Coal Mine Closure 1

DOES LEGISLATION IN ALBERTA PROTECT THE PUBLIC FROM THE FINANCIAL OBLIGATIONS OF COAL MINE CLOSURE?

By

JEFFREY ALAN WICKENS

A thesis submitted in partial fulfillment of the requirements for the degree of

MASTER OF ARTS in ENVIRONMENT AND MANAGEMENT

We accept this thesis as conforming to the required standard

……………………………………………. Dr. Lenore Newman, MEM Program Head School of Environment and Sustainability

……………………………………………. Dr. Audrey Dallimore, Thesis Supervisor School of Environment and Sustainability

……………………………………………. Dr. Anthony Boydell, Director School of Environment and Sustainability

ROYAL ROADS UNIVERSITY

May 2009

© Jeffrey Alan Wickens, 2009 

    ISBN: 978-0-494-52182-3   



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Abstract Coal mining in Alberta is influenced by economic, environmental, and social factors that often arise without warning and have the potential to bring an abrupt end to a prosperous operation. Understanding the issues is imperative to addressing how the public is protected from the financial obligations associated with the closure of a coal mine. How the obligations of industry, government, and the public collide to form the basis of responsible and sustainable development is also addressed. A recent case study that drives to the heart of this question provides the foundation for informed discussion and recommendations. With the demand for energy increasing, Alberta will continue to be a major source of energy into the future. As such, it is imperative that legislation is designed to ensure proper life- cycle management of Alberta’s coal resources.

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Acknowledgements

To embark on this venture after being out of school for 20 years was both frightening and exciting. I have survived and believe I am a better person for it. I have met many amazing people during this time and want to take this time and space to acknowledge those that have contributed so graciously of their time and energy.

Thanks Cohort for making school fun. Best wishes to all of you.

I want to thank my employer, ARC Resources Ltd., who supported my return to school from the beginning. Their commitment of time and resources was a comfort that contributed greatly to my success.

To Audrey Dallimore, my thesis supervisor, thank you for making me a victim of your green pen. Your guidance and honesty gently pushed me in the right direction.

Lastly, I want to express my deepest gratitude to my best friend and wife Susan, who not only encouraged me to continue my education, but provided unwavering support throughout. I am eternally grateful.

“Delay is the deadliest form of denial”

Cyril Northcote Parkinson (1909 – 1993) Coal Mine Closure 4

Table of Contents ABSTRACT ...... 2 ACKNOWLEDGEMENTS ...... 3 TABLE OF CONTENTS ...... 4 LIST OF APPENDIXES...... 6 LIST OF TABLES ...... 7 INTRODUCTION ...... 8 RESEARCH SCOPE AND OBJECTIVE ...... 12 THESIS OUTLINE ...... 13 SUSTAINABILITY LINK ...... 13 SIGNIFICANCE OF RESEARCH ...... 14 BACKGROUND TO THE ISSUES ...... 15 COAL MINING LEGISLATION IN SEVERAL REPRESENTATIVE JURISDICTIONS ...... 15 Legislation in Alberta ...... 15 Energy Resources Conservation Board...... 16 Alberta Environment...... 18 Legislation in British Columbia ...... 20 Legislation in Saskatchewan ...... 23 FINANCIAL SECURITY ...... 25 Overview ...... 25 Types of Financial Instruments ...... 26 Adapted from (Miller, 1998) ...... 27 Issues Associated with Financial Instruments ...... 27 Industry Response ...... 29 Use of Financial Security in Alberta ...... 29 ISSUES AFFECTING THE FINANCIAL IMPLICATIONS OF COAL MINE CLOSURE ...... 31 Environmental Issues ...... 32 Land reclamation...... 32 Hydrology...... 34 Wildlife...... 35 Future land use...... 36 Social and Economic Issues ...... 37 Individuals...... 38 Community...... 39 Obligation and Sustainability ...... 39 Estimating the Financial Cost of Coal Mine Closure ...... 41 RESEARCH METHODOLOGY...... 44 LITERATURE REVIEW ...... 44 CASE STUDY ...... 44 PERSONAL INTERVIEWS ...... 44 ETHICAL CONSIDERATIONS ...... 45 Coal Mine Closure 5

CASE STUDY – SMOKY RIVER COAL LIMITED ...... 45 MINE BACKGROUND ...... 45 BANKRUPTCY ...... 46 CURRENT STATE OF THE MINE ...... 47 DISCUSSION ...... 48 LEGISLATION ...... 49 FINANCIAL SECURITY ...... 49 COAL MINE CLOSURE ISSUES ...... 50 FINANCIAL COST ESTIMATION ...... 51 CASE STUDY ...... 51 GENERAL ISSUES...... 52 CONCLUSIONS AND RECOMMENDATIONS ...... 52 CONCLUSIONS ...... 52 RECOMMENDATIONS ...... 54 GLOSSARY ...... 56 REFERENCES ...... 58 APPENDIXES ...... 65

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List of Appendixes Appendix A List of all Coal Mines in Alberta with Valid Permits Appendix B Coal Conservation Act (2000) Appendix C Coal Conservation Regulation (1981) Appendix D Environmental Protection and Enhancement Act (1993) Appendix E Approvals and Registrations Procedure Regulations (1993) Appendix F Conservation and Reclamation Regulations (1993) Appendix G Activities Designation Regulations (2003) Appendix H User Manual for Reclamation Costing and Reclamation Costing Spreadsheet Appendix I Grande Cache Coal Corporation – EPEA Approval for Mine No. 7

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List of Tables Table 1. Power Generation by Source in Alberta Table 2. Global Reserves and Production of Fossil Fuels – 2007 Table 3. Abandoned Mines in Canada Table 4. Coal Production in Canada - 2007 Table 5. Summary of Selected Alberta Environment Regulations Table 6. Types of Financial Security Table 7. Coal Mining Security Deposits Held by the Alberta Government - 2008 Table 8. Social Impacts of a 1% Increase in Unemployment Table 9. Roles and Responsibilities of Stakeholders Table 10. Categories of Mine Closure Activity

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Introduction Financial obligations associated with the abandonment of coal mines in Alberta could leave the taxpayers of Alberta with a major problem. Without clear expectations and regulations regarding coal mine closure in Alberta, responsible development that includes life-cycle environmental, social, and economic accountability is questionable. Coal development in Alberta is regulated by the Energy Resources Conservation Board (ERCB) and Alberta Environment (AE). The ERCB maintains a “Coal Mine Atlas” of over 2,000 coal mines that have operated in Alberta since the late 19th century. A list of all coal mines in Alberta that had valid permits as of 2001, the last time the “Coal Mine Atlas” was updated, is found in Appendix A. The list indicates that in 2001, 28 coal mines were permitted in Alberta and of that number 25 were surface mining operations and 3 were underground. Permitting does not mean operating. In actuality there are only 13 coal mines in operation (R. Puhlmann, personal communication, March 25, 2009). In 2009, 85% of the coal mined in Alberta was used to generate 49% of Alberta’s electricity (Government of Alberta, 2009). A breakdown of Alberta’s electricity generation by source is shown in Table 1. As you can see 87% of electricity in Alberta is generated from non-renewable sources such as coal and natural gas.

