After committing in litigation to a joint schedule to conduct rulemaking for financial assurance requirements under Section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA),[1] the Environmental Protection Agency proceeded with its first regulatory proposal for the hardrock mining industry by releasing its proposed rule on December 1, 2016. Comments will be due within 60 days after publication in the Federal Register, which is anticipated within the next 30 days. EPA’s proposed rule would create a new program under CERCLA 108(b), administered by EPA, that would impose additional financial responsibility requirements above and beyond the existing bonding regimes already administered by the federal land management agencies (Bureau of Land Management and the U.S. Forest Service) and by the states.

Summary of Proposed Rule

The proposed rule would specifically require numerous mines to set aside funds for cleanup (or otherwise demonstrate their ability to pay for cleanup costs) and would cover three types of costs typically associated with CERCLA § 107 liability:

1. Response costs (based on a formula),
2. Health assessment costs ($550,000 fixed amount on all sites) and
3. Natural resource damages (13.4% fixed percentage of the response cost at each site).

EPA indicates that this additional bonding is intended to pay for three scenarios: (1) a judgment after a court finding of CERCLA liability; (2) settlement of CERCLA liability with the United States; and (3) certain limited administrative order under CERCLA § 106.

EPA asserts that the purposes of the proposed rule are to: “transfer risk associated with CERCLA liabilities from the taxpayer to the private sector” (promoting the “Polluter Pays Principle”); to expedite cleanups; and to improve and encourage good environmental practices at mining sites, including reduction or avoidance of adverse impacts to impaired waters.

Who Would Be Regulated Under The Proposed Rule?

The proposed rule would apply to currently active and currently idle hardrock mining facilities (those facilities that are authorized to operate, that should be authorized, or that become authorized to operate). Under EPA’s 2009 Federal Register notice identifying the hardrock mining industry for proposed rulemaking under CERCLA § 108, EPA identified the following types of mines and processing facilities that could be subject to the rule: copper, gold, iron, lead, magnesium, molybdenum, silver, uranium, and zinc and non-metallic, non-fuel minerals (e.g., asbestos, phosphate rock and sulfur).[2]

EPA believes 221 facilities will currently be subject to the proposed rule, including 88 surface mines, 56 underground mines and 68 processing facilities owned by 121 companies.

The following facilities would not be regulated or subject to the proposed rule:

• Mines conducting only placer mining (no use of hazardous substances);
• Mines conducting only exploration activities;
• Mines with less than 5 acres of disturbance not located within 1 mile of another mine disturbance that occurred in 10 year period;
• Mineral processing facilities with less than 5 acres of disturbance (waste rock and surface impoundments);
• Abandoned mines; and
• Former owners or operators of facilities covered by the rule.

Notable Provisions in the Proposed Rule

Although industry and interested parties should carefully review the entire proposed rule, notable provisions in the proposed rule that industry should be aware of include the following:

1. New EPA Regulatory Program. The proposed rule creates a new EPA regulatory program that the hardrock mining industry would be subject to, including notification, recordkeeping and other administrative requirements. One innovative feature in the proposed rule is a requirement that each regulated company maintain a public website regarding its compliance with the proposed rule.

2. Additional Bonding Required. The proposed rule would establish additional financial assurance requirements beyond federal and state reclamation bonding programs already applicable to hardrock mines, subject to review and recalculation by EPA every three years.

3. Amount of Financial Responsibility. The proposed rule includes a formula that facilities would need to use to calculate the amount of their financial responsibility requirement. Reductions to the total obligation would be available if a facility demonstrates that it is “subject to, and in compliance with, requirements that will result in a minimum degree and duration of risk associated with production, transportation, treatment, storage, or disposal, as applicable, of all hazardous substances present at the site.” [3]

4. Type of Financial Instruments. The proposed rule identifies the use of insurance, guarantees, surety bonds, letters of credit and trust funds as available financial assurance instruments. EPA is still considering whether to also allow a corporate guarantee mechanism, and has proposed two options in its draft rule:

Option 1 - No Financial Test Option. Under Option 1, all owners and operators would be required to acquire third-party financial instruments to demonstrate financial responsibilities. Under this option, a corporate guarantee would not be available. EPA prefers this option.

