In case you missed the news, coal industry stock prices took yet another tumble on Friday, with all four of the largest US coal companies—Arch Coal, Alpha Natural Resources, Cloud Peak Energy, and Peabody Energy—closing at all-time lows. A Bloomberg analysis attributed the fall to new concerns about the financing of coal mine cleanups:
Two U.S. coal companies, Peabody Energy Corp. and Arch Coal Inc., sank to all-time lows amid concerns that they will have to pay more for insurance that covers environmental damage.
This, I’m sure, is the first time that many folks had ever read anything about coal mine cleanup, especially in the business press. So for newbies who just want an overview of the issue, have I got a treat for you: an FAQ covering the basics of the coal mine reclamation liabilities!!! (Please try to contain your excitement.)
What is mine reclamation?
Under federal law, coal companies are required to clean up, or “reclaim,” land that they have mined. To meet federal mine reclamation standards, coal companies must restore the landscape to its original contours; reverse damage to streams, rivers, and groundwater; and establish permanent vegetative cover. For large mines, reclamation can cost hundreds of millions of dollars.
What is reclamation “bonding”?
Federal law requires coal companies to post “bonds,” or financial assurances, to guarantee that they’ll have enough money to clean up their mines. Companies will sometimes pledge collateral, such as cash or certificates of deposit, to back up their reclamation bonds. They can also back up their bonds with “sureties”—akin to insurance policies—purchased from the private surety market.
What is “self-bonding”?
A few states allow coal companies to “self-bond” for some reclamation liabilities. A self-bond is backed only by the company’s name and overall financial health, not by sureties or specific pledges of collateral. If a company with a self-bond gets into financial trouble, it may not have enough money to pay for cleanup. That’s why federal rules restrict self-bonding to financially robust companies with substantial assets and modest debt.
Why do coal companies like self-bonding?
Self-bonding represents a substantial subsidy to the coal industry. Companies that are allowed to self-bond can avoid the cost of buying sureties, and can free up cash or other collateral that they otherwise would have to pledge for mine cleanup.
Why are citizens and regulators growing more concerned about self-bonding?
Self-bonding increases the risk that taxpayers, rather than coal companies, will have to pay mine cleanup costs if coal companies run into financial troubles. And as the US coal market has slumped, many Wall Street analysts now forecast a wave of coal industry bankruptcies—even among companies that until recently were considered financially healthy enough to self-bond.
What are state mining regulators doing about self-bonding?
Some state regulators have sounded the alarm about self-bonding and the risks it creates both for landowners and for state governments. The state of Wyoming, for example, recently revoked the self-bonds of Alpha Natural Resources, the nation’s fourth largest coal company, after the firm’s finances deteriorated. Alpha will have to replace its Wyoming self-bonds with sureties or with pledges of cash or other collateral.
What are federal mining regulators doing about self-bonding?
A recent Reuters investigation revealed that the federal government is also looking into the self-bonds of Peabody Energy and Arch Coal, the nation’s two largest coal producers. These companies aren’t financially healthy enough to self-bond, so they use a legal loophole: they self-bond through wholly-owned subsidiaries that look healthy on paper, but in reality are no more solvent than their parent companies. Ending self-bonding for Peabody’s and Arch’s subsidiaries would protect Wyoming residents from shouldering the costs for mine cleanup if these companies run into financial difficulty.
Where can I learn more about the controversies surrounding mine reclamation?
If you want to learn the ins and outs of mine reclamation, look no further than this new report, Undermined Promise II, from the Western Organization of Resource Councils, along with NRDC and the National Wildlife Federation.