Table 1 Power Generation by Source in Alberta Source Power Generated Percent of Total Power (MW) Generated

Coal 5,919 47.1 Natural Gas 5,014 39.9 Hydro 900 7.2 Wind 525 4.2 Biomass 184 1.5 Fuel Oil 13 0.1 Total 12,555 100.0 From (Government of Alberta, 2009) Coal Mine Closure 9

Alberta's coal contains more than twice the energy content of all of the province's other non- renewable energy resources combined, including conventional oil and pentanes, natural gas, natural gas liquids, and bitumen and synthetic crude (Government of Alberta, 2008a). Coal is the most abundant fossil fuel resource in the world (Government of Alberta, 2008a). An indicator of the supply availability of coal is the reserve life index. This is calculated by dividing the annual consumption rate by the proven reserves. This information is shown on Table 2. The global demand for energy will continue to increase and according to the United States Energy Information Administration’s International Energy Outlook 2008, consumption of energy is projected to expand by 50 percent from 2005 – 2030. As this demand for energy continues to increase, the challenge to diversify and balance our sources of energy with both non-renewable fossil fuels and renewable sources such as wind and solar will become essential. This balancing of energy supply will result in a shift of how and where energy resources are used. Technology will be fundamental in this shift. This shift in energy supply takes many years if not decades to occur (Tertzakian, 2006). This same report also concludes that coal consumption will increase 65 percent over the same period. For the period 2002 – 2007, coal was the fastest growing fuel in the world at 4.5 percent. By comparison in 2007, oil consumption grew at 1.1 percent and natural gas consumption had a growth rate of 3.1 percent (BP, 2008). With increasing energy costs and advancements in clean coal technology, the main energy source to meet the burgeoning demand for energy in the future might be coal.

Table 2 Global Reserves and Production of Fossil Fuels – 2007 Fuel Units Reserve Life Index Reserves Annual Production (years) Oil Million m3 41.6 196.8 4,722 Natural Gas Million m3 60.3 177.4 2,940,000 Coal Million Tonnes 133 847,488 6,395.6 Adapted from (BP, 2008)

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According to the Alberta government in 2007, proven reserves of coal in Alberta were 33,600 million tonnes. This represents over 70 per cent of Canada’s coal reserves (Government of Alberta, 2008a). Coal mining in Alberta is mostly conducted by surface mining. Surface mining can take two forms, open pit and open-cast or strip mining. Overall recovery of coal reserves by surface mining is upwards of 90 percent (World Coal Institute, n.d.). The open pit method consists of tunneling into the earth from the surface to expose and extract the coal. Open-cast or strip mining occurs when the depth of the coal seam is relatively shallow and the mines can operate over an area of many square kilometers. With environmental issues at the forefront of public concern, the coal mining industry is under intense scrutiny for a number of reasons. Briefly, these include greenhouse gases, land and water use, wildlife concerns, and socio-economic considerations. These will be discussed in greater detail later in this paper. As a result of these issues the need to be environmentally and corporately responsible is paramount. Part of this responsibility is managing the present and future liabilities associated with coal mining operations. From a global perspective the physical, environmental, and safety concerns associated with abandoned mines is a constant reminder of the legacy left behind an active coal mining operation. Wherever coal mining has occurred there are examples of abandoned coal mines that pose a risk to public health and safety, and/or the environment. These risks include spoil piles and tailing ponds, groundwater contamination, surface water sedimentation, and subsidence from old mines (Ripley, Redmann, & Crowder, 1996). For these legacy mines, the legislation that was in place at the time and the circumstances surrounding the shut down, have a significant bearing on the current state of that mine. These mines can represent a major financial burden on society. Over the past several decades, industry and government have increased their focus toward understanding the environmental issues and financial costs of mine abandonment. The evolution of legislation, standards, corporate responsibility, and social expectations has been the result of this intense effort. Today there is a better understanding of what the social and environmental impacts of coal mining are. Legislation frequently ensures many of these issues are considered and factored into mine design and development so as to mitigate these risks up front. According to MiningWatch Canada, an abandoned mine is a site that closes as a result of an operating company ceasing mine operations without proper closure and reclamation. An Coal Mine Closure 11 orphan mine is further defined as an abandoned mine with no responsible or identifiable party to hold accountable (MiningWatch Canada, n.d.). Society then becomes the responsible party and must address the ongoing management of the mine through to closure. Alberta Environment has no specific definition of orphan mine but does define orphan well as “A well where the company holding the license to operate the well and all working interest owners are defunct or insolvent. This means that there is no owner or party that can be held responsible for abandonment and reclamation” (Environmental Assessment Team, 2009). The financial cost of a coal mine closure means the cost of remediation and full reclamation that meets current regulatory standards. Unless these issues are fully defined and understood the potential for future financial liability for the taxpayers of Alberta is real. In Canada the number of abandoned mines of all types is over 10,000. Table 3 provides an overview of these abandoned mines in Canada. The concern about abandoned mines goes well beyond that of coal mines. In terms of all mine types, the cost to reclaim the estimated 550,000 abandoned mines in the United States is over of $70 billion (Lyon, Hilliard, & Bethell, 1993). Globally, the scope of mine closure obligations is unknown but it would certainly be in the hundreds of billions of dollars with all environmental and societal costs included. The mining life-cycle is “widely regarded as one of the most environmentally and socially disruptive activities undertaken by business” (Jenkins & Yakovleva, 2006). As such the closure of a mine brings with it many questions and concerns. Many of the issues will be environmental, social, and economic in nature and as such will have a fundamental impact on how closure of the mine proceeds. The stakeholder groups will be many and varied including business, government, and residents from the local community, regional and provincial governments, mine employees, and NGO’s. The environmental issues will likely concern reclamation plans, wildlife, and water resources. The economic and social implications, locally and regionally, will also be a major concern. Furthermore, the obligations and responsibilities of industry, government, and other stakeholders will need to be resolved. Finally, and perhaps the most significant aspect, are the costs involved. Determining the environmental, social, and economic issues, concerns, and expectations as they pertain to the closure of coal mines in Alberta is fundamental to the question asked in this paper. Does legislation in Alberta protect the public from the financial obligations of coal mine closure? Coal Mine Closure 12

Table 3 Abandoned Mines in Canada Province Number of Number Verified Number That Have Abandoned by Inspection Undergone Some Mines Remedial Work Newfoundland 39 28 Majority Nova Scotia 300 90 1 New Brunswick 60 6 - 12 < 3 Quebec 1,000 975 Note 3 Ontario 6,015 3,008 Unknown Manitoba N/A N/A N/A Saskatchewan 505 442 428 Alberta 2,100 Most < 1% British Columbia 247 unknown Unknown Yukon 120 120 2 Nunavut 3 3 2 Northwest Territories 37 37 8 Total 10,156 Note. Sites that have undergone remedial work does not mean the site is reclaimed. Note. 700 mines had security work and 95 tailings areas have had remedial work Adapted from (Mackasay, 2000)