Option 2 - Financial Test Option. Under Option 2, the owner or operator could qualify for self-insurance (or use a corporate guarantee) by passing the proposed financial test. If an owner or operator is unable to qualify for the financial test, the owner or operator must acquire a third-party instrument or a trust fund to comply with the proposed rule.

Based on these options, EPA estimated the total baseline financial responsibility amount for the regulated industry at $7.1 billion, with the assumption that no market capacity constraints exist for the issuance of third-party instruments sufficient to cover the estimated financial responsibility amounts that would be required by the rule.

Generally, EPA estimates the cost to industry under these two options as follows:

Estimated Cost to Industry Line-Item	Option 1 - No Financial Test	Option 2 - Financial Test
Amount covered through 3rd-party instruments	$7.1 billion	$4.9 billion
Compliance Costs[4]	$171 million	$111 million
Annualized Administrative Costs[5]	$225,302	$269,038
Intra-Industry Transfers[6]	$127 million	$81 million
Social Costs[7]	$44 million	$30 million

 

5. Proposed Rule Implementation. Owners and operators subject to the rule will need to notify EPA and provide basic facility information within 30 days of the effective date of the final rule. The financial responsibility requirements of the proposal would be phased-in over a period of four years:

• Financial responsibility for health assessment costs amount: 2 years (24 months) after publication of the final rule in the Federal Register.
• Financial responsibility for 50% of the response costs and natural resource damages amount: 3 years (36 months) after publication of the final rule in the Federal Register.
• Financial responsibility for the remaining 50% of the response costs and natural resource damages amount: 4 years (48 months) after publication of the final rule in the Federal Register.

6. EPA Oversight and Regulatory Authority. EPA reserves the right to review the adequacy of financial assurance amounts or terms at any time. If an amount or term is inadequate, EPA would have the authority to initiate an enforcement action.

7. No Clear Bonding Release Date. There is no specific deadline in the proposed rule for the release from any financial assurance requirement, and successful mine closure and state-required reclamation would not trigger an automatic release of the bonding obligation. Release of a facility’s bonding requirement would simply be within EPA’s discretion. Prior to any release, EPA would conduct an evaluation of the facility’s risk and would hold a public comment period if the agency determined a release may be appropriate.

Industry Concerns About the Proposed Rule

During the expedited Small Business Advocacy Review Panel process, and the subsequent review of the proposed rule by the Office of Management and Budget, industry representatives have raised a number of concerns about the direction EPA is taking with this rulemaking. Some of the major concerns raised are:

• The proposed rule duplicates and preempts existing state and federal bonding regulations that did not exist when CERCLA § 108(b) was initially enacted in 1980.
• In drafting and preparing this rule, EPA did not thoughtfully or accurately consider the economic ramifications of the rule, including the impact to small businesses and employment, and did not consult adequately with actual experts in the mining sector, financial institutions and the states.
• EPA has not thoroughly evaluated the actual availability of sufficient financial assurance mechanisms and capacity to meet the requirements of the proposed rule.
• EPA’s underlying assessment of the “risk” that the proposed rule is designed to cover is flawed by EPA’s reliance on an outdated data set, that does not reflect current mining practices. In other words, EPA proposes to burden modern mines with expensive bonding requirements that it tries to justify by relying on historic examples of publicly funded cleanups.

How Should Industry Prepare?

