Environmental Liabilities
Hardrock Mining Cleanup Obligations Gao ID: GAO-06-884T June 14, 2006Key federal environmental statutes, such as the Resource Conservation and Recovery Act (RCRA) and the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which established the Superfund program, require that parties statutorily responsible for pollution bear the cost of cleaning up contaminated sites. In many cases, liable parties meet their cleanup responsibilities. However, many parties responsible for hardrock mining sites include businesses that no longer exist, having been liquidated through bankruptcy or otherwise dissolved. Under these circumstances, some hardrock mining companies that have caused environmental contamination have left the problem for others, typically the government, to address. We were asked to provide a statement for the record on the cleanup of contamination resulting from hardrock mining as it relates to our August 2005 report, Environmental Liabilities: EPA Should Do More to Ensure that Liable Parties Meet Their Cleanup Obligations (GAO-05-658). We made nine recommendations in this report aimed at reducing the government's financial burden for costly environmental cleanups. The agency generally agreed with many of the recommendations, stating its intent to further evaluate some of them.
EPA could better ensure that companies at high risk of incurring environmental liabilities--including hardrock mining companies--meet their cleanup obligations by making greater use of existing authorities. Most significantly, EPA has not implemented a 1980 statutory mandate under Superfund to require businesses handling hazardous substances to provide the agency evidence of their ability to pay to clean up contamination that could result from their operations. Businesses can provide this evidence, called financial assurance, in several ways, including providing a letter of credit from a financial institution and establishing a dedicated trust fund. The 1980 law requires EPA to use a risk-based approach for both (1) identifying the entities that would be covered and (2) specifying the financial assurance coverage they would be required to have. The law also requires EPA to give priority in developing these requirements to those classes of facilities, owners, and operators that EPA believes present the highest level of risk of injury. Although implementing the financial assurance requirement could help avoid the creation of additional Superfund sites and could provide funds to help pay for cleanups, EPA has cited competing priorities and lack of funds, among other things, as reasons for having made no progress in this area for nearly 25 years. Without the mandated financial assurance regulations, significant gaps in EPA's environmental financial assurance coverage exist, thereby increasing the risk that taxpayers will eventually have to assume financial responsibility for cleanup costs. For example, none of EPA's current financial assurance regulations require companies or industries that pose significant risk of environmental contamination to provide assurance that they can meet cleanup obligations for potential accidents or spills of hazardous substances or wastes. Hardrock mining can cause significant environmental problems; these sites are typically large, complex, and costly to clean up. For example, in 2004, the EPA Inspector General estimated that cleaning up 63 mining sites on the Superfund's National Priorities List would cost up to $7.8 billion. In applying the Superfund law's risk-based approach for developing financial assurance requirements, EPA may want to consider hardrock mining--for example, gold, copper, and iron ore mining--a high priority because it presents taxpayers with an especially serious risk of having to pay cleanup costs for thousands of abandoned, inactive, and operating mines in the United States. Some mine owners have defaulted on multiple occasions on environmental liabilities associated with their mines, and the cleanup costs for these sites are being, or are expected to be, borne largely by taxpayers. As a result, EPA may wish to give priority in developing financial assurance requirements to facility owners whose prior actions indicate that they may pose a high risk of default on their environmental obligations. Finally, financial assurances for businesses at risk for environmental contamination can help mitigate the fact that businesses can legally organize or restructure in ways that can limit their future expenditures for cleanups by, for example, separating their assets from their liabilities using subsidiaries to protect their assets.
GAO-06-884T, Environmental Liabilities: Hardrock Mining Cleanup Obligations
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Testimony:
Before the Committee on Environment and Public Works, U.S. Senate:
United States Government Accountability Office:
GAO:
For Release on Delivery Expected at 9:30 a.m. EDT:
Wednesday, June 14, 2006:
Environmental Liabilities:
Hardrock Mining Cleanup Obligations:
Statement for the Record by John B. Stephenson, Director:
Natural Resources and Environment:
GAO-06-884T:
GAO Highlights:
Highlights of GAO-06-884T, a report to the Committee on Environment and
Public Works, U.S. Senate.