Research Scope and Objective Although this paper’s focus is the coal mining sector in Alberta, environmental, social, and financial impacts associated with mine closure are relevant across the entire mining industry. As a result, much of the literature on mine closure in general is directly relevant to coal mining. The purpose of this research is to complete a thorough review of coal mining legislation in Alberta to determine the extent to which the financial costs associated with coal mine closure are adequately accounted for and what legislative mechanisms are in place to ensure the funding of those liabilities is assured. Like many industries operating in developed countries, how industry manages specific liability accounting is based on the degree to which legislative mechanisms require it. Coal Mine Closure 13

Determining what is required to comply with regulations can be complex. Coal mining companies must be cognizant of current scientific knowledge, all regulatory standards, and all potential impacts of their operations. Thesis Outline This paper will outline the legislative requirements pertaining to coal mining in Alberta. For insight and comparison, the legislation in the adjacent jurisdictions of British Columbia and Saskatchewan are also reviewed and findings presented. The current financial security options available and used are also reviewed. All of these considerations are essential to understanding how government and industry can satisfy their own needs and that of the taxpayers in the coal mine closure issue. Environmental, economic, and social issues associated with coal mine closure are examined in addition to the question of corporate responsibility and obligation. Chapter 3 details the research methodology and criteria used and why it is relevant to the paper. A case study of a coal mining company in Alberta that recently went bankrupt and orphaned a full coal mining operation is the context of Chapter 4. This will set the stage for the discussion of the research, and conclusions and recommendations in Chapters 5 and 6 respectively. Terminology used throughout this paper can be found in the glossary. If the research does not indicate that current industry and government approaches are effective at protecting the public from the financial costs of coal mine closure, recommendations based on the findings will be presented for consideration. Sustainability Link Mining and sustainability appear to be contradictory, as the business of mining involves the extraction of resources that are non-renewable. Whitmore (2006) argues that mining and sustainability has only made its way into mainstream media because of major industry sponsorship. From the perspective of the communities affected by mining, the industry continues to negatively impact their lives and the environment, regardless of all the sustainability awareness (Whitmore, 2006). This does not mean that effective management of environmental, social, and economic issues lack direction or purpose. Regardless of past performance, the mining industry has solid reasons to build sustainability into their business model. In 1987 the Brundtland Commission published the now famous definition of sustainable development. It reads “development that meets the needs of the present without compromising the ability of future generations to meet their own needs”. Since that time there have been Coal Mine Closure 14 countless iterations, re-wordings, and new definitions, for sustainable development. Rather than focus on a definition, it may be more appropriate to focus on what indicators should be used to measure it (Dahl, 1995) To debate the sustainability of mining is not overly productive as the very concept of sustainable development is ambiguous. I would state with confidence that mining involves harvesting non-renewable resources, contributes to social prosperity at some level, and has impacts on the environment. These notions arguably are at the center of any sustainability debate. I would also argue that mining is not likely to cease anytime soon. Therefore, we must first work with what we have, and second, promote better practices, from both an industry and regulatory perspective. If we can agree here that the betterment of future generations by the exploitation of natural resources is quasi-sustainability, then the potential for the mining industry to achieve sustainability is real. The desire to move society and industry towards a sustainable future will require a major shift in thinking and resource allocation. To achieve this, ongoing improvement of triple bottom line issues must be committed to at the corporate level in order to achieve some level of sustainability in the mining industry, and it must happen throughout the life-cycle of a mining operation (Jenkins & Yakovleva, 2006). Significance of Research The issue of coal mine closure in Alberta is very much a relevant issue. With almost 80% of Alberta’s electricity being generated from coal and the likelihood that renewable sources will not offset this usage in the near future, the continued need to mine coal is real. Annual demand for electricity in Alberta is forecast to increase from the current peak of about 10,000 MW to 19,000 MW by 2027 (Alberta Electric System Operator, 2007). Although the power generation mix is changing as was shown in Table 1, a large proportion of power will continue to be coal generated. Alberta’s coal power generation infrastructure is well established with billions of dollars invested. This infrastructure includes coal extraction or mining, processing, transportation, power generation, transmission systems, and end usage. Without viable alternatives to meet the demand for electricity, the business of coal mining in Alberta will continue into the near future. As a result, it is imperative that the issues associated with coal mine closure are addressed and the public is protected from the obligations associated with it. Coal Mine Closure 15

Background to the Issues Coal Mining Legislation in Several Representative Jurisdictions Assessing the effectiveness of coal mining legislation is critical to understanding how the public is protected from the financial obligations of coal mine closure and the potential for orphan coal mines. The legislative requirements for coal mining often require advanced planning for reclamation and closure during the initial phase of development. This includes decommissioning of any infrastructure used during the life of the mine. Depending on the mine in question, this might include buildings, roads, rail lines, tailing ponds, storage areas and any other physical infrastructure utilized during the mining operation. For both government and industry, a key component of successful coal mine reclamation and closure planning is to understand the not so visible aspects of the coal mining operation namely the environmental and social issues that must be identified and addressed. In all cases, the lands disturbed during the mining operation must be returned to a state that meets the legislative requirements of the governing jurisdiction. The Federal government may become involved through the Canadian Environmental Assessment Act if an environmental impact assessment is required or the Department of Fisheries and Oceans will become involved if navigable waters are potentially impacted by a proposed project. To constructively assess the effectiveness of current legislation pertaining to coal mining in Alberta it is prudent to also review coal mining legislation in other jurisdictions. In this case, the legislative mechanisms and requirements in the provinces of British Columbia and Saskatchewan are assessed. Together these three provinces represent almost all of the coal produced in Canada as shown in Table 4. Legislation in Alberta In Alberta, the ERCB and AE are the two main regulating authorities for coal mining activity. Both have joint and integral roles in ensuring that coal exploration, development, production, and abandonment and reclamation, are conducted in a manner that safeguards the environment and is in the public interest. Both organizations also have within their respective legislations, provisions for the use of financial security instruments to ensure proper mine closure. The ERCB’s fiscal provisions are for underground coal mining operations and AE’s provisions are applicable to surface coal mining operations and more specifically reclamation.

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Table 4 Coal Production in Canada - 2007 Canadian Jurisdiction Production (103 Tonnes) Percent of Total Alberta 32,807 47.2 British Columbia 26,046 37.5 Saskatchewan 10,542 15.2 Canada 69,541 100 Adapted from (Natural Resources Canada, 2007)

Energy Resources Conservation Board. The ERCB utilizes two pieces of legislation: the Coal Conservation Act (2008) and the Coal Conservation Regulation (1981). These two pieces of legislation can be found in Appendix B and C respectively. Together these two pieces of legislation govern the exploration, construction, operation, and closure of coal mining projects in Alberta. The coal mining industry in Alberta, by way of the Coal Conservation Act (CCA) and Coal Conservation Regulation (CCR), is accountable to the provincial government and the public for how they conduct their business. This is accomplished by providing a regulatory mechanism that prescribes when approval is required for every aspect of coal exploration, development, production, and abandonment and reclamation activity. The purpose of the CCA, as stated in the Act is:

