Coal production in the Ohio Valley has decreased by nearly 50 percent since 2009, according to federal data. The ongoing COVID-19 pandemic has flattened energy demand, which has struck another blow to the already struggling industry. Coal company bankruptcies continue to pile up.
As the market shrinks, journalist Mark Olalde reports the systems put in place to make sure coal mines are cleaned up are also in jeopardy.
Olalde has been covering the issue for years. He is an environment reporter for The Desert Sun newspaper in Southern California and a freelance reporter. In his latest investigative piece, he explores how the bonding programs and insurance companies backing millions of dollars in cleanup obligations are on the brink.
He recently spoke with energy and environment reporter Brittany Patterson about his reporting.
***Editor’s Note: The following has been edited for clarity and length.
Brittany Patterson: How it is that states ensure that coal mining operations are cleaned up? Can you tell us a little bit about that?
Mark Olalde: Sure. So there’s this supposedly relatively failsafe system, you can kind of boil it down to almost a security deposit. You know, if you rent an apartment or an Airbnb or something, if you the mining company are going to mine, you make money available, that should theoretically cover the cost of cleanup. If you walk away without cleaning up, the state has that money available. These are called bonds. And if you do your own cleanup, you get the money back like you would a security deposit. The second wrinkle to this is there’s six states, mainly in Appalachia, that have a separate bond pool, that’s kind of a pooled fund of extra money that’s really supposed to back up these bonds in case an individual company abandons or forfeits its permits.
Patterson: So these coal companies that are taking out these bonds, they do them with something called a surety policy. Can you tell us a little bit about what that is and what that means?
Olalde: So there’s a few different ways to bond. After a string of bankruptcies hit the major coal companies in 2015, 2016, a lot of them shifted into what are called surety policies, which are very similar to an insurance policy. They’re backed by insurance companies and reinsurance companies. So essentially, it says, ‘Hey, if the coal company, like I said, walks away, there’s this third party.’ In the case of surety, that means the third party is usually a large insurance company that’s on the hook for the actual task of cleanup. So that’s the backfilling of pits, that’s cleaning up the land revegetating, you know x, y and z. And because it’s a third party, because it’s that insurance company, that’s supposedly the safest way to put up a bond to make sure that coal mining gets cleaned up.
Patterson: So this recent piece that you published was really looking into basically how these backstops — both the surety policies and also the bond pools — are doing and if they’re sufficient to be able to handle this ongoing downturn in the coal industry. Let’s start first with the bond pools. What do we know?
Olalde: Yeah, so we’ve known for a couple years that these bond pools have been likely dangerous. So, we’ve known that they already were taking on much too much risk without forcing companies to pay in. All the companies in the pool pay in and they [state regulators] think they only need to deal with one or two bankruptcies at a time. The problem is, you know, the laws around this were set up in the 70s in the 80s. These are laws that were made when the coal industry was a legitimate industry, whereas now, you know, we’re seeing coal companies flee the market as fast as they can. So, these are really from a different time period, and they’re just no longer able to handle this because we’re talking about not one company going under, or two companies going under — we’re talking about an industry-wide rush to leave the market.
Patterson: On the flip side of that are the surety companies. Tell us a little bit about what experts you spoke to were telling you about their health right now, especially during this continued downturn.
Olalde: So the sureties are interesting because they were supposed to be this shining light in the coal cleanup world. They were supposed to be this great idea. But they were predicated, again, on an industry that was worth something, that was worth money, on an industry that insurance companies could come in and give these policies and actually make money off of premiums. The problem is large insurance companies are full of very smart math nerds. They’re full of people that do the math and see when the risk to whatever you’re bringing in via premiums isn’t balancing. And so in the past few years, you’ve had a lot of these large insurance companies that used to back these providers … they’re all leaving the market. They’re realizing that the calculus isn’t there anymore. And so the little bit of money that they would make, it doesn’t really change their business, but the risk they would take on is hundreds of millions of dollars in cleanup liability. All we have left is a handful of smaller companies that are gobbling up all of this business from these really risky operators. I liken it to the 2008 financial crisis and some of the subprime mortgages that went under. It’s too much risk backed by a small number of people that don’t have the money to clean it up. I had several sources just call this A house of cards, and I don’t really disagree with them at all, because we’re seeing just kind of the writing on the wall for all the different ways of guaranteeing coal mine cleanup.
Patterson: What’s at stake here?
Olalde: So, what’s at stake here is hundreds of millions of dollars, or billions of dollars, depending on how you do the calculus, of coal cleanup costs. We passed federal legislation in 1977. We passed state laws after that as well saying the coal companies will get this cleaned up. They’re using a public resource; they’re making money off of it. It’s up to them to make sure the environmental liability and the associated water pollution and air pollution, all of these things that come with it, are cleaned up by the people that made money off of it. You and I didn’t make money off of it as taxpayers, so it’s not our job to clean it up. The problem is, if this system collapses, and it won’t totally collapse, there are still bonds, there are still these bond pools … but the difference between how much money is available and how much money we need is likely billions of dollars. And our options at that point will be either taxpayers pay billions of dollars for cleanup for private companies, or we don’t clean up these mines.