EPA Provides Look Into Pending Financial Assurance Regulations
Recently, the United States Environmental Protection Agency (“EPA” or “the Agency”) shared some preliminary details regarding its impending proposal of financial assurances regulations for the hardrock mining industry. These regulations, which are still under consideration by the Agency, will likely serve as a harbinger of the financial assurances requirements EPA intends to impose on other industries, and collectively, they have the potential to have a significant financial impact on parties responsible for cleaning up contaminated properties.
“Financial assurances” are designed to ensure that sufficient funds remain available to ensure the complete remediation of the contaminated property throughout the remediation process. Financial assurances often take the form of trust funds in which responsible parties deposit monies dedicated to a specific Superfund site or “self-guarantees” whereby the responsible party demonstrates that it has the financial wherewithal to continuously fund a remediation itself. Under Section 108(b) of the Comprehensive Environmental Recovery, Compensation and Liability Act (“CERCLA”), EPA is required to propose and adopt regulations governing the mechanisms and procedures of financial assurance requirements. Notwithstanding the clear statutory obligation, EPA has not taken formal action on financial assurances regulations for more than 30 years, and has instead relied on its settlement and enforcement authority under CERCLA to require that responsible parties provide some form of financial assurance. However, in response to an action filed in a federal appeals court in 2014, EPA agreed to promulgate industry-specific financial assurance regulations as required by Section 108(b).
The regulations are still on the drawing board. In May 2016, EPA provided an update to stakeholders on its development of the regulations for the hardrock mining industry. EPA made clear that the new regulations under Section 108(b) would complement, and not replace, its current cost recovery and enforcement procedures under CERCLA. In terms of the method of calculating the amount of financial assurance required for an individual site, EPA has suggested that it intends to establish a baseline financial assurance amount for hardrock mining sites, which could subsequently be reduced if certain engineering controls are employed. EPA is also considering incorporating fixed amounts or percentages for health assessment costs and natural resource damages, which may result in a significant increase in the financial assurance amount for a Superfund site. These comments by EPA provide some insight into what EPA is considering as it continues to work on a formal rule proposal, an unpalatable prospect for parties facing multiyear, costly clean-ups.
In addition to the recent hints provided by EPA, guidance published by EPA in 2015 also provides some clues as to the substance of the forthcoming rules. If the language of the guidance is any indication, it is possible – if not likely – the proposed financial assurance regulations will incorporate a strong preference for dedicated funds and an aversion to self-guarantees. Responsible parties in that situation will be forced to put money into trust or incur the cost of another mechanism such as a letter of credit, thus requiring them to tie up significant resources for the duration of the cleanup.
While it is too early to tell exactly how EPA will frame its financial assurance regulations, the available information to date strongly suggests that EPA will place greater emphasis on the use of dedicated funds for future remediation costs. Even in the absence of specific regulations, it appears that EPA favors the use of remediation trust funds and similar mechanisms segregating dedicated funds. In any event, responsible parties – especially those currently operating under self-guarantees – should monitor EPA’s rulemaking closely and plan accordingly.