(a) to provide for the appraisal of Alberta’s coal resources; (b) to provide for appraisals of coal requirements in Alberta and in markets outside Alberta; (c) to ensure orderly, efficient and economic development of Alberta’s coal resources in the public interest; (d) to effect conservation, and prevent waste, of the coal resources of Alberta; (e) to assist the government to control pollution and ensure environment conservation in the development of the coal resources of Alberta; (f) to ensure the observance of safe and efficient practices in the exploration for, and the Coal Mine Closure 17

mining, storing, processing and transporting of, coal; (g) to provide for the recording, and for the timely and useful dissemination, of data and information relating to exploration for coal and to the occurrence, reserves, quality, production, transportation, processing and use of coal in Alberta.” (Energy Resources Conservation Board, 2008)

In addition to the above requirement’s, Part 4 of the CCA requires a permit to explore or develop a coal mine or site, and a license to operate a mine or mine site, and in both cases a plan to reclaim all lands that might be disturbed. The CCA also states that the Lieutenant Governor in Council may make regulations that require a performance bond to ensure proper operations (Energy Resources Conservation Board, 2008). Other aspects of the CCA that relate to liability and obligation of the proponent include the ability of the ERCB to perform abandonment operations if in its opinion activity is not being performed as prescribed by the CCA. This includes the use of any performance bonds to facility such activity. Any cost over and above that provided by a performance bond is considered to be a repayable debt to the Board by the license or permit holder (Energy Resources Conservation Board, 2008). The CCA also provides a linkage to the requirements of any other Act that may specify operational or performance requirements and that the Act does not “relieve a person from the requirements or liabilities arising under any other Act or otherwise” (Energy Resources Conservation Board, 2008). Coal mining operations commonly have facilities that process the coal for use in electricity generation or for ease of transport. The facilities might include conveyor systems, crushers, separation and cleaning systems, and dewatering and filtering. The facilities or processing plants are integral and inclusive parts of a coal mining operation and would be part of any reclamation requirements. The processing of mined coal is dealt with specifically in Part 5 of the Act. It outlines specific requirements to obtain an approval to construct or begin operations at a new plant or resume operations at an inactive or abandoned plant. Part 5 also specifies the requirements to outline proposed pollution control procedures. The ERCB, once notified of the impending shut-down or suspension of operations of a coal plant, will prescribe the conditions by which that activity should occur. Again, any failure to complete the activity as directed can Coal Mine Closure 18 result in the ERCB ensuring compliance and directing all costs to the approval holder (Energy Resources Conservation Board, 2008). The CCA prescribes when regulatory approval is required however it is the Coal Conservation Regulation (CCR) that is the legislative mechanism that details what information is to be provided as part of any application that is required under the CCA. This includes application requirements, types of information and reporting required at each phase of a mine development, types of inspections to be completed, sampling and data collection protocol, measures to prevent pollution of air, land, or water, and mine site reclamation or restoration procedures (Energy Resources Conservation Board, 2009). Alberta Environment. Alberta Environment also administers Acts and Regulations that govern the coal mining industry. The Environmental Protection and Enhancement Act (EPEA) is the guiding legislation behind the more prescriptive regulations that govern the coal mining industry in Alberta (see Appendix D). EPEA generally describes the tools at the government’s disposal to execute development of the provinces resources in a manner that protects the environment and safeguards the safety and wellbeing of the public. Critical aspects of the EPEA, as it pertains to coal mining exploration, development, operation and reclamation, are the requirements to obtain government approval, conduct environmental impact assessments as required, reclaim disturbed lands, and the provision for required conservation and reclamation security. The Minister of Environment has the discretion to order the proponent to conduct an environmental impact assessment. The contents of this document will be determined by a “terms of reference” prepared by the proponent and submitted to the Director responsible for the activity, for review and approval. When the Director considers the terms of reference to be complete, the environmental impact assessment is prepared and submitted for formal review and approval. The Environmental Impact Assessment is also available for public scrutiny. If other jurisdictions are potential stakeholders or may have some governing powers, the environmental impact assessment process is flexible to account for joint review and approval of a coal mine proposal. The main pieces of legislation are the EPEA and the Water Act. Several applicable regulations enacted by these Acts are summarized in Table 5.

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Table 5 Summary of Selected Alberta Environment Regulations Regulation Purpose Approvals and Registrations Procedure Defines application requirements Activities Designation Classifies an activity for the purpose of application information requirements Conservation and Reclamation Defines the requirements for reclamation

The requirement for reclamation security appears in both the Approvals and Registrations Procedure Regulation (see Appendix E) and the Conservation and Reclamation Regulation (see Appendix F). More specifically, the Conservation and Reclamation Regulation states that an approval cannot be issued until such time as security requirements have been met (Alberta Environment, 1993). The Conservation and Reclamation Regulation further states that the amount of security must cover the cost of conservation and reclamation as stipulated in the Environmental Enhancement and Protection Act. Further the amount of security must be based on estimates provided by the operator and must consider “the nature, complexity and extent of the activity” in addition to “the probable difficulty of conservation and reclamation, giving consideration to such factors as topography, soils, geology, hydrology and revegetation” (Alberta Environment, 1993). The regulations also provide flexibility to adjust the security up or down based on a change of activity or information, cost factors, or if the operator has completed conservation and reclamation on the lands in question. The Conservation and Reclamation Regulation sets our numerous methods for providing security. The Director has discretion in this regard. These include:

1. cash or cheques; 2. government guaranteed bonds, debentures, term deposits, certificates of deposit, trust certificates or investment certificates; 3. irrevocable letters of credit, irrevocable letters of guarantee, performance bonds or surety bonds (Alberta Environment, 1993).

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All security received by the government is held within the Environmental Protection Security Fund. All interest earned on security submitted as cash is paid to the operator. Upon completion of all reclamation associated with the lands in question, and a reclamation certificate has been issued, all security posted in connection with the approval is returned to the operator (Alberta Environment, 1993). If an operator does not, or cannot, fulfill the conservation and reclamation expectations and obligations as outlined in their approval, the posted security may be forfeited. If the cost to reclaim the lands exceeds that amount held in security, the government may complete all outstanding work required to meet approval requirements, and subsequently attempt to collect the monies from the operator (Alberta Environment, 1993). The Water Act (2000) addresses activities that have the potential to impact natural water resources in Alberta. The Water Act governs use, retention, testing, release, or diversion of water as at relates to any proposal or development. In addition, Alberta Environment issued the “Alberta Coal Mining Wastewater Guidelines” in March 1998. These guidelines are a reference for the management of wastewater at all coal mining operations. The guidelines explain how wastewater resulting from coal mining should be managed. This includes design parameters for settling ponds, use of chemicals for wastewater treatment, and a general discussion of EPEA approval conditions (Alberta Environment, 1998). Legislation in British Columbia The mining industry in British Columbia is more diverse than in Alberta. In addition to coal, there is abundant mining for metals such as copper, gold, silver, lead, and zinc. Mining of industrial minerals such as barite, cement, gypsum, and quartz to name a few, also occurs in British Columbia (Government of British Columbia, 2008a). The government of British Columbia estimates that 26 million tonnes of coal was produced in 2007 (Government of British Columbia, 2008a). This is comparative to Alberta’s 30 million tonnes annually (Government of Alberta, 2008a). Active coal mining in the province consists of eight open pit mines and one underground mine. At the end of 2006, the coal mining industry had successfully reclaimed 8,021 of the 19,953 hectares of the disturbed lands in British Columbia (Sweeney, 2006). The legislative requirements for the exploration, development, operation, and abandonment of coal mines in British Columbia are very comparable to that of Alberta. Coal Mine Closure 21

