Once miners have taken what they want out of the ground and separated it from the ore, there is a lot left over that they do not want — in the case of gold and other high-value metals, as much as 99.9% of what gets dug up goes unused. Known as tailings, some of this waste is simply crushed rock, but a lot of it is material that has been made toxic by the refining process and needs to be cleaned up when a mine gets wound down, often at a huge cost.
In order to prevent firms from skipping out on the bill, they are typically required to provide some form a guarantee that they can cover the cost before they are allowed to get started. Recent research that has caught the eye of the European Union suggests that strict requirements that miners pay some form of deposit in advance does indeed serve its purpose, but that there may be reasons why regulators may choose to a more relaxed approach.
Taking a hypothetical copper mine as its example, the research looked into what effect requiring miners to provide approving authorities with a bond that covers the complete cost of clean-up on mine value, firm behaviour and the cost to the taxpayer. When firms were not able to use bankruptcy as a way to avoid paying for mine clean up, mining waste was kept to a minimum. As far as the value extracted from the mine went, it was the same, regardless of the measure used to hold the miner accountable.
While concern about their reputations may make some miners reluctant to use bankruptcy as a way to avoid having to pay to restore a mining area to its original state, in cases where it was permitted, not requiring a bond led to the operation producing more waste; this was particularly the situation in cases in which the miner declared bankruptcy, rather than being forced into it.
As evidence that bonds actually do work, even in cases in which miners could declare their own bankruptcy, the waste produced by their operations was lower if a bond was required. Additional factors, such as the costs associated with providing a bond, may play a role in how conscious miners are of their waste. If, for example, the value of the bond decreases over time due to inflation, miners would have an incentive to create less waste and to spend less time cleaning up.
If bonds are to be fully effective, regulators, for their part, need to make sure that their value is the same as the estimated clean-up cost. This might not be the case if they do not verify that the amount of waste being generated matches the stated amount.
Regulators, for their part, have a financial incentive in making sure miners clean up, given that their own costs of doing so would be higher, although concerns about costs to the taxpayer may be outweighed by concerns that requiring miners to pay clean-up costs up-front could lead to a decision not to establish a mine in the first place.
Source: Aghakazemjourabbaf, S. and Insley, M. (2021) Leaving your tailings behind: Environmental bonds, bankruptcy and waste cleanup. Resource and Energy Economics: 101246. https://doi.org/10.1016/j.reseneeco.2021.101246
Kevin McGwin, PolarJournal
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