FINANCIAL ASSURANCE FOR HARDROCK MINING: EPA AND CERCLA.

• Author: Murphy, Braden

INTRODUCTION

Precious metals mining, as well as the broader industry of hardrock mining, has changed greatly since Adam Smith posited:

Of all those expensive and uncertain projects, however, which bring bankruptcy upon the greater part of the people who engage in them, there is none perhaps more perfectly ruinous than the search after new silver and gold mines. . . . They are the projects, therefore, to which of all others a prudent lawgiver, who desired to increase the capital of his nation, would least choose to give any extraordinary encouragement, or to turn toward them a greater share of that capital than what would go to them of its own accord. (1) In short, hardrock mining has become one of the "basic building blocks of a modern society." (2) The uses of hardrock minerals, including gold and silver, have expanded with industrialization: modern applications range from healthcare to transportation, electronics to defense. Concurrently, improvements in mining technology have greatly increased the efficiency of exploration and the yield of minerals. (3) To accommodate the growth of the industry, the United States shirked the role of Smith's "prudent lawgiver"; instead, it gave "extraordinary encouragement" to hardrock mining through the General Mining Act of 1872, a law that authorized hardrock mining on federal lands and enabled the acquisition of title to such lands while requiring no royalties and no reclamation, and a law that still governs nearly 150 years later. (4) But this accommodation aided in the settlement of the West and the development of an important sector of the economies of several states and the nation. (5) In the past half century, however, accommodation has given way to a tightening regulatory atmosphere as a new body of laws has emerged to ensure greater environmental protection.

On the other hand, certain aspects of hardrock mining have remained the same. Capital expenditures continue to be significant, and the globalization of the hardrock minerals market (6) has not been reversed. (7) Both of these factors, as well as low profit margins, contribute to a volatile industry in which uncertainty persists; thus, bankruptcy is still brought upon operators with troubling frequency. (8) These bankruptcies are particularly troubling because the search for hardrock minerals has proven "ruinous" in another sense--it results in environmental degradation and creates hazardous conditions--and when operators halt protective procedures and fail to perform reclamation, the exorbitant but necessary costs of mitigating the harm done must be borne by someone else.

Operators are required to perform reclamation activities, primarily as a matter of state law. To ensure funds will be available to perform reclamation in the event an operator defaults on its obligations and declares bankruptcy, financial assurance requirements have emerged. Apart from limited federal regulations (which govern only federal lands), state laws and regulations comprise the universe of financial assurance requirements. In several cases, existing requirements have proven grossly insufficient, and taxpayers have been forced to bear cleanup costs. Many congressional bills have emerged in the past three decades to establish comprehensive federal legislation for hardrock mining and explicitly authorize financial assurance requirements, but each has failed to become law. However, section 108(b) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) contains a provision mandating the promulgation of financial assurance requirements for "classes of facilities" involved in "the production, transportation, treatment, storage, or disposal of hazardous substances," (9) though the Environmental Protection Agency (EPA), which is responsible for doing so, has yet to issue regulations pursuant to this provision and recently declined to issue regulations it had proposed. (10)

This Note argues that section 108(b) imposes a mandatory duty on EPA to require financial assurances from hardrock mining operators and then seeks to outline the scope of that duty. Part I provides a brief overview of hardrock mining, the General Mining Act of 1872, and existing financial assurance requirements. Part II turns to section 108(b) of CERCLA and examines EPA's inaction under that provision, as well as EPA's recent decision not to adopt regulations it had proposed. Part III then examines the scope of EPA's authority under section 108(b) and the federalism implications thereof.