Mining permits are issued in accordance with the Mines Act (1996) and require the annual submission of reclamation reports. The format of these reports is to detail any surface development that has occurred and what further development is anticipated over the next 5 years. In British Columbia, a security deposit must be provided for all operating mines. This is to ensure the provincial taxpayer is not left to pay the reclamation costs if a mining company declares bankruptcy. At the end of 2006, the province held $213.1 million in securities for all mines in the province (Sweeney, 2006). The challenge of estimating reclamation costs in British Columbia is greater than in Alberta. This is due to the terrain being mountainous and the natural environment complex (Government of British Columbia, 2008b). As a result, the British Columbia Ministry of Energy and Mines has created a cost estimating spreadsheet for companies to use. Companies can input their own data but the general process allows for consistency in the approach taken by companies to determine reclamation costs. The “Reclamation Liability Cost Estimates” - “User Manual” and “Costing Spreadsheet” is located in Appendix H. With regard to closed or abandoned mines, an inspector can order that work be conducted to alleviate any dangers to public or property or to protect the environment. The costs associated with this activity are paid from the “consolidated revenue fund”, which is where the province deposits all general revenues. A lien is then placed on the mine or mineral title and the debt is owed to the government (Government of British Columbia, 1996). The Mines Act of British Columbia grants the Chief Inspector of Mines the ability to determine the type and amount of security required in association with, or as a condition of, a permit issued under the Mines Act. A combination of financial instruments can be used to fulfill security requirements. Hard security is deemed to be in the form of cash, irrevocable letter of credit, treasury bills, guaranteed investment certificates, government bonds, and term deposits with a three year term limit. The expectation is that hard security posted will cover costs over the next five year term. As outlined in the Performance Bonds Policy of 2005, the costs include:

1. expected post closure costs and periodic capital replacement costs related to the operations of a water collection and treatment facility and for the management and disposal of secondary wastes, and/or Coal Mine Closure 22

2. expected post closure site monitoring and maintenance costs including, but not limited to, dam inspections, maintenance of water diversion structures, waste material monitoring, water quality monitoring, and vegetation sampling.

Any security required in addition to that for the next five years can be posted as a performance bond rather than hard security. A performance bond must also cover all costs not directly related to the land disturbance but related to the mining operation. This includes the decommissioning of infrastructure such as roads, buildings, power lines, etc. and the hauling of any surface materials that may be in place (Government of British Columbia, n.d.). Financial security is a condition of all permits issued under the British Columbia Mines Act. Following a detailed technical review, an appropriate level of security is recommended as a condition of the reclamation permit. Mines that have chemical treatment or a high potential for acid rock drainage are required to provide full security for all outstanding reclamation obligations, including long-term costs associated with monitoring, maintenance, drainage collection and treatment. Throughout the life of a mining operation, the adequacy of the financial security provided is reviewed. If circumstances change, the financial security required changes accordingly. The level of security will increase or decrease as liability and reclamation obligations change during mine operation. The security will be set at a level that will pay for the following:

1. “construction, inspection, monitoring, maintenance and repair of drainage collection and ML/ARD mitigation structures, 2. operation of a drainage treatment plant and disposal of secondary wastes if required, 3. costs associated with conventional reclamation, including replacement of soil, recontouring, seeding, planting and fertilizing, 4. regular evaluation of the receiving environment, and 5. site drainage and material monitoring and ongoing research needs.” (Government of British Columbia, 1996).

Each stage of a mining operation requires varying levels of detail in the determination of cost estimation for mine closure. The early phases of mining are not clearly defined. This is Coal Mine Closure 23 because disturbance has not occurred and the ability to accurately understand future reclamation requirements is premature. As the mining operation progresses, plans become refined and closure needs become more accurately understood. This is when better and more accurate cost estimates can be prepared. Reclamation plans must be re-evaluated every five years or whenever significant changes occur to the mine plan. Approximately two to three years prior to mine closure, a thorough technical evaluation of potential environmental effects, should be prepared so that the necessary work can be carried out while the mine is still operational. Liability estimates and closure schedules should be refined and updated prior to undertaking any new programs. The British Columbia Mines Act permit requires the submission of annual reclamation reports. These reports must describe the reclamation program and all surface disturbance or development that has occurred, including what is expected over the next 5 years. A description of the previous year’s reclamation activity and completion of the costing spreadsheet is also required (Government of British Columbia, 1996). Legislation in Saskatchewan Saskatchewan’s mining industry extends beyond coal and includes metals and minerals. As such, the legislation is directed towards a broader cross section of the mining industry. According to a reported published in November 2008 by The Ministry of Energy and Mines titled “Saskatchewan Operating Mines List”, there were only three coal mines in operation in Saskatchewan. The same company operated all three of these coal mines and the method is strip mining. Numerous Acts and Regulations govern coal mining in Saskatchewan under the legislative authority of the provincial government. The Mineral Industry Environmental Protection Regulations (MIEP), 1996, is a key piece of legislation for the coal mining industry in Saskatchewan. This regulation establishes the requirement to prepare plans for decommissioning and reclamation prior to the operation or closure of a mine (Government of Saskatchewan, 2007). The MIEP regulations also set out the terms and conditions of assurance funds to ensure the completion of reclamation activity (Government of Saskatchewan, 1996). Section 13 of the MIEP Regulations, 1996 contains requirements for establishment of a decommissioning and reclamation plan and assurance fund for those parties that held approvals before the MIEP Regulations, 1996 came into force. For those approvals issued before 1994, an application was required by March 31, 1997 and the assurance fund established by March 31, Coal Mine Closure 24

1999. Those parties that held approvals issues after January 1, 1994 but prior to the MEIP Regulations coming into force, had six months to file a plan and one year to establish an assurance fund (Government of Saskatchewan, 1996). Applications for approval of a decommissioning and reclamation plan and assurance fund must be submitted in writing to the Minister of Energy and Resources and the contents must address the time frame for decommissioning and reclamation of the mine site. Included is the methods for monitoring and site for stability, spill detection, and pollutant releases, an estimate of the cost to conduct the decommissioning, reclamation, and monitoring. Finally the application must address the issue of assurance for the work to be carried out. How the approval holder plans to meet the requirements of the fund with respect to the type of financial instrument to be used, how the assurance fund will be managed, and what the criteria is for release of the funds are outlined (Government of Saskatchewan, 1996). All assurance funds must be approved by the Minister in a form and amount deemed appropriate. The assurance fund may consist of the same financial instruments as outlined in the Alberta regulations and also provides a provision in the regulations to accommodate a combination of the above financial instruments (Government of Saskatchewan, 1996). For those parties that hold a decommissioning and reclamation plan and assurance fund approval, a full review of the plan and fund must be conducted, as a minimum, every five years, if there is an increase in the obligations, or if a review has not been conducted within 12 months of a mine closure (Government of Saskatchewan, 1996). The Saskatchewan government prepared a document titled “Reclamation and Approvals Guidelines, 2007, Saskatchewan Strip Mined Coal Lands” to assist coal mine approval holders with understanding the expectations with respect to reclamation of coal mined lands. This is because a decommissioning and reclamation plan and assurance fund is required with every approval to operate a coal mine. It also provides some guidance to help companies meet the stated objectives for reclamation (Government of Saskatchewan, 2007). The guideline stipulates that reclamation should be an integral part the mine development process. To achieve reclamation success is highly dependent on understanding what the conditions were like prior to disturbance of the lands. The document also provides some clarity for determining future use of the disturbed lands. Coal Mine Closure 25