Why GAO Did This Study:
Key federal environmental statutes, such as the Resource Conservation
and Recovery Act (RCRA) and the Comprehensive Environmental Response,
Compensation, and Liability Act (CERCLA), which established the
Superfund program, require that parties statutorily responsible for
pollution bear the cost of cleaning up contaminated sites. In many
cases, liable parties meet their cleanup responsibilities. However,
many parties responsible for hardrock mining sites include businesses
that no longer exist, having been liquidated through bankruptcy or
otherwise dissolved. Under these circumstances, some hardrock mining
companies that have caused environmental contamination have left the
problem for others, typically the government, to address.
We were asked to provide a statement for the record on the cleanup of
contamination resulting from hardrock mining as it relates to our
August 2005 report, Environmental Liabilities: EPA Should Do More to
Ensure that Liable Parties Meet Their Cleanup Obligations (GAO-05-658).
We made nine recommendations in this report aimed at reducing the
government‘s financial burden for costly environmental cleanups. The
agency generally agreed with many of the recommendations, stating its
intent to further evaluate some of them.
What GAO Found:
EPA could better ensure that companies at high risk of incurring
environmental liabilities”including hardrock mining companies”meet
their cleanup obligations by making greater use of existing
authorities. Most significantly, EPA has not implemented a 1980
statutory mandate under Superfund to require businesses handling
hazardous substances to provide the agency evidence of their ability to
pay to clean up contamination that could result from their operations.
Businesses can provide this evidence, called financial assurance, in
several ways, including providing a letter of credit from a financial
institution and establishing a dedicated trust fund. The 1980 law
requires EPA to use a risk-based approach for both (1) identifying the
entities that would be covered and (2) specifying the financial
assurance coverage they would be required to have. The law also
requires EPA to give priority in developing these requirements to those
classes of facilities, owners, and operators that EPA believes present
the highest level of risk of injury. Although implementing the
financial assurance requirement could help avoid the creation of
additional Superfund sites and could provide funds to help pay for
cleanups, EPA has cited competing priorities and lack of funds, among
other things, as reasons for having made no progress in this area for
nearly 25 years. Without the mandated financial assurance regulations,
significant gaps in EPA‘s environmental financial assurance coverage
exist, thereby increasing the risk that taxpayers will eventually have
to assume financial responsibility for cleanup costs. For example, none
of EPA‘s current financial assurance regulations require companies or
industries that pose significant risk of environmental contamination to
provide assurance that they can meet cleanup obligations for potential
accidents or spills of hazardous substances or wastes.
Hardrock mining can cause significant environmental problems;
these sites are typically large, complex, and costly to clean up. For
example, in 2004, the EPA Inspector General estimated that cleaning up
63 mining sites on the Superfund‘s National Priorities List would cost
up to $7.8 billion. In applying the Superfund law‘s risk-based approach
for developing financial assurance requirements, EPA may want to
consider hardrock mining”for example, gold, copper, and iron ore
mining”a high priority because it presents taxpayers with an especially
serious risk of having to pay cleanup costs for thousands of abandoned,
inactive, and operating mines in the United States. Some mine owners
have defaulted on multiple occasions on environmental liabilities
associated with their mines, and the cleanup costs for these sites are
being, or are expected to be, borne largely by taxpayers. As a result,
EPA may wish to give priority in developing financial assurance
requirements to facility owners whose prior actions indicate that they
may pose a high risk of default on their environmental obligations.
Finally, financial assurances for businesses at risk for environmental
contamination can help mitigate the fact that businesses can legally
organize or restructure in ways that can limit their future
expenditures for cleanups by, for example, separating their assets from
their liabilities using subsidiaries to protect their assets.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-06-884T].