The mining industry should submit substantive comments on the proposed rule to develop a robust administrative record. The comment deadline is 60 days after publication in the Federal Register, and although requests to extend the comment period based on the voluminous record that EPA has published and referenced for the proposed rule and its significant impacts may be made, EPA may not agree to extend the comment period. Comments that industry should consider include the following:

• Duplication of existing federal and state bonding requirements for closure and post-closure
• Economic and social impacts of the rule, including the potential that certain mines could be forced to close
• The availability of insurance, surety bonds and other financial assurance mechanisms
• Allowing companies to demonstrate adequate funds through a financial assurance test and corporate guarantee
• Flaws in EPA’s formula for determining speculative response costs
• Flaws in EPA’s fixed health assessment costs and natural resource damages

Outside of the hardrock mining industry, other industries such as the insurance and banking sectors should strongly consider commenting on the proposed rule. CERCLA § 108(c)(2) contains a “direct” action provision, in which claims can be brought against the guarantor, instead of against an owner or operator. The proposed rule includes proposed financial assurance forms and required wording.

Companies in the chemical manufacturing industry, the petroleum and coal products manufacturing industry, and the electric power generation, transmission and distribution industry should also comment on this proposed rule because EPA simultaneously issued a pre-publication notice stating its intent to move forward with similar rulemaking for these industries, in accordance with its prior 2010 Federal Register notice[8] and the joint schedule filed with the court.[9] At this time, EPA has not decided which of these industries will be subject to the next July 2, 2019 proposed rulemaking deadline.

Impact of the Proposed Rule

EPA’s proposed rule, if finalized in its current form, would give that agency an oversight role in the hardrock mining industry that it currently does not hold. It would likely result in a significant shift in the respective roles of state and federal agencies at such mines, as well as introduce significantly higher operating costs. For these reasons, industry should engage in the upcoming public comment period to a degree that reflects how much is at stake. Industry may also consider pursing political solutions, which could include legislative action as well as re-evaluation of the proposed rule by the incoming administration. EPA has agreed under the current court schedule to issue a final rule by December 1, 2017, but it is not precluded from seeking an extension of that deadline if warranted by comments received on the proposed rule or other circumstances.

This update was first published in Law360 on 12.20.2016 as “EPA Is All In On Mine Bonding.” 

ENDNOTES

[1] In re: Idaho Conservation League, et al., No. 14-1149 (D.C. Cir. filed Aug. 8, 2015) (see Order dated Jan. 29, 2016).

[2] 74 Fed. Reg. 37213 (July 27, 2009).

[3] Pre-Publication Copy of the Proposed Financial Responsibility Requirements under CERCLA Section 108(b) for Classes of Facilities in the Hardrock Mining Industry, 40 C.F.R. § 320.63(c), https://www.epa.gov/superfund/pre-publication-copy-regulatory-determination-notice-financial-responsibility-requirements (last visited Dec. 19, 2016) (the “Proposed Rule”).

[4] The annualized industry compliance costs to secure the third-party instruments. Proposed Rule, p. 22.

[5] Annualized administrative costs include administrative reporting and recordkeeping costs and consist of labor, O&M, and capital costs, and the costs of reading the regulations; submitting initial facility information to EPA and to the public; calculating financial responsibility amounts; choosing a financial responsibility instrument; acquiring and maintaining a financial responsibility instrument, recalculating financial responsibility amounts to reflect any changes in facility operations; and any requirements that apply to the owners and operators upon the transfer of a facility, owner or operator default, a CERCLA claim against any of the owners and operators, or release of the owners and operators from the regulations.  Proposed Rule, p. 22.

[6] The net incremental costs of acquiring capital to secure financial instruments (i.e. insurance). Proposed Rule, p. 23.

[7] Fees and commission paid to financial institutions to obtain financial instruments and the administrative costs incurred in complying with reporting and record keeping requirements of the proposed rule. Proposed Rule, p. 23.

[8] 75 Fed. Reg. 816 (Jan. 6, 2010).

[9] In re: Idaho Conservation League, et al., No. 14-1149 (D.C. Cir. filed Aug. 8, 2015) (see Order dated Jan. 29, 2016).

 © 2016 Perkins Coie LLP

---

Sign up for the latest legal news and insights  >

---