US EPA has agreed to promulgate financial assurance rules for hard rock mining companies by December 1, 2017.  Specifically, the agencies requirements will apply to facilities which extract or process metals (e.g., copper, gold, iron, lead, magnesium, molybdenum, silver, uranium, and zinc).  The financial assurance requirements will obligate companies performing environmental cleanup to provide a standby financing mechanism (bond, insurance, or letter of credit) consistent with the US EPA project remedy cost.  The agency has also identified three other industries—chemical manufacturing, electricity generation, and petroleum and coal products manufacturing—that could eventually become subject to financial assurance requirements.

CERCLA Financial Assurance and the 2009 California Litigation

Congress first mandated financial assurance when it passed the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) in 1980.  Through that law, Congress directed the President to identify industries requiring financial assurances for environmental cleanup.  The President, in turn, delegated that responsibility to the US EPA.  With CERCLA, Congress anticipated the promulgated regulations would take effect by 1989.  But that never happened.

Instead, several decades later, several environmental groups sued the US EPA in California.  And on February 25, 2009, the United States District Court for the Northern District of California issued an order requiring the US EPA to identify which classes of facilities required financial assurance rules.  In July 2009, U.S. EPA published a priority notice that it would first develop CERCLA financial assurance rules for the hard rock mining industry.   In 2010, it published an advanced notice of proposed rulemaking of its plan to develop “as necessary” financial assurance requirements for additional industries.  Despite the notices, the US EPA postponed the completion date for its hard rock mining regulations, and it has not indicated whether a rulemaking will occur for other industries.

Environmental Groups Obtain a Writ of Mandamus and Timetable for Regulations

In August 2014 The Idaho Conservation League, Earthworks, Sierra Club, Amigos Bravos, Great Basin Resource Watch, and Communities for a Better Environment petitioned the D.C. Circuit for a writ of mandamus.  The groups sought a timeline for US EPA to develop the regulations.  On January 29, 2016, the D.C. Circuit issued an order requiring the US EPA to issue a notice of proposed rulemaking by December 1, 2016 concerning the financial assurance requirements.  The order additionally required US EPA to publish the regulations for hard rock mining by December 1, 2017.  Separately, The order provided timelines for possible financial assurance regulations impacting three other industries:  chemical manufacturing, electricity generation, and petroleum and coal products manufacturing.

In the accompanying opinion, the court articulated one rationale for requiring financial assurance:

By making it more difficult for mine operators to avoid paying for the cleanup of their hazardous releases, basic economic self-interest means the operator will take cost-effective steps to minimize hazardous releases in order to minimize their environmental liabilities.

In other words, the D.C. Circuit reasoned that requiring industries to provide certain financial assurances for cleanup on the front-end will encourage industry to protect the environment.

Next Steps

Once the US EPA drafts the new financial assurance regulations, the hard rock mining industry and other interested parties will have an opportunity to comment before the rules become final.  After that, the rules may be subject to a challenge in court.

These issues will be discussed in greater detail on April 13, 2016, at a program sponsored by the ABA Section of Environment, Energy, and Resources.  Squire Patton Boggs will continue to monitor these regulations and provide updates as they develop.