In April 2008, the Saskatchewan Ministry of Energy and Resources implemented an “Institutional Control Program” for the long term monitoring and management of post closure mines on Crown land. The program is designed to remove the burden of long term mined lands management from future generations. Once the remediation and reclamation is completed and a reclamation approval has been issued, the responsibility of the site reverts to the Crown. The province, by implementation of the Institutional Control Program acknowledges that protection of the health and safety of future generations and closure for the mining industry was essential. Once a mine receives reclamation approval, the Operator of that site applies to have the site included in the Institutional Control Registry. Upon submission and acceptance of a detailed maintenance and monitoring plan, and a cost estimate to carry out that plan, the approval holder must contribute to two assurance funds. The primary fund is the Institutional Control Monitoring and Maintenance Fund (ICMMF). This fund will provide the monetary means to complete maintenance and monitoring indefinitely. The second fund is the Institutional Control Unforeseen Event Fund (ICUEF). The funds contribution is set at 10 percent of the ICMMF for a closed site with no tailings or engineered structures, and 20 percent for closed sites with tailing or engineered structures. It is important to note that legislation does not provide for absolute discharge of responsibility for a site. That responsibility remains with the approval holder indefinitely (Government of Saskatchewan, 2008). Financial Security Overview In the Canadian mining industry a number of financial instruments are used to ensure companies have adequate financial resources to meet mine closure requirements. The use of financial security as a means of assuring obligations associated with mine closure are carried out is not a new concept. In Alberta, the Environmental Protection Security Fund has been in place since the early 1990’s when the Environmental Protection and Enhancement Act was published. Prior to this it was termed the Surface Reclamation Fund. Although the early use of financial instruments was directed at end of life issues such as remediation and reclamation, they are increasingly being used to include life cycle environmental due diligence (Miller, 1998). There are three reasons that assurance of financial capacity for individual coal mining companies is important. First, without some form of financial security, taxpayers are open to millions of dollars in liability should a company fail to fulfill its regulatory obligations. Second, Coal Mine Closure 26 protection of public natural resources, stability of property values for those living near mining operations, and overall environmental degradation are all protected by providing assurance that financial resources are available and adequate to ensure proper coal mine abandonment. Finally, investor confidence and the vision of good corporate responsibility can be maintained by providing adequate financial security (Chambers, 2005). Many jurisdictions throughout the world utilize forms of financial security to ensure regulatory and environmental requirements are met over the life of a mining project. Factors that can influence the type of financial security required may vary depending on the company, degree of work required to meet a given regulatory standard, and the time frame required to address all outstanding issues (Miller, 1998). Although there is a difference of opinion between industry and the regulator on what financial instruments best accomplish the desired outcome, there is little debate that these instruments serve a valuable purpose (Miller, 1998). Types of Financial Instruments Financial security to ensure coal mine abandonment and closure that meets regulatory expectations comes in many forms. Although these forms of security have different names, they are classified into two categories, hard and soft securities. Hard securities usually have costs associated with them. This is due to a third party such as a bank, trust, or insurance company providing that guarantee. This type of guarantee would include cash deposits or trusts, letters of credit, bonds, or bank guarantees. These are currently used as security in Alberta and represent the majority of the security held by the government. Softer securities would not have any direct costs but indirect costs such as borrowing capacity or credit costs may result. Softer financial instruments would include balance sheet tests, pledge of assets, corporate guarantees, and reclamation contracts or agreements (Miller, 1998). A trust agreement was used by the government of British Columbia and Taseko Mines Limited in 2003. The agreement was established between investors and the British Columbia government to re-start the Gibraltar mine in Williams Lake. The trust was established for the reclamation of the mine site. The investors funded the trust and in exchange received royalty payments from the mine. The agreement replaced over $16 million in cash reclamation security held by the government. This money was used to restart the mine (Government of Alberta, 2007b). Saskatchewan also has provisions in their legislation that requires financial assurance Coal Mine Closure 27 instruments to ensure funding is available for mine closure. The most commonly used forms of security are shown in Table 6.

Table 6 Types of Financial Security Type Name Hard Cash Bond or Deposit Letter of Credit Performance Bond Reclamation Bond Surety Bond Bank Guarantee Bank Account (in trust) Soft Balance Sheet Test Deposit of Securities Reclamation Contract Security Agreement Pledge of Assets

Adapted from (Miller, 1998)

Issues Associated with Financial Instruments The use of financial security to ensure the taxpayer is not liable for coal mine abandonment and closure is not without drawbacks. A recent publication by Alberta Environment stresses the importance of estimating the cost of environmental obligations and that experience shows the amount of security posted often falls well short of the actual cost required to fulfill obligations (Government of Alberta, 2007a). This view is also supported by David Chambers (2005) who wrote an article for The Corporate Ethics Monitor that stated, “regulators and mining companies consistently underestimate the cost of closure for mines”. Some of the reasons for this uncertainty with mine closure costs relate to the ability to forecast costs into the future. Mining companies prepare the estimates with the belief that they will be the ones actually doing the work. Governments approach the issue from the perspective that the company is not Coal Mine Closure 28 doing the work, thus the need for security in the first place. These beliefs can, and do, provide large discrepancies in the estimation of mine closure costs. It is important to be inclusive when determining closure costs. Inclusion of costs beyond just reclamation is critical to ensuring adequate financial resources are in place. Historically, reclamation was seen as the main concern because open and abandoned pits are actually visible. “Out of sight, out of mind”, thinking was common into the later part of the twentieth century. Demolition of physical structures, treatment of contaminated soil, managing surface and ground water issues, acid drainage, and any other components or features that are part the mine operation are to be included in the cost estimation process. Consideration of socio-economic factors can also limit the resources available for actual reclamation work. Employee retirement and pension funds, re-training, and local development initiatives are all areas that could warrant consideration for funding by securities held for coal mine abandonment and closure. Historically, companies have provided financial security for mine abandonment and closure in the form of a bond or insurance policy. Due to the small number of mines that any one insurer would insure versus the potential for high payout, most insurance providers ceased insuring this type of activity (Chambers, 2005).This has led to the use of letters of credit, guarantees, or cash deposits, which can be desirable from a government perspective, but these instruments can affect a company’s cash flow and borrowing capacity (Miller, 1998). Another concern relates to the actual mine closure criteria required to meet regulatory expectations. In other words, what degree of remediation and reclamation is required to satisfy the regulator and receive closure certification? By integrating clear criteria for the closure expectations with the security requirements, agreed upon by all stakeholders, future surprises will be limited. This is best developed early in the development phase so proponents have all the information they need to make decisions (Miller, 1998). Incorporating financial security requirements into new permits and licenses is relatively straightforward. However, how do we begin to manage those sites that have long ago been abandoned and those that are productive but mature? A report titled “Abandoned Mines in Canada” by W. O. Mackasey was prepared for MiningWatch Canada in 2000. This report states that less than 1 percent of all mines in Alberta have had remedial work completed. The same report also states that in Saskatchewan, all of the 405 coal mines have had some remedial work. The statistics for the amount of remedial work completed at abandoned mines vary across Coal Mine Closure 29

