Financial Assurances for Reclamation

SMCRA generally requires operators to submit a financial assurance in  an amount sufficient to ensure that adequate funds will be available for  OSMRE or the state regulatory authority to complete the reclamation if  the operator does not do so. State Regulatory Authorities and OSMRE Reported Holding $10.2 Billion in Various Types of Financial Assurances

State regulatory authorities and OSMRE reported holding a total of  approximately $10.2 billion in surety bonds, collateral bonds, and self- bonds as financial assurances for coal mine reclamation in 2017. OSMRE and State Regulatory Authorities Face a Number of Challenges in Managing Financial Assurances

OSMRE and state regulatory authorities face a number of challenges in  managing financial assurances for coal mine reclamation—including  those related to self-bonding, unanticipated reclamation costs, and the  financial stability of surety companies—according to federal and selected  state regulatory authority officials, representatives from organizations  associated with the mining and financial assurance industries, and  representatives from environmental nongovernmental organizations  whom we interviewed. Difficulty in determining whether an operator qualifies for self- bonding. However, the operator entered into bankruptcy without having  replaced the self-bond. The  risk associated with self-bonding is greater now than when the  practice was first authorized under SMCRA, according to some  parties we interviewed. In our previous  work examining other types of environmental cleanup, we found that the  financial risk to the government and the amount of oversight needed for  self-bonds are relatively high compared to other forms of financial  assurances. Furthermore, we also previously reviewed federal financial  assurance requirements for coal mining, hardrock mining, onshore oil and  gas extraction, and wind and solar energy production and found that of  these activities coal mining is the only one where self-bonding was  allowed. Because SMCRA explicitly allows states to decide whether to  accept self-bonds, eliminating the risk that self-bonding poses to the  federal government and states would require that SMCRA be amended. Obtaining Additional Financial Assurances for Unanticipated Reclamation Can Be Difficult

Unanticipated reclamation costs, such as those related to long-term  treatment for water pollution, may arise late in a mine’s projected lifespan,  and the operator may not have the financial means to cover the additional  costs, according to OSMRE officials. Matter for Congressional Consideration

Congress should consider amending SMCRA to eliminate the use of self- bonding as a type of financial assurance for coal mine reclamation. (Matter for Consideration 1)

	Agency Comments

We provided a draft of this report to the Department of the Interior for  review and comment.
Why GAO Did This Study

Coal accounts for 17 percent of domestic energy production. SMCRA requires coal mine operators to reclaim lands that were disturbed during mining and to submit a financial assurance in an amount sufficient to ensure that adequate funds will be available to complete reclamation if the operator does not do so. Recent coal company bankruptcies have drawn attention to whether financial assurances obtained by OSMRE and state agencies will be adequate to reclaim land once coal mining operations have ceased.
GAO was asked to review management of financial assurances for coal mine reclamation. This report describes, among other things, the amounts and types of financial assurances held for coal mine reclamation in 2017 and the challenges that OSMRE and state agencies face in managing these financial assurances. GAO collected and analyzed data from OSMRE and 23 state agencies; reviewed federal laws, regulations, and directives; and interviewed OSMRE and state agency officials and representatives from organizations associated with the mining and financial assurance industries and environmental organizations.

What GAO Found

State agencies and the Department of the Interior's Office of Surface Mining Reclamation and Enforcement (OSMRE) reported holding approximately $10.2 billion in surety bonds (guaranteed by a third party), collateral bonds (guaranteed by a tangible asset, such as a certificate of deposit), and self-bonds (guaranteed on the basis of a coal operator's own finances) as financial assurances for coal mine reclamation.
OSMRE and state agencies face several challenges in managing financial assurances, according to the stakeholders GAO interviewed. Specifically,
Obtaining additional financial assurances from operators for unanticipated reclamation costs, such as long-term treatment for water pollution, can be difficult.
Determining the financial stability of surety companies has been challenging in certain instances.
Self-bonding presents a risk to the government because it is difficult to (1) ascertain the financial health of an operator, (2) determine whether the operator qualifies for self-bonding, and (3) obtain a replacement for existing self-bonds when an operator no longer qualifies. In addition, some stakeholders said that the risk from self-bonding is greater now than when the practice was first authorized under the Surface Mining Control and Reclamation Act (SMCRA).
GAO's previous work examining environmental cleanup found that the financial risk to government and the amount of oversight needed for self-bonds are relatively high compared to other forms of financial assurances. GAO also previously reviewed federal financial assurance requirements for various energy and mineral extraction sectors and found that coal mining is the only one where self-bonding was allowed. However, because SMCRA explicitly allows states to decide whether to accept self-bonds, eliminating the risk that self-bonds pose to the federal government and states would require SMCRA be amended.

What GAO Recommends

GAO recommends that Congress consider amending SMCRA to eliminate self-bonding. Interior neither agreed nor disagreed with GAO's recommendation.