Reducing environmental risks from mining in British Columbia

Pollution

Next month marks the five-year anniversary of the Mount Polley mining disaster. On August 4th, 2014, a dam at the mine ruptured, releasing 24 million cubic metres of water and mine tailings into several lakes and rivers in British Columbia’s Interior. We have written before about how putting a price on the risk of mining disasters can make events like these less likely. Today though, I want to talk about a different environmental risk, one that’s the subject of a live policy discussion in B.C. right now: the risk of mines not getting cleaned up at the end of their lives.

The risk of non-remediation

When mines are not remediated (i.e., cleaned up) at the end of their lives, they can pose significant risks to the surrounding environment. Unremediated mines can cause local soil and water contamination, altered hydrology, habitat loss and fragmentation, and biodiversity loss. They can also cause perpetual environmental liabilities, such as acid mine drainage.

The main driver of non-remediation is mining companies walking away from their cleanup obligations. Historically, this has been a significant problem in Canada: as many as 10,000 orphaned and abandoned mine sites exist across the country. But non-remediation is not the problem it once was, thanks in part to governments’ growing use of “financial assurance.” Financial assurance policies require companies to promise or commit funds against the costs of cleanup. They ensure that funds are available to pay for remediation regardless of whether the company walks away or goes bankrupt.

However, despite this policy progress, Canadian taxpayers still sometimes foot the bill. For example, in 2015 the Yellow Giant Mine in B.C. was shut down for unauthorized effluent discharges and permit violations. Its owner, Banks Island Gold, filed for bankruptcy in January 2016, leaving behind an unremediated mine site. Official estimates placed the cost of remediation at $1 million, but B.C. only required the company to post $420,000 in financial assurance, leaving taxpayers with a cleanup liability of at least $500,000.

Current policy in British Columbia

Mining remediation costs can fall to taxpayers in B.C. because of the province’s practice of phasing in financial assurance requirements. A mining company in B.C. typically will not have to post full financial assurance against the estimated costs of remediation until later in its operating life. This helps keep costs lower during earlier, capital-intensive project phases. But it also creates risk for B.C. taxpayers. Not only that, it exacerbates the risk of environmental damage and increased remediation costs by creating moral hazard. B.C.’s policies have contributed to a situation where, according to the most recent figures, the province holds only $1.36 billion in financial assurance against an estimated $2.8 billion total cleanup liability.

Notably, the province’s current policy approach is at odds with its “polluter pay” policy. The government explicitly states that its Environmental Management Act ensures that “those that pollute are held responsible under a polluter pay principle, so the taxpayer does not have to assume these cleanup costs.” But gaps in the province’s financial assurance approach means that the polluter might not pay.

British Columbia’s Auditor General has highlighted the shortcomings of B.C,’s current approach, as has the Ecofiscal Commission in our report Responsible Risk. In response to the Auditor General’s report, the B.C. government launched a review of its financial assurance policies for the mining sector. In 2016, the government commissioned a report by Stantec Consulting on how other jurisdictions approach the issue. And in 2017, it commissioned a report by Ernst & Young that recommended policy changes. The government will release its new financial assurance policy for mine remediation soon.

Taking a new approach?

One key thing to watch for will be whether the B.C. government takes a different approach to remediation financial assurance or not. In contrast, the Ernst & Young report focused on ways improve the province’s existing system. It looked at ways to better deliver on the province’s current “risk-based” approach, which seeks to have “reasonable” assurance that taxpayers will not need to contribute to remediation costs. The report recommended things like formalizing the ad-hoc processes under which financial assurance requirements are currently determined, and setting requirements based on stage of the mine’s life, and a company’s financial strength and compliance history.

While implementing a more formalized and rigorous version of B.C.’s current system would represent a step forward, it would not fundamentally resolve many of the issues flagged by the province’s auditor general. The risk of costs falling to taxpayers would remain. And if a commodity price downturn led to a wave of abandonment in the sector, it would create an extremely costly environmental legacy for B.C.’s taxpayers. To resolve these kinds of larger, sector-level risks, B.C.’s new policy would need to take a fundamentally different approach.

Learning from best practices

In considering alternative approaches, British Columbia can learn from Quebec’s experience. Following a set of broader mining policy reforms in 2013, Quebec now requires mining companies to post financial assurance in-full and up-front against the costs of remediation—regardless of a company’s unique financial strength. This makes it the most stringent mining sector financial assurance regime in the country. This policy helps protect against sector-level risks, since the government holds full assurance for all its mines, regardless of their life stage.

The stringency of Quebec’s system does not appear to have put the province at a competitive disadvantage. Quebec ranks as the tenth most attractive investment jurisdictions in the world (the second highest in Canada). And mining investment in the province has remained strong.

Quebec’s example demonstrates that a stringent financial assurance approach and a thriving mining sector are not at odds.

Devil in the details

If B.C. decides to stick with its current, risk-based approach, how it chooses to calibrate the system that Ernst & Young maps out will be critical. Will the tests for financial health be stringent enough that only the largest and most well-capitalized companies get more lenient treatment (as is the case in Ontario)? How much weight will it give to strong compliance history? And how fast will phase-in requirements ramp up?

The implications of these decisions are huge—as British Columbians already understand, the economic and environmental effects of mine remediation policy can last decades, even generations.

By implementing smarter financial assurance policy, B.C. will be able to enjoy more of mining’s benefits with less of the risk.

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