To view the full product, including the scope and methodology, click on
the link above. For more information, contact John B. Stephenson at
(202) 512-3841 or stephensonj@gao.gov.
[End of Section]
Mr. Chairman and Members of the Committee:
We are pleased to have the opportunity to comment on the cleanup of
contamination resulting from hardrock mining as it relates to our work
on environmental liability issues. Key federal environmental statutes,
such as the Resource Conservation and Recovery Act (RCRA) and the
Comprehensive Environmental Response, Compensation, and Liability Act
(CERCLA),[Footnote 1] which established the Superfund program, require
that parties statutorily responsible for pollution bear the cost of
cleaning up contaminated sites.[Footnote 2] In many cases, liable
parties have met their cleanup responsibilities. However, many parties
responsible for hardrock mining sites include businesses that no longer
exist, having been liquidated through bankruptcy or otherwise
dissolved. Under these circumstances, some hardrock mining companies
that have caused environmental contamination have left the problem for
others, typically the government, to address.
As the Committee considers legislation that would waive certain cleanup
requirements for such parties as industry partners and nonprofit
organizations who agree to clean up contaminated hardrock mining sites
abandoned by their owners, it is also appropriate to consider other
actions the government can take to better ensure that companies with a
high risk for incurring environmental liabilities--including hardrock
mining companies--meet their cleanup obligations. As detailed in our
2005 report on environmental liabilities, the Environmental Protection
Agency (EPA) could better ensure that bankrupt and other financially
distressed businesses carry out their cleanup responsibilities by
making greater use of EPA's existing authorities and enforcement
tools.[Footnote 3]
Most significantly, EPA has not implemented a 1980 statutory mandate
under Superfund to require businesses handling hazardous substances to
provide the agency evidence of their ability to pay to clean up
potential spills or other environmental contamination that could result
from their operations. Businesses can provide this evidence, called
financial assurance, in several ways, including providing a letter of
credit from a financial institution and establishing a dedicated trust
fund. The 1980 law requires EPA to use a risk-based approach for both
(1) identifying the entities that would be covered and (2) specifying
the financial assurance coverage they would be required to have. The
law also requires EPA to give priority in developing these requirements
to those classes of facilities, owners, and operators that EPA believes
present the highest level of risk of injury. Although implementing the
financial assurance requirement could help avoid the creation of
additional Superfund sites and could provide funds to help pay for
cleanups, EPA has cited competing priorities and lack of funds, among
other things, as reasons for having made no progress in this area for
nearly 25 years.
As we noted in our 2005 report, in applying the Superfund law's risk-
based approach for developing financial assurance requirements, EPA may
want to consider hardrock mining--for example, gold, copper, and iron
ore mining--a high priority because history tells us that it presents
taxpayers with an especially serious risk of having to pay cleanup
costs for thousands of abandoned, inactive, and operating mines in the
United States. As detailed in a 2004 report by EPA's Office of
Inspector General, hardrock mining can cause significant environmental
problems, and these sites are typically large, complex, and costly to
clean up.[Footnote 4] According to the EPA IG report, 63 hardrock
mining sites were on the Superfund's National Priority List (NPL) and
another 93 sites had the potential to be added to the list. At least 19
of the 63 NPL mining sites had estimated cleanup costs of $50 million
or more. In total, the 63 sites were estimated to cost up to $7.8
billion to clean up, $2.4 billion of which was expected to be borne by
taxpayers rather than the parties responsible for the contamination.
