By Tyler Mullins
Coal companies are required to adhere to numerous regulations and requirements that make producing coal exceedingly expensive. For example, these companies are required under federal law to restore/reclaim mined land to an equal or better condition, including restoring the landscape and rivers to its original contours, as well as establishing permanent vegetative cover.[i] Additionally, detailed reclamation plans must be approved by government officials before mining can even begin.[ii] Reclamation is strictly monitored by a wide variety of agencies including: the Environmental Protection Agency (EPA), the Department of Environmental Quality, the Office of Surface Mining, Game and Fish, and the Bureau of Land Management (BLM).[iii]
The Surface Mining Control and Reclamation Act of 1977 (hereinafter SMCRA or “the Act”) provides that, as a prerequisite for obtaining a coal mining permit, a person must post a reclamation bond to ensure that the regulatory authority will have sufficient funds to reclaim the site if the permittee fails to complete the reclamation plan approved in the permit.[iv] There are currently three major types of reclamation bonds: corporate surety bonds, collateral bonds, and self-bonds.[v]
In an attempt to make coal production cheaper, certain states and the federal government allow coal companies to “self-bond.” A “self-bond” is a legally binding corporate promise without separate surety or collateral, available only to permittees who meet certain financial tests.[vi] Self-bonded permittees must maintain a tangible net worth of at least $10 million, possess fixed assets in the U.S. of at least $20 million, and either meet certain financial ratios or have an "A" or higher bond rating. The thought is companies that meet these requirements are “good for it” and won’t have any trouble meeting the reclamation requirements after mining has been completed. This raises several problems, especially with the current market, when one of these companies goes bankrupt.
On August 9, 2016, the U.S. Department of the Interior stated that “state regulators should not allow coal companies to self-bond for [reclamation obligation] costs because of the currently weak market for the fossil fuel.”[vii] Self-bonded reclamation obligations held by a bankrupt company create a circumstance in which there are no funds for the state or federal government to complete the reclamation. Thus, the government must either bid out the reclamation obligations or use taxpayer money to complete the reclamation themselves.
In the end, I believe that self-bonding is a necessary form of ensuring that reclamation will be completed. Unless people from certain coal producing states are all willing to pay more for electricity, self-bonding must continue to exist, because without it coal production would likely drop. Also, without self-bonding we would likely see higher unemployment in certain coal producing states.
Therefore, the states that allow self-bonding to take place must determine whether the risk of self-bonded companies going bankrupt is worth the economic benefit of having more coal production within the state. Do states want to bring in more coal jobs or would they rather see more layoffs? Lastly, is this practice fair to smaller coal companies who are unable to meet the self-bonding requirements? These are the questions states must answer when thinking about the U.S. Department of Interior’s call to halt self-bonding.
[i]Jude Clemente, Self-Bonding for Mines: The Coal is the Ultimate Collateral, Forbes (March 27, 2016, 6:01 PM),, http://www.forbes.com/sites/judeclemente/2016/03/27/self-bonding-for-mines-the-coal-is-the-ultimate-collateral/2/#78fed12021d7..
[iv] Office of Surface Mining Reclamation and Enforcement, Reclamation Performance Bonds, Bonding Overview, http://www.osmre.gov/resources/bonds/bondsoverview.shtm (last visited Aug 24, 2016).
[vii] Juan Carlos Rodriguez, DOI Advises States To Halt Coal Self-Bonding Practices, Law360 (August 10, 2016, 6:47 PM), http://www.law360.com/articles/826660/doi-advises-states-to-halt-coal-self-bonding-practices...