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With coal mines across the country closing as the country shifts to cleaner and lower cost sources of electricity, the safeguards that were supposed to guarantee that the mines would be fully reclaimed are proving wholly inadequate. Decades of shortsighted, industry-friendly decisions by mine regulators have cut huge holes into the safety net that was intended to ensure that even abandoned mines would be cleaned up, and the coming wave of mine abandonments promises to overwhelm the system. Rather than own up to these failures and accept responsibility for cleaning up these mines, state regulators are racing to cobble together ad hoc measures that won’t clean up the mines but may shield the states from responsibility. That would lead to a return to the failures of the 1970s, with mine operators once again leaving communities to deal with dangerous mine sites and sources of perpetual pollution. Instead, state regulators should assume responsibility for reclaiming the mines—to protect nearby communities and to get miners back to work—and should then take action to ensure that the individuals who profited from the mines pay their share for the cleanup.
SMCRA has proven weak in the best of conditions, and wholly inadequate in an industry-wide collapse.
Congress passed the Surface Mining Control and Reclamation Act (SMCRA) in 1977 to end the practice of mine operators abandoning mines once all of the profitable coal had been removed. Congress built safeguards into the new law to discourage operators from abandoning mines and to require they set aside money to guarantee that no costs fell on taxpayers if mines were abandoned. That system seemed to work well for four decades. Mine abandonments were rare and isolated, and states took responsibility for reclaiming those that did occur. But the tools built into SMCRA to discourage mine abandonment and ensure mine cleanup are proving ill-suited to dealing with an industry-wide collapse.
For example, SMCRA’s nationwide “applicant violator system” database, which prohibits anyone who’s ever abandoned a mine from securing any new permits, is irrelevant in an industry that’s winding down and where no one is applying for any new permits.
Similarly, SMCRA requires mine operators to post a bond that is only released upon successful reclamation. In theory, mine operators should want to complete reclamation to get that money back. In practice, this system has become so riddled with loopholes that it no longer serves its intended purpose. Instead of requiring all permittees to provide actual full-cost bonds, regulators have allowed the use of self-bonds (which actually amounts to no bond at all) or pool bonds (where the funds in the pool represent a negligible fraction of the total reclamation liability). These approaches eliminate any incentive to complete reclamation, because no bond will be lost if a mine is abandoned. Even where full-cost bonds are required, the bond amount is released in three phases, with two-thirds of the bond amount released after the first phase. This means that so little money is left tied up in the bond at the third phase that reclamation often stalls out after phase 2.
There is no coal recovery on the horizon, and the problems will start compounding.
The collapse of the coal mining industry has already begun and has only accelerated during the coal-friendly Trump administration. Although the industry weathered a string of major bankruptcies from 2015 to 2018 without seeing a significant increase in mine abandonments, those bankruptcies merely set the stage for the current crisis. The primary mechanism that major mine operators like Alpha, Arch, and Peabody used to avoid mine abandonments in the earlier bankruptcies was to offload low-value, high-liability mines to a new set of operators. In many cases, the mines were transferred at no cost to the buyer, and in some cases the seller actually paid the buyer to take the mines. Whether these buyers earnestly, but mistakenly, believed they could turn the mines around, or whether they intended to just skim resources before the inevitable second bankruptcy, the mines were never going to turn a profit. From the perspective of the sellers, that was beside the point, as all they cared about was shedding the liability. And the regulators were all too eager to bless the sales because, at worst, it delayed the time when the mines would be abandoned. The ultimate effect of these transfers was to create the illusion that there was a market for new coal mines. In reality, the transferred mines remained headed toward abandonment.
The current set of mine operator bankruptcies and insolvencies demonstrates that many of these permits that were transferred out of prior bankruptcies have finally reached the end of the road. Several of the companies that acquired permits out of the earlier round of bankruptcies are now facing bankruptcy themselves.
For instance, under the leadership of CEO Jeff Hoops, Blackjewel LLC and its affiliate Revelation Energy acquired mines in Central Appalachia and the Powder River Basin out of the Alpha Natural Resources bankruptcy. Now, Blackjewel and Revelation are liquidating, and dozens of permits in Kentucky are set to be abandoned.
