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FNEMC Releases Report: Using Financial Assurance To Reduce The Risk of Mine Non-Remediation
Using financial assurance to reduce the risk of mine non-remediation: Considerations for British Columbia and Indigenous governments
Mining is an important contributor to British Columbia’s economy. But when mines don’t get cleaned up at the end of their lives — for example, because a company goes bankrupt — they can leave behind a costly environmental and financial legacy. This paper shows how stronger financial assurance requirements can better protect British Columbia’s communities and taxpayers from the risks of mine non-remediation.
The report focuses on both the actions that British Columbia’s provincial government can take as well as the actions available to Indigenous nations. Indigenous nations are increasingly calling for policy change in British Columbia’s mining sector. Implementing the United Nations Declaration on the Rights of Indigenous Peoples — which the provincial government has — will require that the province address Indigenous nations’ calls for change in a way that advances reconciliation and that recognizes Indigenous governance and values.
The risks of mine non-remediation
• The fact that mining companies are liable for the costs of mine remediation (i.e., clean-up) in British Columbia does not guarantee that they will bear its costs. If they go bankrupt, the costs of cleaning them up their mine sites can fall to taxpayers. Until these sites are cleaned up, they pose significant risk to the surrounding environment.
• While mine abandonment is not the problem it once was, it still occurs in British Columbia. For example, the owner of the province’s Yellow Giant Mine went bankrupt in 2016. Remediating the mine will cost the province’s taxpayers at least $500,000.
• Indigenous communities in British Columbia are particularly affected by the risk of mine non-remediation. Environmental harm from unremediated mines can affect the ecosystems that Indigenous people rely on for sustenance and cultural uses. And it can harm the spiritual connections they have to the local land, water, and wildlife.
Stronger “financial assurance” requirements can reduce the risks of non-remediation
• Financial assurance policies require companies to commit funds against the costs of mine remediation. They ensure that funds are available to pay for cleanup regardless of whether a company goes bankrupt. Common instruments include bonds, insurance, or industry funds.
• Currently, British Columbia commonly “phases-in” financial assurance requirements over the life of a mine. This leaves British Columbians exposed to significant risk. If a commodity price downturn led to a wave of mine abandonment in the sector, British Columbians could be left with an environmental legacy whose cleanup cost was in the hundreds of millions of dollars.
• To effectively address the environmental and financial risks of non-remediation, British Columbia will need to implement stronger financial assurance policy.
• Québec illustrates an alternative approach the province can take. The province requires “hard” financial assurance in-full and up-front from mining companies. These requirements ensure that mining companies bear the cost of cleanup. They strengthen the incentives companies have to limit environmental damage at mine sites. And they have not come at the expense of a thriving mining sector in the province.
RECOMMENDATIONS FOR BRITISH COLUMBIA
Strong legislated financial assurance requirements can help British Columbia reduce the risks from mine non-remediation while still allowing the province to benefit from the jobs and income that mining generates.
Main recommendations to British Columbia’s provincial government
The province should implement financial assurance policy in line with Québec’s current policy approach. Strictly accepting “hard” types of assurance (e.g., bonds) avoids security falling in value before it is needed. And requiring the assurance in-full and up-front ensures that there are sufficient funds to cover remediation even if an operator goes bankrupt early in a mine’s life.
This kind of approach would better protect British Columbia communities and taxpayers from the risks of mine non-remediation. Québec’s experience demonstrates that this type of stringent policy approach and a thriving mining sector are not at odds.
Main recommendations to British Columbia’s Indigenous nations
If the British Columbia government implements less-stringent financial assurance policy than what we recommend above, British Columbia’s Indigenous communities should set their own financial assurance requirements by requiring them as a condition of their consent to mining projects. They can do so via the impact benefit agreements (IBAs) that they negotiate with mining companies, via the regulations and engagement processes stemming from the province’s pending legislation to implement the United Nations Declaration on the Right of Indigenous Peoples, or both.
Whatever course the government of British Columbia takes in its reform of mining sector financial assurance, it must deliver a solution that makes sense for all British Columbians. The government’s own commitments demand that in doing do, it closely consider the views and priorities of the province’s Indigenous nations.
Mining is an important contributor to the British Columbia economy. But it also comes with environmental risks. When mines are not remediated (i.e., cleaned up) at the end of their lives, they can contaminate local water supplies, affect ecosystem service provision, and harm local biodiversity (Gorton et al., 2010; Lima et al., 2016).
Historically, mining companies leaving behind unremediated mine sites has been a significant problem in British Columbia. While mine abandonment is not the problem it once was, it still occurs. When it does, the costs—environmental, financial, or both—fall to British Columbians.
In 2015, for example, the Yellow Giant Mine in B.C. was shut down for unauthorized effluent discharges and permit violations. Its owner, Banks Island Gold Ltd., filed for bankruptcy in January 2016, leaving behind an unremediated mine site. Until the site is cleaned up, it will pose an ongoing risk to the surrounding environment. The government of British Columbia estimates the cost of remediation at $1 million, while an environmental consultant for the impacted Gitxaala Nation has estimates costs of $1.6 million (Allan, 2016). The province only required the company to post $420,000 in security against cleanup costs, so the remaining costs will fall to British Columbia taxpayers.
Governments have a range of policy tools and options at their disposal for reducing the risk of mine non-remediation. 1 For example, they can implement rules that clearly establish companies’ legal liability for damages, or require companies to undertake particular remediation or risk-mitigation actions.
In this report, we focus on the role “financial assurance” can play. Financial assurance policies require companies to commit funds against the costs of mine cleanup. Financial assurance offers policymakers a powerful tool: it provides a direct economic incentive for companies to undertake and complete cleanup; it ensures that—should they not—funds are available to pay for mine remediation; and it does these things cost-effectively, by harnessing market forces (Ben-Shahar & Logue, 2012; Mackie, 2014; Faure, 2016).
This report is organized as follows. Section 2 discusses the impacts that mine non-remediation can have on Indigenous communities as well as the policy solutions available to them as nations. Section 3 discusses the risk of non-remediation in the mining sector and the specific role financial assurance can play. Section 4 describes the government of British Columbia’s current approach to financial assurance policy. Section 5 considers the possibility of requiring security against the cost of mine cleanup both in-full and up-front, as is done in Québec and Alaska. Section 6 presents a number of design details that are critical for ensuring that financial assurance policies operate effectively. Finally, Section 7 offers recommendations to British Columbia’s provincial and Indigenous governments.
British Columbia has indicated that it will release an updated policy for mine reclamation securities before the end of 2019. The information in this report can help inform the implementation of that policy and can also provide guidance to Indigenous nations interested in ensuring that mining is done responsibly
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