As yet another coal mining company teetered on the edge of bankruptcy, West Virginia, on March 26, asked a court for control of several abandoned mines, all possessed by mining company ERP Environmental Fund. This could be the first mining emergency steps states must take to stop several defunct mines from littering the landscape with no fund to restore them.
The Covid-19 pandemic is leading to decreasing energy demand across the world, further destabilizing the battered coal market. Last month, ERP, after accruing countless citations from state regulators, appeared to run out of cash and sack its staff, who walked away from the mining sites. The ERP mines pose an “imminent risk of harm to the environment and the public health and safety,” West Virginia contends in its lawsuit. It is requesting a third party to manage ERP (the acronym stands for “Earth Restoration Project”) as it attempts to recover cleanup funds from the mine’s owner.
According to the West Virginia Department of Environmental Protection (WVDEP), ERP has racked up 160 environmental law violations and repeatedly ignored orders to prevent risks to public health and the environment. ERP has been operating on a “shoe-string budget with under-experienced and under-manned staff,” WVDEP claims. “The [agency] was left with no choice but to step in to seek the appointment of a receiver to take charge of ERP’s operations so as to protect the public health and safety.”
The legal maneuver is highly unusual, states Peter Morgan, an Attorney at the Sierra Club. This means the state is trying to cut in line ahead of other lenders and keep ERP out of bankruptcy (for the time being).
This is not how mining is supposed to work in the United States. The federal 1977 Surface Mining Act requires all coal firms to post bonds that would cover the cost of cleanup in the event of abandonment. Replanting trees, replacing soil, eliminating toxic waste, removing hazards, and treating waste cost millions and leaving open coal mines is hazardous. A 2008 study in the American Journal of Public Health discovered higher rates of cardiopulmonary disease, lung disease, kidney disease, hypertension and other ailments for West Virginians residing near mines.
But enforcement by state agencies has been uneven,” says Morgan. Their reliance on historical default rates to evaluate how many companies might go under, and how much money future reclamation requires, has fallen woefully short.
State funds to cover any shortfalls, financed by coal taxes, are running low as the market for coal continues to decline. In 2020, renewables and natural gas have accounted for 100% of new electricity generation capacity in the US, according to federal energy data. No new capacity has been added by coal. The last proposed coal plant in the US was killed off by Georgia regulators this month.
Companies like ERP were once seen as saviors for cash-strapped states. It was among several companies buying up distressed mines around 2015. They promised to pay off environmental liabilities, revive mining, and fulfill pension obligations previous owners hoped to shed in bankruptcy court.
None of that has occurred. The approximately $115 million in bonds secured by ERP are not enough to clean up the mess from over 100 mining permits ERP acquired from the defunct Patriot Coal Corporation in 2016, West Virginia states in filings. The required cleanup costs would likely bankrupt, not just the issuer of ERP’s bonds, the Indemnity National Insurance Company, but leave West Virginia’s own Special Reclamation Fund empty.
The ERP fiasco is a flashing red light for other coal mining states faced with the prospect of cleaning up an industry running out of cash. In Ohio, the state’s reclamation fund has just $22.2 million to cover as much as $544.8 million in reclamation costs. Even after spending millions to shut down its mine, water pollution may still remain a continuous threat. In West Virginia, the underground Martinka mine owned by ERP requires almost $1 million annually to pump out and treat groundwater that would contaminate the drinking water of thousands of people.
About 11 coal firms have gone out of business in the last four years. More are expected as the coronavirus pushes them “into a much more perilous position,” said Moody’s Investor Service. It predicted coal production in the US would fall more than 20% in the wake of the pandemic. And as coal gradually exits the energy equation, its legacy could disrupt public health and the landscape for generations.
ERP may be the first domino to fall. “I think it resembles Lehman Brothers,” said Morgan, comparing the West Virginia mining firm to the defunct New York Investment bank that presaged a wave of bankruptcies during the 2008 financial crisis. “Suddenly, the holes in the system are observable.”