Canada, but in general the level of remedial activity is low, according to Mackasey. Placing the same financial security expectations on mature mines may prove onerous and detrimental to business objectives. Industry Response According to Miller (1998), the mining industry agrees financial security is about protection of the public via the government. Most of the larger companies generally agree that if the expectations and regulations for mine abandonment and closure are clearly defined and a company has a proven record as a responsible operator, financial security should not be required. Miller (1998) further noted that companies would prefer financial security that could be attained at little or no cost. This would include balance sheet and financial strength tests, corporate guarantees, or asset pledges. Companies stated that softer types of security, such as a corporate guarantee, should be available in situations where there is a low risk of default, costs are verified by a third party, reclamation is short-term, and the company has the financial capacity (Miller, 1998). In situations where the above conditions are not met, then a harder type of financial security, such as a letter of credit or cash, should be required. This might include a smaller company that is just starting or has a limited record of performance. Most companies agree that no single method best suits all situations and governments should have a tool kit of financial security options at their disposal for mine reclamation closure. Having a choice, based on, age and length of time required to retire the obligation, risk of a company defaulting on their obligations, and amount and type of closure activity completed to date, may serve the best interests of all stakeholders (Miller, 1998). Use of Financial Security in Alberta In Alberta, the Environmental Protection and Enhancement Act grants authority for the collection of security deposits from companies for the purpose of assuring satisfactory land reclamation as per the regulations. These deposits are held in the Environmental Protection Security Fund in a combination of cash, securities, and guarantees. The Provincial Treasurer oversees the Environmental Protection Security Fund as part of the larger Consolidated Cash Investment Trust Fund. The fund earns interest on cash deposits, which is paid monthly to the depositor’s account (Government of Alberta, 2008b). According to the Environmental Protection Security Fund Annual Report for the period April 1, 2007 – March 31, 2008 published by Coal Mine Closure 30

Alberta Environment, total guarantees of over $150 million is currently held in trust by the government of Alberta for coal development. The guarantees are mostly in the form of letters of credit and performance bonds with just over $29,000 held in cash. For the coal mining industry in Alberta, Table 7 outlines the security being held by the Alberta government at the end of March 2008. Prior to issuance of any new approvals for coal mine exploration, development, and operation, some form of acceptable security must be provided. Any amendment of an existing approval or the amount of security required for an existing approval requires that the required security be provided within 30 days. Typically the security is intended to cover the cost of reclamation in event an approval holder is unable or unwilling to complete reclamation on the site (Alberta Environment, 1993). If reclamation is completed to the satisfaction of the government, a reclamation certificate is issued and the security is returned to the operator. Often, the development of a mine occurs in stages and there may be multiple pits or mines in operation at any given time. As such, reclamation could be ongoing in one area of a mine while active mining is occurring elsewhere. As such, the regulations in Alberta provide some level of flexibility to provide and return security in stages as mining commences or reclamation is completed. This ensures consistency of revenue of the life of the mine. Since the fundamental purpose for security is to provide a level of assurance that reclamation can and will occur, a forfeiture provision exists if an operator does not meet reclamation expectations. The government then uses the funds to reclaim the site. Additional money can be pursued from the operator if the security provisions are not sufficient (Alberta Environment, 1993).

Coal Mine Closure 31

Table 7 Coal Mining Security Deposits Held by the Alberta Government – 2008 Company Name Mine Name Balance Alberta Power (2000) Ltd. Vesta $ 2,486,949 Carbon Development Partnership Tofield $ 25,000 Coal Valley Resources Inc. Obed $ 14,980,935 Coal Valley $ 24,188,626 Gregg River $ 1,665,864 Tent Mountain No. 3 $ 244,086 Dodds Coal Mining Company Ltd. Dodds $ 91,485 S 14-49-18-4, NW 4-49-17-4 $ 28,528 Elk Valley Coal Corporation Cheviot $ 6,181,373 Elk Valley Coal Partnership Cardinal River $ 16,980,645 Epcor Generation Inc. Genesee $ 12,234,293 Grande Cache Coal Corporation Grande Cache $ 5,188,105 Mancal Coal Inc. Kipp $ 493,000 Prairie Mines and Royalty Ltd. Vesta $ 6,857,377 Sheerness & Montgomery $ 8,715,578 Transalta Utilities Corporation Highvale $ 44,608,020 Whitewood $ 5,074,907 Total $ 150,044,772 From (Government of Alberta, 2008b)

Issues Affecting the Financial Implications of Coal Mine Closure The startup of a coal mine by today’s standards is far more sophisticated than the startup procedures of 30 years ago. The manner in which a mine is developed is an important factor in liability determination. The issues that can affect the closure of a coal mine are numerous and complex. They include: 1. the environmental aspects of land reclamation, hydrology, wildlife, and future land use, 2. social and economic considerations on the individual, community, and government, and 3. obligations of the stakeholders and the sustainability of the industry. Coal Mine Closure 32