The IG report also highlighted the fact that the projected operation
and maintenance period for cleanup remedies ranges from 40 years to "in
perpetuity." Thus, the costs to taxpayers would increase if the liable
parties expected to pay for the cleanup remedies proved to be unable to
do so.[Footnote 5]
Further, we reported in 2005 that some mine owners have defaulted on
multiple occasions on environmental liabilities associated with their
mines, and the cleanup costs for these sites are being, or are expected
to be, borne largely by taxpayers. These owners may reasonably be
viewed as at high risk for defaulting on environmental obligations
associated with mines or businesses that they currently own. For
example, one individual is associated with several businesses that have
filed for bankruptcy protection. Like other mine owners with serial
bankruptcies involving contaminated mining sites, this owner continues
to operate businesses having sites with significant contamination whose
cleanup may eventually fall to the Superfund. If EPA developed and
implemented the financial assurance regulations that the Superfund law
mandates, EPA could require such owners to provide financial assurances
now for existing and future cleanups, thereby reducing the amount that
taxpayers would otherwise likely be required to pay.
However, without the mandated financial assurance regulations,
significant gaps in EPA's environmental financial assurance coverage
exist, thereby increasing the risk that taxpayers will eventually have
to assume financial responsibility for cleanup costs. First, none of
EPA's current financial assurance regulations require companies or
industries that pose significant risk of environmental contamination to
provide assurance that they can meet cleanup obligations associated
with potential accidents or spills of hazardous substances or wastes.
For example, when EPA reaches settlement agreements with parties
regarding cleaning up existing Superfund sites, the agency generally
requires the businesses to provide financial assurance demonstrating
their ability to pay for the agreed-upon cleanup activities. Similarly,
under RCRA's corrective action program, EPA typically requires that
owners and operators of hazardous waste treatment, storage, and
disposal facilities provide financial assurance for cleanups of spills
or other existing contamination at hazardous waste facilities.[Footnote
6]
Another significant gap in financial assurance coverage that the
Superfund mandate could address involves types of waste excluded from
RCRA coverage. Some types of wastes associated with mining activities
can result in substantial cleanup costs but are excluded from the
definition of hazardous wastes and therefore are not regulated under
RCRA's hazardous waste provisions. This exclusion has resulted in a
significant gap in financial assurance. In addition, we note that
mining activities on private lands are not covered by the Department of
the Interior's Bureau of Land Management financial assurance
requirements for mines on federal land it manages.[Footnote 7] However,
some of these mining facilities handle hazardous substances as defined
under the Superfund law, and, therefore, financial assurance
regulations issued under the Superfund law could apply to these
facilities. The Superfund financial assurance mandate could also
address the significant gap in financial assurance that exists because
generators of hazardous waste (such as metal-plating facilities), which
are regulated under RCRA, are generally not required to maintain any
financial assurances for contamination they have caused.
By its inaction on the Superfund mandate to require businesses to
provide financial assurance, EPA has continued to expose the Superfund
program, and ultimately the U.S. taxpayers, to potentially billions of
dollars in cleanup costs for facilities that currently are not required
to have financial assurances for cleanup costs, such as many gold,
lead, and other hardrock mining sites and metal-plating facilities. By
implementing the financial assurance requirement under Superfund. EPA
could help close the financial assurance gaps discussed above by
requiring financial assurances for cleaning up existing and future
contamination at facilities that handle hazardous substances but are
not subject to RCRA's closure/post-closure or corrective action
programs, including many mining sites and facilities that generate, but
do not treat, store, or dispose of hazardous waste. These financial
assurance gaps may be more significant since the authority for an
environmental tax on corporations, crude oil, and certain chemicals,
that had largely funded the Superfund program expired in 1995. As a
result, the federal government's general appropriations fund is
increasingly being tapped to fund the cleanups paid for by the
Superfund trust fund when responsible parties do not. For example, for
fiscal year 2004, EPA's appropriation for the Superfund program was
from general revenues only.
As we noted in our 2005 report, EPA may wish to give priority in
developing financial assurance requirements to facility owners whose
prior actions indicate that they may pose a high risk of default on
their environmental obligations. Factors EPA may wish to consider in
evaluating owner risk include compliance history--such as a history of
noncompliance with environmental laws, including cleanup obligations,
and magnitude of past, current, and potential environmental
liabilities.