Similarly, ERP was formed in 2015 for the sole purpose of acquiring permits out of the Patriot Coal bankruptcy. Now, ERP is insolvent, has laid off all of its workers, and is failing to meet its environmental obligations. Rather than let ERP enter bankruptcy, however, West Virginia has taken the extraordinary step of seeking a court order to place the company into a “special receivership.”
West Virginia’s attempt to keep ERP out of bankruptcy by resorting to a “special receivership” is indicative of states’ efforts to short-circuit SMCRA and avoid bond forfeiture. In its legal filings seeking to establish the ERP special receivership, West Virginia highlighted the risk that an ERP bankruptcy would drive its reclamation bond provider into its own bankruptcy and would wipe out West Virginia’s bond pool. Rather than suffer those consequences, West Virginia sought to avoid bankruptcy and the inevitable mine abandonment by creating a legal limbo that kept the mines from becoming the state’s responsibility. If you thin of SMCRA as a concrete dam that protects communities from the flood of coal mining’s environmental harms, then West Virginia is dynamiting the dam while trying to claim credit for piling up sandbags that will inevitably be swept away by the flood.
In the Blackjewel bankruptcy, despite months of statements from the company that it intended to abandon dozens of mines in Kentucky, the Kentucky state regulator has held off from formally forfeiting the bonds. Now Blackjewel is proposing to create a “Reclamation Trust,” funded by the reclamation bond providers, to take over mine reclamation. Again, the effect would be to keep the mines from becoming the state’s responsibility and to create a far larger problem in the future, since the regulator also noted that reclamation costs increase the longer the mines are left abandoned.
The major flaw with both the ERP and Blackjewel workarounds is that the special receivership and reclamation trust will be dramatically underfunded and unable to satisfy reclamation and other environmental obligations. West Virginia has acknowledged that the ERP special receivership will be unable to complete reclamation at all of the mines or even to achieve compliance with environmental requirements at all mines. The estimated cost of reclaiming the ERP sites is at least $230 million, while the permits were only bonded for $115 million, and the bond provider appears unable to pay that full amount. The Blackjewel reclamation trust will not commit to completing reclamation at all of the permits it will receive. Kentucky regulators evaluated a representative sample of 20% of Blackjewels total permits (not just those being abandoned) and estimated a bonding shortfall of $38 million for just those mines. It’s likely that the mines being abandoned include those with the highest reclamation liabilities. In both cases, the receivership and trust are engineered to shield the operators from liability for failing to meet the environmental obligations that apply to most coal mines.
Now is the time for state regulators to take responsibility and hold coal profiteers financially accountable.
In sharp contrast to the current bankruptcy proceedings, when a state becomes responsible for an abandoned mine, it must complete the reclamation plan associated with the permit, and remains responsible for complying with the Clean Water Act and other environmental laws. In addition, if the forfeited reclamation bond is insufficient to cover the cost of reclamation, SMCRA empowers the state to recover the shortfall from the company’s owners and other responsible parties. This option is particularly important not only because it makes more funds available to complete the mine clean up but also because it allows regulators to recover from companies that skimmed profits off of distressed coal mines with no intention of ever actually completing reclamation -- as Hoops is accused of doing with Blackjewel.
It’s too late for state regulators to head off the coming wave of abandoned, unreclaimed coal mines. Although there are still steps that regulators can take—requiring current operators to conduct contemporaneous reclamation and minimize the number of acres disturbed at any given time, or shifting operators away from bond pools and into more secure forms of bonding—there are already too many under-bonded mines that have already been functionally abandoned. These are mines that haven’t produced coal for years and that lack the resources to complete reclamation. Eventually, these mines will be formally abandoned and will become the responsibility of the state. When that happens, it’s important that states not try to dodge responsibility but instead take over the mines, get workers back on site to conduct the reclamation, and hold coal profiteers responsible for paying the bill.