EPA Releases CERCLA 108(b) Proposed Rule for Hardrock Mining and Schedule for Decisions On Other Industries
Thursday, December 8, 2016

On December 1, 2016, in response to a court order, EPA signed a proposed rule pursuant to section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) establishing financial assurance requirements for hardrock mining operations. EPA has set a 60-day comment period for the proposed rule, which will run from the date of publication in the Federal Register (in the next several weeks). The 450-page pre-publication version of the proposed rule is available at EPA’s website. EPA also made available on its website approximately 2000 pages of key background documents supporting the proposed rule.

Separately, EPA determined that it needs more information before deciding whether CERCLA financial assurance should be required for three other industries: Chemical Manufacturing; Coal and Petroleum Products Manufacturing; and Electricity Generation, Transmission, and Distribution. If warranted, EPA may develop similar financial assurance requirements for one or more of these industries at a later date. These industries should pay attention now to the proposed rule for the hardrock mining industry because EPA indicated in the rule preamble that the core aspects of the financial assurance rule will apply to industries addressed in future rulemakings.

Scope & Applicability

For purposes of the proposed rule, “hardrock mining” means the extraction, beneficiation, or processing of metals (e.g., copper, gold, iron, lead, magnesium, molybdenum, silver, uranium, and zinc) and non-metallic, non-fuel minerals (e.g., asbestos, phosphate rock, and sulfur).[1] Coal mining is not included. EPA has proposed certain exclusions from the scope of the rulemaking:

  • Placer mines that do not use hazardous substances.

  • Hardrock mining exploration activities where less than 1000 tons of material have been removed for testing.

  • Hardrock mining operations disturbing less than five acres. Such operations are not excluded if located within a mile of a mine disturbance that occurred in the prior ten-year period.

  • “Processors” causing less than five acres of surface impoundment and waste-pile disturbance. [2]

Baseline Financial Assurance

At the center of the proposed rule is a “formula” developed by EPA to determine the financial assurance necessary to secure “response costs” (CERCLA cleanup costs), natural resource damages, and health assessment costs for each facility. To create the formula, EPA identified 13 kinds of hardrock mine site features that have required remedies in past CERCLA cleanups: (1) contaminated soils, (2) tailings, (3) waste rock/overburden, (4) contaminated sediments, (5) acid mine drainage, (6) slag, (7) smelter emissions, (8) underground workings, (9) process areas and buildings, (10) leachate, (11) demolition debris, (12) leaching wastes, and (13) open pits.[3] EPA then identified response actions used in past cleanups to address hazardous substance releases from these site features, and it estimated response costs by reviewing (among other sources) engineering cost data from state and federal mine closure and reclamation plans. These data were then subjected to statistical analyses to generate baseline financial responsibility amounts for each category of response.

To calculate financial assurance for CERCLA natural resource damages, EPA evaluated 24 Superfund sites for which both response cost data and natural resource damage amounts were readily available. Based on this review, EPA proposed a multiplier of 1.134 to account for natural resource damages and natural resource damage assessment costs. Finally, EPA proposed to add a fixed amount of $550,000 to cover health assessment costs.[4]

Although EPA has disclosed other information about its proposed rule in meetings with stakeholders, it has withheld details of this formula from the public until last week. The formula and associated supporting documents and analyses are the most controversial, complex, and important part of the proposed rule and will require detailed legal analyses as well as review by statisticians, economists, and other experts. Given the complexity of the formula and the proposed rule, and the amount of supporting information already in the rulemaking docket, the relatively brief 60-day comment period should be a major concern to stakeholders.

Financial Assurance Reductions

The baseline amount of financial assurance, once determined, could be reduced under the proposed rule by demonstrating compliance with a general performance standard and with category-specific standards found in existing state and federal regulatory programs.[5] The object of this requirement is to assure that “risk-reducing regulatory requirements are in place” before allowing reduction of the CERCLA financial assurance amount. In theory, operators complying with a robust state or federal regulatory scheme could completely eliminate the response cost and natural resource damage portions of the CERCLA financial assurance obligation, although financial assurance would still be necessary to cover health assessment costs. With this aspect of the proposed rule, EPA clearly was attempting to address concerns expressed by states, federal land managers, and industry stakeholders that CERCLA financial assurance would duplicate (and may preempt) existing, effective state and federal mine regulatory programs and financial assurance requirements.

