B.C.’s mines represent a staggering liability for taxpayers: report

The polluter pay rule sound great in theory, but, when it comes to mining operations in B.C., the often-quoted policy does not reflect reality, says a report, released Wednesday, by the Ecofiscal Commission, an independent group of high-profile economists who look for ways of increasing economic activity while better protecting the environment.

Juggling economic activity and risks to the environment usually involves putting a price on pollution and in a case study of Canada’s mining sector, which looks at financial assurance policies in B.C., Alberta, Yukon, Ontario and Quebec, the economists found that B.C. is not practicing what it preaches.

“Financial assurance in B.C. is stronger in theory than in practice,” says the report, which found that the broad authority given to the Chief Inspector of Mines to set the amount of financial assurance that companies have to post before digging, is used more to encourage economic activity than to deal with compensation or to deter companies from making environmentally-risky decisions.

“In practice, the government has not required stringent assurance. As a result, the province does not hold sufficient financial assurance to cover its potential reclamation liabilities,” it says.

B.C. not honouring polluter pay principle

In 2016 provincial Auditor General Carol Bellringer sharply criticized B.C.’s under-funding of liability for mine reclamation and lack of mining regulation enforcement. The audit was followed by a report by economist Robyn Allan that revealed gaping holes in B.C.’s financial assurance policies.

Since then, the province has made an effort to increase the amount of financial assurance it holds, says the Ecofiscal study.

“However, the province still holds only $1 billion in financial assurance against a $2.1 billion cleanup liability,” it says.

Lead researcher Jason Dion said every jurisdiction has its pros and cons, but B.C.’s financial assurance choices are inconsistent with the polluter pay principle.

“There is scope to do more with financial assurance to help honour that principle,” he said.

Unlike provinces such as Quebec, which demands hard financial assurance, such as cash or securities, to cover the full cost of remediation within two years of a mine starting operations, B.C. phases in financial assurance to keep costs low during the expensive construction stage.

“By phasing in assurance, the province effectively accepts a mine’s still substantial reserves as a form of soft assurance. However, doing so provides weak deterrence incentives for firms during the early phases of an operation. Because the value of reserves can fluctuate, it also undermines compensation,” the report says.

Dion said it is a choice B.C. has made because the initial stages of mine construction are extremely capital intensive, meaning projects may be less viable if the province demanded hard financial assurance.

In an e-mailed statement to The Narwhal a spokesperson for the B.C. Ministry of Energy and Mines said staff are reviewing the Ecofiscal Commission’s report.

“This government recognizes the need to ensure the people of B.C. are protected if a mining company fails to meet its requirements around reclamation and remediation of a mine site,” the statement read. “The Ministry of Energy, Mines and Petroleum Resources requires security at the time of mine permitting and regular review of the amount as conditions change throughout the life of the mine.”

Lack of up-front cash for cleanup can prompt bankruptcy

Quebec stands out as having the most stringent financial assurance requirements in the country and, according to the Fraser Institute annual survey of mining companies, is also one of the top jurisdictions for mining as it has simultaneously tweaked rules and regulations to encourage investment.

The complexity of different tools and financial assurance methods used across Canada is surprising, Dion said.

However, one major gap is that none of the provinces apply financial assurance to disasters, such as a tailings spill.

“If a company does cause a disaster it is liable for that. The tricky part is if they end up declaring bankruptcy or if there is a liability cap, they may not end up bearing the cost. It’s an important gap and financial assurance is a tool we can use to fill this gap,” Dion said.

The lack of up-front cash to clean up a disaster may encourage some companies to declare bankruptcy and is certainly a missed opportunity to lower risks and the potential social costs of mining disasters, the report says.

“If a tailings spill like Mount Polley were to occur in any of these jurisdictions and the responsible company was bankrupted, society would be left to bear the cost. The potential for mining firms to pass on their costs in this way reduces their incentive to reduce environmental risk, exacerbating the risk of a mining disaster,” the study says.

The 2014 rupture of the tailings dam at Imperial Metals’ Mount Polley mine spilled 24 million cubic metres of waste and tailings into Quesnel Lake and nearby creeks and rivers, making it the largest tailings dam failure in Canadian history.

Imperial Metals escaped criminal charges and, although the company is not bankrupt and has paid much of the cleanup tab, Allan estimates that B.C. taxpayers are on the hook for about $40 million.

However, Dion said it appears regulators and the industry have learned many lessons from the Mount Polley disaster and financial assurance plans can add to other efforts to make tailings dams safer.

The Ecofiscal report also points the finger at mine operators who walk away from their obligations.

Abandoned mines a liability

Numbers have improved dramatically since 2006, when there were 10,000 orphaned and abandoned mines across Canada, but it it is another reason why the liability gap must be filled with full financial assurance to genuinely cover remediation, so that governments are not left to foot the bill, the report says.

“Most remediation occurs at the end of a mine’s lifecycle when no further revenues will be generated. This can create perverse incentives for small firms to walk away from their sites before costly remediation and reclamation work begins and for large firms to do the same by structuring their mining projects as independent subsidiaries,” it says.

Also, when mining firms know they will bear only part of the cost of a spill or remediation, there is less incentive to manage the site in an environmentally sound way, it says.

The risk of companies walking away without paying angers Southeast Alaskans who fear that a spill or leak into Alaska’s salmon-rich rivers from the proliferation of mines along the B.C. border, will leave them picking up the costs.

Last year, Allan, in a brief to the Alaska State Legislature, pointed out that Teck Resources Ltd. fully funded its $558 million reclamation obligation for the Red Dog Mine in Alaska, where the state demands cash or bonds up front before a project can proceed.

However, across the B.C. border, where reclamation costs for Teck’s 13 mines was estimated at $1.4 billion, only $510 million in bonding was required, Allan said.