EPA Issues Proposed Financial Assurance Requirements for Hardrock Mining Firms; Next In Cross-Hairs Are Electric Power Sector, Chemical Manufacturing, and Petroleum and Coal Products

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On December 1, 2016, the U.S. Environmental Protection Agency (EPA) issued significant proposed new rules for hardrock mining and mineral processing operations across the country. According to EPA, these rules are intended to “require that owners and operators of certain classes of hardrock mines and mineral processing facilities show financial ability to address risks from hazardous substances. Since the 1980s, EPA has spent considerable resources cleaning up contamination from hardrock mines,” and through these rules the Agency is seeking to ensure that private funding is available to cover the costs of potential future cleanups and natural resource damages. The rules would be promulgated pursuant to section 108(b) of the federal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9608(b).

EPA has estimated that the proposed rules would affect a total of about 221 different mining and mineral processing facilities, ranging from those engaged in the underground or surface mining of “hardrock” minerals (such as copper, gold, iron, lead, silver and titanium), to others performing processing, refining and/or primary smelting of hardrock ores and minerals. At the same time, EPA has proposed that four specific types of operations would be excluded from the new requirements, consisting of: (1) sites engaged solely in placer mining; (2) exploration mining sites; (3) surface mines smaller than five acres that are located more than one mile from other mines; and (4) mineral processors whose surface impoundments and waste piles cover less than five acres total. However, EPA indicated that it is requesting public comments as to whether any other hardrock operations should be similarly excluded from the rules’ scope based on a demonstration that they present a lower level of risk.

Companies engaged in hardrock mining and processing would be required under the proposed rules to (a) make an initial notification to EPA (within thirty days of the final rules’ effective date) and subsequently submit additional facility-related information to the Agency, and (b) within four years of the final rules’ effective date, calculate and establish appropriate financial assurance to cover the potential costs of conducting future cleanup actions for their operations, as well as the costs of possible health assessments and natural resource damages. To satisfy the financial assurance obligations, companies would be allowed to select from any of several alternative financial mechanisms generally similar to those currently authorized for meeting financial assurance requirements under the federal Resource Conservation and Recovery Act (RCRA), such as letters of credit, surety bonds, insurance, trust funds, corporate guarantees and a corporate financial test. However, the eligibility and documentation requirements specified for these alternative mechanisms under EPA’s proposed rules appear more stringent, and could be more costly to implement, when compared to the existing RCRA program. EPA estimates that industry could incur costs of approximately $171 million to comply with the proposed rules.

EPA’s hardrock mining proposals represent the first of potentially several sets of financial assurance rulemakings for key industry sectors under CERCLA. In fact, at the same time it announced its proposed rules for the hardrock sector, EPA stated it plans to assess whether similar requirements should be imposed for three other industries, covering (1) electric power generation, transmission and distribution, (2) petroleum and coal products, and (3) chemical manufacturing. Among other things, EPA stated in its notice for these three industries that “[i]n future rulemakings under CERCLA § 108(b) for the additional classes, EPA will evaluate how to determine financial responsibility amounts for each particular industry, and will propose an appropriate methodology.”

EPA’s proposed rules raise a number of important issues for potentially affected companies. For example, EPA has asserted that once implemented, its new financial assurance rules would “complement” and not “preempt” any other similar federal, state or local requirements for financial assurance for covered sectors. However, contrary to EPA’s claim, both the mining industry and a number of states are concerned that the proposed rules would actually duplicate existing programs and result in substantial unwarranted costs and regulatory risks for hardrock mining operations. In addition, EPA has proposed to formally establish a specific set of calculations that industry would be required to use when estimating the dollar amount of their facilities’ financial assurance requirements; these calculations may not accurately conform to generally accepted industry and/or accounting practices and therefore may bear close scrutiny. Furthermore, it is uncertain whether the new Trump administration may seek to delay, modify or even rescind the proposed rules.

EPA will be accepting public comments on its hardrock mining proposals during a sixty-day public comment period running from the date on which the rules are formally published in the Federal Register; however, some congressional leaders are already encouraging EPA to extend the comment period.

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