The coal industry is in a crisis, largely of its own making, and it is now threatening to take taxpayers down with it. Hard-working Americans could be on the hook for billions of dollars in mine clean-up costs if we don’t put a stop to this.
The problem lies with “self-bonding,” a program that allows large, financially sound coal companies to pledge their own assets as insurance to guarantee cleanup in lieu of posting a real bond. But as several of the largest coal companies, including Peabody Energy, have spiraled into bankruptcy, it looks increasingly like taxpayers may be left holding the bag – even as company executives receive multimillion dollar bonuses.
{mosads}This issue is at the forefront of public debate as the Interior Department hosts hearings around the country to gather input for its overhaul of regulations governing the leasing coal from federal lands. The fifth of six meetings was held last week in Grand Junction, Colo., and the last was Tuesday in Pittsburgh, Pa.
Needless to say, companies like Peadody, Arch Coal and Alpha Natural Resources no longer meet the criteria to self-bond, and so billions of dollars of unfinished reclamation work are now at risk. Peabody alone has reclamation obligations totaling nearly $1.4 billion. Other coal producers have been negotiating deals with states in an effort to limit their liability to a fraction of their reclamation responsibilities. Officials in Wyoming, for example, recently reached deals with Arch Coal and Alpha Natural Resources to secure only about 15 percent of their hundreds of millions of dollars of reclamation liabilities. Apparently, they think taxpayers should cover the rest.
Conservation groups working in major coal-producing regions of the country, such as the Powder River Basin Resource Council, have long argued that both state and federal government were falling down on their obligation to enforce the law’s contemporaneous reclamation requirement, the idea being that companies should reclaim as they go and not fall too far behind new coal development. This helps limit the public’s exposure for massive mine clean-up costs at the end of mining. But companies would rather mine coal than reclaim the land, especially if the states don’t enforce the law. The mined land sits idle even as mining itself continues and more land is disturbed.
The government’s response to this nightmare has thus far been tepid, focusing on a proposal to do away with self-bonding altogether. That may be a good idea, but it is far too little and too late to be meaningful for cleaning up existing mines.
The Interior Department has a far better and far more effective tool at its disposal. Federal law requires coal producers to post a bond “sufficient to assure the completion of … reclamation … if the work had to be performed by the regulatory authority in the event of forfeiture. …” Most of the bankrupt companies that were self-bonding are now operating without full reclamation bonds and thus in direct violation of this provision.
Where violations of the law occur, the states generally get the first crack at enforcement. But if a state fails to act, then the federal government must step in. The Interior Department is supposed to issue a notice of violation and give the operator no more than 90 days to fix the problem. If the operator fails to do so, the government is supposed to shut down the mine.
Of course, bankrupt operators are not in any position to secure a conventional performance bond until they can stabilize their financial condition. And shutting down the mines of bankrupt companies would likely force most of them into liquidation since they would no longer be able to generate revenue. Liquidation means zero chance that these companies will clean up their mines.
What the Interior Department could do is demand that companies file a plan within 90 days to step up reclamation and reduce their reclamation liability as a condition for keeping their permit. The plan should include quarterly milestones showing measurable progress toward reducing their reclamation obligations contemporaneously. The failure to meet these milestones should trigger strict consequences such as automatic restrictions on future coal production. As mined-out areas are cleaned up, as liability is reduced and as companies resolve their financial problems, they will be better positioned to secure a proper bond and that too should be a condition for keeping a permit.
Not only would enforcement of the current bonding requirements reduce the risk that companies might walk away from reclamation responsibilities, it would also put many people to work. Coal-dependent communities have been hit hard by the downturn in the industry, and rehiring laid-off employees to reclaim mined lands now – not years from now – would provide much-needed temporary support for communities and their families.
There is simply no excuse for allowing some of the largest coal companies in the world to flout the law and put taxpayers at risk. State and federal agencies should demand that they reclaim our coal mines now.
Mark Squillace is a professor at the University of Colorado’s School of Law, where he served as director of the school’s Natural Resource Law Center from 2005-2013. He also served as special assistant to the solicitor at the Department of the Interior during the Clinton Administration.