1. HARDROCK MINING AND FINANCIAL ASSURANCE REQUIREMENTS

   Hardrock mining, as defined by EPA, is "the extraction, beneficiation or processing of metals (e.g., copper, gold, iron, lead, magnesium, molybdenum, silver, uranium, and zinc) and nonmetallic, nonfuel minerals (e.g., asbestos, gypsum, phosphate rock, and sulfur)." (11) Because this list is expansive, it is helpful to note what hardrock mining does not include--among other things, coal and "leasable minerals" (e.g., oil and gas), which have received more comprehensive legal treatment. (12) Hardrock minerals are used in a multitude of industries, including transportation, electronics, construction, aerospace, agriculture, health care, and jewelry. (13) Despite the wide range of uses of hardrock minerals, the mining industry itself is "notoriously volatile" because prices "fluctuate with world commodity prices" to a great degree. (14) Additionally, the industry is characterized by large capital expenditures and low profit margins. (15)

   Hardrock mining is most common in twelve western states: Alaska, Arizona, California, Colorado, Idaho, Montana, Nevada, New Mexico, Utah, Oregon, Washington, and Wyoming. (16) Mining played a major role in the settlement of this region, as the promise of work and the prospect of riches drew millions to the West in the nineteenth century. To further spur this burgeoning industry, Congress passed the General Mining Act of 1872, which opened up federal lands, ninety-two percent of which are found in these twelve states, (17) to mining. (18) As such, many hardrock mines have been located, at least in part, on federal lands. (19) Most of the federal lands are managed by the United States Forest Service (USFS) and the Bureau of Land Management (BLM). (20)

   The life cycle of activities at a given mine can be broadly divided into four phases: exploration, development, production, and reclamation. (21) Exploration is the process by which prospectors seek to locate a mineral deposit. (22) Once they find a deposit and obtain the necessary permits, they prepare the site for extraction in the development phase; this entails establishing infrastructure, marking locations for extracting ore and depositing wastes, and gaining access to the deposit through excavation and, for deep deposits, the construction of shafts. (23) Production is the phase during which the valuable minerals are recovered and encompasses several activities, including extraction, beneficiation, and processing. Extraction, as its name suggests, is the process by which miners obtain the ores. (24) Because the extracted ores are impure (i.e., they contain materials in addition to the valuable mineral), it is necessary to concentrate the valuable mineral by separating waste minerals; this phase involves beneficiation and processing, two distinct but related processes. (25) Finally, once mining operations cease, the last step is to close the mine and prepare the land for future uses. Ideally, the owner or operator will engage in reclamation to repair the land, mitigate the environmental damage, and eliminate any health hazards. (26) But as we shall see, abandonment has been widespread, thereby shifting the burdensome costs of reclamation to another party--often the taxpayer.

   Generally speaking, the greatest environmental issues arise during the production phase. (27) One issue relates to mine tailings, the waste minerals separated from the valuable minerals. (28) The harms associated with tailings first gained national attention in the nineteenth century with the advent of hydraulic mining. (29) Tailings may contain a variety of substances, such as metals, and are often stored in tailings ponds to avoid the contamination of groundwater and soil, though leaks in tailings ponds have necessitated response actions. (30) Another problem relates to the chemicals used in a particular beneficiation technique called leaching, which uses solvents to separate the valuable minerals. (31) One common solvent is sodium cyanide, which can leach gold and silver from low-grade ores. (32) While it is an effective chemical, cyanide is a harmful contaminant, (33) and failures to contain it have required major environmental cleanups costing hundreds of millions of dollars. (34)

   There has never been a federal act comprehensively addressing hardrock mining and its impacts, but states, in response to environmental concerns, have filled this void to some extent by adopting regulatory schemes. (35) Beginning with Alaska in 1963, and followed by several other western states in the 1970s, states began to require reclamation plans prior to operations, regardless of land ownership. (36) These reclamation plans impose obligations on the operators in an effort to mitigate the environmental impacts of hardrock mining. With reclamation requirements came financial assurance requirements, (37) which seek to insure against the risk that a company will default on its obligation to perform reclamation and thereby shift the expense of reclamation to the public. The following Sections discuss the existing framework for hardrock mining activities with a focus on reclamation and financial assurance obligations.

   1. General Mining Act of 1872

      During the nineteenth century, the federal government acquired a vast area of land and subsequently sought to dispose of it. (38) The different mechanisms of disposal represented different goals--chiefly, encouraging...