As Coal Declines, Agency Raises Red Flag on Reclamation

About 730 million tons of coal were extracted from U.S. mines like this in 2016, according to the U.S. Energy Information Administration. Approximately 40 percent of that was produced on federal lands. (GAO)

(CN) – As America’s coal industry faces a difficult market, a new report from the Government Accountability Office says Congress needs to revise how coal companies are required to pay for reclamation of land.

Since three of the largest companies have gone bankrupt since 2015, the GAO says bonding requirements for coal companies need to be changed so states aren’t on the hook for reclamation if coal companies go bankrupt.

Federal regulations require states make sure coal companies have enough bonding on themselves to pay for reclamation costs if they leave town without reclaiming the land.

Following these bankruptcies and seeing that the coal industry is likely to continue to face economic challenges for several more years, the Office of Surface Mining and Extraction began in 2016 to examine the role of self-bonding for coal-mine reclamation.

States recognize three major types of financial assurances for reclamation: surety bonds, collateral bonds and self-bonds.

With a surety bond, the operator pays a surety company to guarantee the operator’s obligation to reclaim a mine site. If the operator does not reclaim the site, the surety company must pay the bond amount to the regulatory authority or perform the reclamation instead of paying the bond amount.

For a self-bond, the operator promises to pay reclamation costs. Self-bonds are available only to operators with a history of financial solvency and continuous operation, and states have the discretion to accept them.

There are risks to self-bonding. If self-bonded coal company goes bankrupt and does not provide a different type of financial assurance or complete the required reclamation, the regulatory authority and the taxpayer potentially assume the risk of paying for the reclamation, the GAO – which advises Congress to eliminate the option altogether – said.

Because of similar issues with hard-rock mining companies going bankrupt, the Bureau of Land Management in 2001 eliminated the self-bonding option. Among industries that perform extraction, and renewable-energy production, coal mining is the only one where self-bonding is allowed, the GAO said.

Billions of dollars – and millions of acres – are at stake.

State regulatory authorities reported holding approximately $10.2 billion in surety bonds, collateral bonds and self-bonds for coal-mine reclamation in 2017.

Of that amount, approximately 76 percent ($7.8 billion) were surety bonds, 12 percent ($1.2 billion) collateral bonds, and 12 percent ($1.2 billion) self-bonds.

The GAO said 24 states hold surety bonds, 20 states reported holding collateral bonds, and eight states reported holding self-bonds.

One environmental organization said the GAO report brings needed attention to the problems of coal mine bonding.

“Given the structural decline of coal mining in the United States, questions of reclamation are coming front and center,” Shiloh Hernandez, staff attorney for the Western Environmental Law Center, said. “Regulators and industry have long pooh-poohed citizen concerns about slow reclamation or the infeasibility of reclamation. Montana author K. Ross Toole famously called coal-mine reclamation lipstick on a corpse.

“Now with the coal industry in terminal decline, there is a real question whether the hundreds of thousands of acres that have been strip-mined will ever be reclaimed and, if so, who will end up paying.”

Hernandez said self-bonding has proven “disastrous,” and the financial stability of surety bonds leaves more uncertainty over who will pay for coal-mine reclamation costs.

“Hopefully this is a wake-up call for regulators to revisit reclamation and bonding to make sure bonds are adequate to reclaim the land and protect the public.”

Hernandez said reclamation was a cornerstone of the Surface Mine Restoration Act’s passage 40 years ago. “Now we are going to see if that promise is kept,” he said. “The GAO suggests that absent some serious changes, it may not be.”

A spokesman for the National Mining Association said the GAO report is misguided.

“The GAO did not cite a single instance of a self-bonded company that defaulted and failed its reclamation obligation,” spokesman Luke Popovich said. “So its recommendation to legislate the end of self-bonding is not only unfounded but it would worsen financial risk by shifting more of the burden to surety companies.”

States and the feds reported coal mine operators forfeited more than 450 financial assurances for reclamation between July 2007 and June 2016, with 13 of the 25 states reporting at least one forfeiture.

The amount of financial assurance forfeited was sufficient to cover the cost of reclamation in only about 52 percent of the cases, states reported, and did not recover the cost of required reclamation in about 22 percent of the cases.

In the remaining 26 percent of the cases, the states reported they had not yet determined if the financial assurances would be enough to cover reclamation.

The GAO report said a “substantial number of acres of land” throughout the United States has been disturbed by surface and underground coal mining with little or no reclamation occurring.

Since the abandoned mine land program was created, about $3.9 billion in public funds has been spent to reclaim abandoned mines, and there remains at least $10.2 billion in reclamation costs for coal mines abandoned prior to 1977, according to the Office of Surface Mining Reclamation.

Coal accounts for roughly 17 percent of energy production – and 30 percent of electricity production – in the United States, according to the GAO.

To generate this energy, about 730 million tons of coal were mined domestically in 2016, according to the U.S. Energy Information Administration, approximately 40 percent of which was produced on federal lands. Coal companies have permits to disturb 2.3 million acres of land, according to the Office of Surface Mining Reclamation.

In addition to disturbing the land surface, mining can increase sediments in rivers or streams which may negatively affect aquatic species, the GAO said. Mining can expose minerals to air and water, leading to acid mine drainage, long-term water pollution and harm to some fish and wildlife species, the GAO said.

Mine operators must return sites to their approximate original contour unless the operator receives a variance from the regulatory authority. Coal mines must show successful revegetation of the mine site for five years in locations that receive more than 26 inches of rain annually or for 10 years in drier areas, according to the GAO.

The GAO took input for its report from the Interstate Mining Compact Commission, the National Association of Insurance Commissioners, the National Mining Association, the Surety and Fidelity Association of America, the Natural Resources Defense Council and the Western Organization of Resource Councils.

Seven states that have coal mines also weighed in: Illinois, Kentucky, Montana, Pennsylvania, Tennessee, West Virginia and Wyoming.

Federal officials identified six states – Indiana, Kentucky, Maryland, Ohio, Virginia and West Virginia – with alternative bonding systems known as bond pools. Under that system, operators can post financial assurances for less than the estimated cost of reclamation but also must pay into a bond pool.

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