Environmental payments in the minerals extraction sector

Krzysztof MichalakGreen Growth and Global Relations DivisionEnvironment Directorate, OECD

Land and soil use

Air pollution, impact on climate

Water pollution and use (quality/quantity, surface/groundwater)

Adverse effects to biodiversity

Mining waste (toxic/inert)

Noise

Energy use

Emergency preparedness and response

Closure and rehabilitation/recultivation

HUMAN HEALTH!!!

Environmental Management in Mining

direct extraction (mining)

processing of metals and minerals, including iron, coal, precious metals, industrial minerals and uranium, etc

Environmental policies, including impacts of mineral explorations and extraction

Environmental quality standards (as policy objectives)

Environmental impacts assessment (in addition to a baseline description of current conditions, submissions should describe risks and impacts together with proposed alternative and mitigation measures

Permitting process with environmental management programmes and plans for the eventual closure of the mine and the provision of adequate financial assurance to cover the costs of closure and monitoring;

Environmental payments: environmental liability insurance, pollution taxes, non-compliance administrative fees, non-compliance judicial penalties

Compliance monitoring and promotion: information, advice, guidance, incentives/awards, partnership with trade associations

Environmental policy and regulatory framework

Environmental liabilityinsurance

Meeting Financial Assurance (FA) requirements is necessary for obtaining and maintaining operating permits in the mining industry.

Letters of credit and bonds are the most common but there are several other instruments

E.g. Financial Security Deposits under the Mine Financial Security Program in the Province of Alberta, Canada

New Mines – Mine Type Base Security Deposit (BSD)

Mine-mouth coal mine $2 000 000Export coal mine $7 000 000Oil sands mine with no Environmental Protection and Enhancement Act (EPEA) approval as of January 1, 2011

$30 000 000

Oil sands mine and upgrader with no EPEA approval as of January 1, 2011

$60 000 000

Environmental liabilityinsurance

Other financial instruments for managing oil sands and coal liabilities in a consistent and transparent manner in Alberta:

Operating Life Deposit (OLD): a company is required to start posting financial security when there are less than 15 years of reserves remaining in order for all outstanding abandonment, remediation, and surface reclamation costs to be fully secured by the time there are less than 6 years of reserves remaining.

Asset Safety Factor Deposit (ASFD): In the event that a company’s assets (net cash flow from remaining reserves) fall below an acceptable level, this deposit ensures that all MFSP liabilities are fully funded. When a project’s MFSP-asset-to- liability ratio falls below 3.0, the company must at that time post sufficient financial security to bring the ratio back up to 3.0

Outstanding Reclamation Deposit (ORD): addresses the risks posed by a company that defers its reclamation obligations. According to the Alberat Energy Operator approved reclamation schedule, the company must post an ORD when they fail to meet their reclamation plan targets.

Environmental taxes in KazakhstanThe payments for authorized (below-limit) emissions based on each enterprise’s ELVs for air and water pollutants and the volume of generated waste

Important reform in 2008 - the number of pollutants subject to calculating emission charges was drastically reduced.

Pollution tax rates are set as coefficients multiplied by the Kazakhstan monthly calculation index to take into account inflation and other factors

For above-ELV emissions, the locally applicable rates are further multiplied by a factor of 10.

Design guided by the desire to generate sufficient revenues for supporting regional or local budgets, and not for addressing environmental problems.

Environmental administrative penalties in Kazakhstan

Administrative penalties are imposed by authorities only for pollution exceeding the ELVs set in permits.

However, the authorities interpret this to mean that the penalty should be calculated not only by multiplying the rates, but also by multiplying the product by the amount of the relevant emissions

Excessive penalisation

Non-compliance response

Kazakhstan’s Environmental Code defines economic value of environmental damage as the cost of environmental remediation that can be assessed directly or indirectly.

The Environmental Code gives “priority” for the remediation to be undertaken by the party responsible for the damage.

It also provides for the engagement of independent experts whose fee must be paid by the responsible party.

The direct method of assessment aims to determine the expenditure (in market prices) necessary to restore natural resources and living organisms through “most effective engineering, management and technological measures” in accordance with a time-specific project.

Non-compliance response

However, unlike the practice in OECD countries, the Kazakhstan environmental authorities mostly use the indirect method

This method determines the “pollution damage” from each pollutant using a mathematical formula and then combines the resulting assessments of damage caused by each pollutant.

It does not require measurements (or proof) of actual damage to the environment in determining the amount of compensation that must be paid.

Challenges

The use of multiplied taxes and the indirect method for calculating monetary damages, with their focus on revenue raising, makes it impossible to reliably gauge the relation between pollution payments and marginal pollution reduction costs.

Lack of willingness by local authorities to implement green reform due to fear of the reallocation of revenue from environmental payments away from local budgets; and

Strong vested interests in the energy-intensive sectors, such as domestic electric power, mining or chemical industries not to allocate their own resources in the improvement of their environmental performance.

Need for comprehensive reform

Environmental quality standards need to be revised

Integrated environmental permits should be introduced linked to best available techniques (BATs) which are associated with lower emissions.

Environmental taxes, fines and damages should be aligned exclusively and transparently with environmental policy objectives and the international commitments of Kazakhstan

Discrimination against specific industrial sectors should be eliminated and rates for taxes and fines should be set in a uniform way for all industry sectors and set rules for assessing damages, which are also non-discriminatory.

More regulatory guidance should be provided on how to assess the extent of the damage, needs and costs of remediation, and how to select clean-up measures

Focus on reform of non-compliance response

The permit plays no role in determining liability for environmental damages (no pollution charges but payments for the use of water or land)

Assessment of environmental damage estimates the needs and costs of restoring affected resources or environmental services

The remediation scope may be mandated by law or left to the discretion of the competent authority, which determines specific measures using criteria such as technical feasibility, effectiveness and efficiency

Liability for damages arises only upon a claimant bringing physical evidence of actual harm