Finally, financial assurances for businesses at risk for environmental
contamination can help mitigate the fact that businesses can legally
organize or restructure in ways that can limit their future
expenditures for cleanups by, for example, separating their assets from
their liabilities using subsidiaries. A subsidiary that is engaged in a
business that is at risk of incurring substantial liability, such as
mining or chemical manufacturing, can protect its assets by
transferring the most valuable ones--such as equipment and patents--to
a related entity, such as the parent or other subsidiary engaged in
less risky endeavors. The high-risk subsidiary can continue to use the
transferred assets, as appropriate, by leasing or renting them. It has
become common practice for experts in asset protection to recommend
that corporations protect their assets in this way. A goal is to
continually draw down on the subsidiary's remaining assets, such as
cash from the sale of equipment, to pay operating expenses, including
rental and lease payments and salaries. If a liability arises, the high-
risk subsidiary's remaining assets may be reached--but generally not
those of the parent corporation or other subsidiaries to which assets
were transferred.
While these asset protection strategies are generally legal depending
on the circumstances, it is generally unlawful to transfer assets with
the intent to hinder or defraud creditors. Most states have laws that
contain prohibitions on fraudulent transfers. Creditors generally must
seek to invalidate such transfers within 4 years of their occurrence.
Perhaps for these reasons, publications by financial and legal advisors
have suggested that asset transfers be implemented in stages over time
to avoid calling attention to them. The use of such strategies by
parties liable for environmental cleanups presents a significant
challenge to EPA in obtaining cleanup costs because it is hard for the
agency to know about such transfers, much less obtain sufficient
information to successfully challenge them within the time permitted by
law. Further, because businesses typically are aware of Superfund
liabilities for many years before they actually have to fund the
cleanups, they have ample time to reorganize and structure themselves
in ways that can limit the expenditures they may be required to make in
the future.
In closing, these are issues we believe the committee should consider
in evaluating legislation to encourage the cleanup of contaminated
hardrock mining sites. Our report on environmental liabilities
identifies several ways EPA can and should protect its financial
interests, including implementing the mandate in the Superfund law to
require businesses at risk of environmental contamination to provide
financial assurance that it can clean up any spills or contamination
that might occur in the future.
GAO Contact and Staff Acknowledgments:
For further information on this statement,please contact John
Stephenson at (202) 512-3841 or stephensonj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this statement. Individuals who contributed to this
statement include Nancy Crothers, Christine Fishkin, Richard P.
Johnson, Ches Joy, and Susan Swearingen.
FOOTNOTES
[1] For simplicity in this testimony, the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 will generally be
referred to as the Superfund law.
[2] The Superfund law generally applies to cleanups of contaminated
sites that are no longer in use. RCRA generally applies to operating
businesses that treat, store, or dispose of hazardous wastes.
[3] Environmental Liabilities: EPA Should Do More to Ensure that Liable
Parties Meet Their Cleanup Obligations, GAO-05-658, Aug. 17. 2005.
[4] EPA, Office of Inspector General, Nationwide Identification of
Hardrock Mining Sites, 2004-P-00005 (Washington, D.C.: Mar. 31, 2004).
[5] The EPA Inspector General reported that at least one "clearly
viable" party had been identified for 70 percent of the 63 NPL mining
sites (including 11 percent where the viable party was a federal
agency, such as the Department of the Interior). However, the report
also emphasized that EPA should be concerned about the viability of
these parties over time because of the long-term nature of the cleanups
liabilities at mines.
[6] RCRA's closure and post-closure financial assurances cover normal
costs of closing and conducting post-closure care but do not cover
cleanups stemming from accidental releases.
[7] Our report Hardrock Mining: BLM Needs to Better Manage Financial
Assurances to Guarantee Coverage of Reclamation Costs, GAO-05-377
(Washington, D.D.: June 20, 2005) recommends ways for BLM to better
manage financial assurances it requires of operators to guarantee
reclamation costs if they fail to reclaim BLM-managed lands after
operations cease.
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