To meet the general performance standard of the proposed rule, operators must demonstrate “that they are subject to, and in compliance with, requirements that will result in a minimum degree and duration of risk associated with the production, transportation, treatment, storage, or disposal, as applicable, of all hazardous substances.”[6] The proposed rule also contains specific minimum performance standards for all 13 site features.[7] Operators must demonstrate that they are subject to, and in compliance with, these minimum standards, as imposed in an enforceable document issued by a state or by a federal land manager (or both), and that adequate financial assurance is in place to cover performance of the state and/or federal requirements.[8]

Forms of Financial Assurance

The proposed rule provides that financial assurance can be demonstrated through the use of letters of credit, insurance policies, trust funds, and surety bonds and specifies the form of those instruments.[9] EPA conducted a market capacity study to analyze the availability of these instruments and specifically tailored certain aspects of the rule to address the financial sector’s concerns about providing these instruments. However, EPA concedes in the preamble that the actual availability of these instruments will remain unknown until the market responds to the final rule.

In addition, EPA requests comment on whether to allow some form of self-insurance or corporate guarantee. EPA expressed doubts in the preamble, but included an option for these methods of financial assurance, and asked for comments on whether a final rule should allow them. Under this option, an operator could satisfy its entire financial assurance by submitting annual verification that it holds at least one long-term corporate credit rating equal to or higher than A- as issued by Standard & Poors or its equivalent.[10] For lower-rated entities, an operator could assure one-half of its obligation by submitting annual verification that it holds at least one long-term corporate credit rating of BBB+ or BBB.[11] To use this option, an owner or operator would be required to have: (1) a tangible net worth of at least six times the amount of its environmental obligations and (2) U.S. assets equal to or greater than 90% of its total assets, or six times the amount of its environmental obligations.[12] Operators not able to self-insure could satisfy this test by obtaining a written corporate guarantee from a direct or higher-tier parent corporation, a firm owned by the same parent corporation as the operator, or a firm with a substantial business relationship with the owner or operator that satisfies the financial test.[13]

Duration of Financial Assurance Obligation

New operations would have to meet the CERCLA financial assurance obligation before beginning operation. For existing operations, the proposed rule would phase in the requirements over a four-year period.[14] Operators who sell or transfer their interest in a mine subject to the rule must continue to comply until the new operator can satisfy the requirements of the rule.

An operator must demonstrate financial responsibility throughout the life of the operation and during/after closure and reclamation, until EPA determines, based on information submitted by the operator, “that the degree of risk associated with . . . hazardous substances is minimal.”[15] The proposed rule itself contains no criteria upon which to base this decision, but the preamble indicates that it will be site-specific, based on EPA’s “substantial experience in making individualized determinations of site risk.”[16]

Costs

EPA estimates that the proposed rule would cost the mining industry between $111 and $171 million per year, depending on whether the final rule includes a self-insurance/corporate guarantee option.[17] Costs include: (1) costs of complying with the procedural aspects of the rule and (2) costs of obtaining the necessary financial instruments to demonstrate financial responsibility.[18] EPA estimates that between $81 and $127 million of these costs will take the form of payments to banks or insurers.

Responding to the Proposed Rule

EPA’s proposed rule contains many other features that should concern hardrock miners and other potentially affected industries. We are closely following the rule’s development and are happy to discuss its contents, opportunities for participation, and the potential implications for your operations.


[1] Proposed 40 C.F.R. § 320.60.

[2] Id. § 320.62. The pre-publication preamble incorrectly states that processors causing less than five acres of surface impoundment and waste-pile disturbance would be covered by the proposed rule.

[3] Pre-publication Copy, at 274.

[4] Proposed 40 C.F.R. § 320.63.

[5] Id. §§ 320.63(c)–(e).

[6] Id. § 320.63(c).

[7] Id. § 320.63(d).

[8] Id.

[9] Id. §§ 320.40–42, 320.45.

[10] Id. § 320.43.

[11] Id.

[12] Id.

[13] Id. § 320.44.

[14] Id. § 320.61.

[15] Id. § 320.27.

[16] Pre-publication Copy, at 103.

[17] Id. at 22.

[18] Id.

 

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