On January 29, 2016, the U.S. Court of Appeals for the District of Columbia Circuit ordered the Environmental Protection Agency (“EPA”) to finalize the long-awaited “financial assurance” regulations under section 108(b) of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”).  The hard rock mining industry is first in line to be subject to  the new requirements.

The D.C. Circuit’s order is the result of a case brought by several environmental groups against the EPA seeking to force the EPA to put into effect the so-called “financial assurance regulations.”

In enacting CERCLA in 1980, Congress directed the EPA to ensure that companies remain financially capable of cleaning up contaminated sites. These financial assurance rules were intended to prevent companies from creating toxic sites and then becoming financially unable to clean them up, often causing the cleanup to be delayed for years.

In the intervening thirty years since CERCLA took effect, the EPA made little progress toward promulgating any financial assurance regulations, that is, until a court ruling in 2009 (brought by many of the same groups) ordered them to start. Pursuant to the 2009 ruling, the EPA published a notice in the Federal Register designating the hard rock mining industry as its priority for the development of financial responsibility requirements.  In making this determination, the EPA cited a heightened “risk” associated with hard rock mining which increases the likelihood of releases of hazardous substances.

Why, after all these years, is section 108(b) getting so much attention? Simply put, the financial solvency of hard rock mining companies has become precarious due to the sluggish demand growth for metallic minerals. Therefore, environmental groups have increased pressure on the EPA to issue regulations requiring companies to provide assurances that they will be able to address potential cleanups.

The most recent order establishes a binding schedule for the EPA to complete the rules. The timeline requires that the EPA commence rulemaking with respect to hard rock mining by December 1, 2016, and provide “notice of its final action” by December 1, 2017.

Financial assurances are not new to the mining industry. Indeed, the Bureau of Land Management (“BLM”) currently requires a financial guarantee before mining operations can begin on federal land.  The BLM’s financial assurance regulations require the operator to cover the cost to reclaim the disturbed lands.

The EPA’s financial assurance rules would cover all mining activities, including mining on non-federal land. However, operators need not worry about having to come up with funds to satisfy duplicate requirements.  CERCLA section 114 states that the EPA’s financial assurance program would preempt other state and federal financial assurance programs “in connection with liability for the release of a hazardous substance.”  As we’ve discussed previously, this preemption provision may cause some anxiety to state regulators.

While the purpose of the new regulations is laudable, the regulations have the potential to chill investment and slow the development of hard rock mining projects throughout the United States. Hard rock mining is characterized by high barriers to entry, due to its highly capital intensive nature, in terms of upfront investment required for heavy earthmoving equipment, buildings, vehicles, and transport networks and long production start-up lead times.  The financial assurance regulations will only add to the already high costs of undertaking a mining project and could lead to the project becoming altogether financially unviable.