published a market capacity study regarding the availability of financial responsibility instruments and the likelihood that the market could meet the demand for such instruments stemming from this proposal. According to EPA’s estimates, the average annual cost as a percentage of the financial responsibility amounts would range between 1.1% and 4% depending on the party’s credit-worthiness. EPA’s estimates are based on the presumption that some facilities would be able to “self-insure” and that those that cannot self-insure will be able to purchase financial instruments on the market that will satisfy their obligations.
Representatives from the regulated industries have sharply criticized the rule as imposing unnecessary and unduly costly requirements on facilities that are already required to provide financial assurances to multiple federal agencies, such as the U.S. Bureau of Land Management and U.S. Forest Service, and to agencies in the states that they operate in. Some have questioned the reliability of EPA’s economic analysis, arguing that proposed dollar amounts of the financial assurances are based on misguided assessments of worst-case scenarios and that the estimated costs of the proposal do not reflect financial realities of the industry or third party markets.
The American Exploration & Mining Association referred to the proposal as a “job killer” with “no discernible environmental benefit, while adding hundreds of millions of dollars of costs and regulatory compliance burdens on industry.” Opponents also argue that the CERCLA provision from 1980 under which this regulation is proposed has since become outdated—in part because operational controls have drastically reduced the likelihood of regulated facilities becoming abandoned Superfund sites left to taxpayers.
Yet supporters of the proposal highlight that the existing network of financial responsibility requirements and other controls have proven insufficient to ensure that cleanups are not borne by the public. EPA, for example, highlights that from 2010 to 2014 the agency spent nearly $1.1 billion on response and cleanup actions on hardrock mining and mineral processing sites.
Once the rule is published in the Federal Register, it will undergo a sixty day public comment period. Given that the comment period will close after President-elect Trump takes office, opponents of the proposed rule are hopeful that the new EPA will scrap or at least substantially modify its current proposal. Barring a reversal by EPA, opponents may pursue efforts to revise CERCLA and remove what they view as duplicative bonding requirements.
Expansion to Other Industries
In compliance with court order, EPA also released a Regulatory Determination Notice of its intent to propose rulemaking extending financial responsibility requirements to three other industries: chemical manufacturing; electric power generation, transmission, and distribution; and petroleum and coal products manufacturing. EPA’s notice does not commit the agency to moving forward with financial responsibility requirements for these industries; rather, it announces the agency’s intent to evaluate what, if any, financial responsibility regulations may be warranted. This notice will be not be available for public comment.
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