These issues affect every person, organization, and level of government associated with the coal mine. For this reason these issues will be explored in further detail in this section. Environmental Issues Knowledge of environmental issues is necessary to understand the monetary implications of coal mine reclamation and pre-closure funding of these costs. Mining for coal, whether surface or underground, has an impact on the natural environment and resources such as wildlife, surface water, groundwater, and future land use for many years. For this reason, a well documented state of the environment study confirming the site conditions prior to any disturbance will provide meaningful benefits in the future. Such a study can also provide a proponent with supporting data to verify the original condition of the site and the existence of any natural contamination of soils and water by a resource that has been exposed to hundreds of years of weathering (Ripley et al., 1996). This can prove costly in the mining industry as failure to document pre-disturbance conditions could result in many years or work and additional financial commitment to complete reclamation. For the same reasons, a clear understanding of goals and deliverables for the closure of a coal mine is needed up front, before disturbance occurs. Environmental studies that include inventories of vegetation, soils, wildlife, and water (Sengupta, 1993) will give the proponent a better chance of reclaiming the lands to a pre- disturbance state. We also know it is virtually impossible to bring an area disturbed by coal mining, or many other activities, back to its original state. This leads to the inevitable question of what a post coal mining environment should resemble. Although many stakeholders will have differing opinions on this matter, the ultimate responsibility lies with the provincial government. To balance the needs of society as a whole, while ensuring prosperity and protection of the environment, is not an easy task. To understand the financial implications of coal mine closure, we must explore the goals and objectives involved. Land reclamation. Before any reclamation activity can commence it is vital to decommission and remediate buildings and structures used during coal mine development and operation. It also means any land and water impacted by that same activity must be remediated. As indicated, the definition of reclamation is the process of returning disturbed land to a former or other acceptable productive use. As it is impossible to fully reclaim mined lands to a pre-disturbance state, the goal of any Coal Mine Closure 33 reclamation plan should be to strive for a landscape that is consistent with the adjacent undisturbed lands (Sengupta, 1993). Furthermore, the reclamation goals should benefit the regional ecosystem, not just the immediate area. Any contouring and vegetation should take into account what is best for the region as this may be more important that strictly working towards pre-mined conditions (Sengupta, 1993). Alberta coal reserves are typically shallow at depths of 10 to 100 meters. Since coal mining commenced in mid 1800’s, the majority of over 2,000 coal mines in Alberta utilized underground methods to recover the coal (Energy Resources Conservation Board, 1992). Removal of coal reserves by underground mining methods create large sub-surface voids from which waste material and coal are removed. These voids must be backfilled once operations cease and this often involves the disposal of mine waste back into the void (Sivakugan, Rankine, Rankine, & Rankine, 2006). Ensuring the stability of these backfilled areas is of primary concern due to public health and safety concerns. The ERCB states that 40 or 50 years after operations have ceased at many of these underground mines, collapse occurs and is very unpredictable (Energy Resources Conservation Board, 1992). Surface mining has dominated the Alberta coal mining industry for the past 25 years ((Energy Resources Conservation Board, 1992) and is currently the most common method for the extraction of coal in Canada. From vegetation removal and habitat destruction to the overall destruction of the geological profile and topographic features, the surface mining of coal has significant impacts on the physical and ecological makeup of the surrounding environment (Doyle, 1976). Surface mining involves a large amount of soil handling, which in turn leads to problems with future reclamation objectives (Rimmer & Younger, 1997). The replacement of both topsoil and subsoil to near conditions that existed prior to the mining disturbance will still result in soil structure and makeup that is inconsistent with pre- mining conditions. In addition to the pore volume, other physical properties such as size, shape, and microorganism content will have been altered (Sengupta, 1993). Two scenarios, each with a different set of problems, are whether the soils are stored for long periods, or replaced relatively quickly. Soil viability and nutrient production occurs by growth of bacteria. These bacteria thrive in aerobic conditions and through natural mechanisms produce nitrogen rich environments that provide optimum growing conditions for plants. When soil is stockpiled for years, an anaerobic environment begins to occur below the surface. The subsequent decay of organic matter in the Coal Mine Closure 34 soil causes large amounts of ammonia to reside within the soils. When introduction of these soils to the reclaimed area occurs, aerobic conditions return and cause a release of nitrates that severely impact the ability of the soils to produce nitrogen in the future (Rimmer & Younger, 1997). This is one of the issues of equivalent capacity. The second issue concerns the short-term storage of soils in mining operations that reclaim the disturbed area as they go, so-called progressive reclamation. In these types of operations, the coal seams are relatively shallow and soils are stripped with heavy equipment that compacts and shears the soils during removal and again during replacement (Rimmer & Younger, 1997). The soil’s ability to retain water is a critical component of vegetation management and ultimately reclamation success or failure. The replacement of soils in layers will ensure that soil class horizons are reconstructed as close as possible to the original profiles. This results in soil compaction, which limits the water absorption characteristics of the soil and subsequent rooting of vegetation, leading to over saturation of the soil and erosion of the newly replaced soils (Rimmer & Younger, 1997). The area of surface disturbance is dependant on the depth of the coal resource. The deeper the mining operation, the greater the amount of waste rock removed and larger the overall disturbance. Depth also means that pit walls can become very steep and dangerous, thus the need to slope the pit walls (Ripley et al., 1996). Reclamation of lands disturbed by coal mining will also vary significantly on where the mining is located. Prairie land versus mountainous terrain will have, and require, a different set of reclamation parameters. The mountainous regions of Alberta are more likely to have environmental issues of a more serious nature. This is due to the complex terrain and the difficulties associated with slope stability, erosion, and drainage (Ripley et al., 1996). Erosion and landslides bring new concerns about stream sedimentation and channel dynamics. Further complicating the reclamation of mountainous areas is the harsh weather, significantly reduced growing season, and limited soil base. This makes reclamation of mountain regions unique. Damage occurs easily and the environment is very slow to recover (Ripley et al., 1996). Hydrology. The natural hydrological cycle is disrupted by coal mining operations (Nedved & Jansz, 2006). The hydrological cycle encompasses both surface and ground water. Surface water includes creeks, streams, rivers, and lakes. Precipitation and wetlands are also classified as Coal Mine Closure 35 surface water. The remaining water is subsurface or groundwater. Groundwater is “that water which at any particular time is either passing through or standing in the soil and underlying strata and is free to move under the influence of gravity” (Environmental Assessment Team, 2009). The reclamation planning of areas disturbed by surface coal mining operations must consider the effects on surface waters and the local hydrologic cycle. When coal mining operations commence, the vegetation is completely removed and soils stripped to gain access to the coal seam. The impact on surface waters at the time may have included increased or decreased runoff to the surrounding watershed and possible re-routing of watercourses. If mining exposes a higher porosity rock, an increase in water infiltration can result. This in turn will reduce runoff to the surrounding area. If the natural drainage patterns are altered, the opposite can result and runoff increases (Sengupta, 1993). Both have an effect on the surface hydrology and the local hydrologic cycle. Due to the large and deep depressions in the landscape that accompany surface coal mining, water enters mine areas in numerous ways. These include groundwater seepage, surface runoff, and rainfall. These waters are exposed to roads, spoil piles, and overburden stored for future reclamation. As a result, the levels of suspended solids in the water are high. In addition, the waters may also contain elevated levels of nitrates, metals, and other constituents (Alberta Environment, 1998). The groundwater is often pumped off the mining areas to avoid flooding. The soil structure, depth of mining, and type of coal will have a direct impact on the composition of the effluent (Nedved & Jansz, 2006). The management of this mine wastewater must be done in a manner that protects the overall environment and specifically the surrounding watersheds. Wildlife. Wildlife considerations are an important feature of any reclamation plan. As wildlife is a critical component of the natural ecosystem, the reclamation plan must take into account the types of wildlife that frequent the area and what the habitat characteristics are. The recognition that wildlife and other ecosystem services are a vital and necessary resource is an important consideration for any reclamation plan. The foothills of Alberta are the nature habitat to many mammals including deer, bear, elk, and bighorn sheep. One mine near Hinton is home to several hundred bighorn sheep. Among the rocky terrain of the mine high walls, the sheep have established travel and escape routes, bedding areas, and mineral licks (Ripley et al., 1996). Another example of wildlife consideration is the Coal Mine Closure 36 popularity of converting abandoned pits into lakes. Sherritt International Corporation operates the Coal Valley Mine in the Alberta Foothills. Several years ago the company saw the potential to create sport fishing lakes with public access and recreation areas. To date, Lovett and Silkstone Lakes have been artificially created as part of the reclamation program. Both lakes are proving to be a major success (Sherritt International Corporation, 2006). In west central Alberta, above normal concentrations of selenium in streams and rivers has been identified near coal mining operations. Selenium is a naturally occurring element that is essential for cellular function in virtually all animals. At high concentrations, Selenium can be toxic (Palace et al., 2004). A study conducted on bull trout in Luscar Creek and MacKenzie Creek in the northeast slopes region of Alberta found high concentrations of Selenium in over 90 percent of the bull trout tested. The concentrations were as high as 100 times normal expected rates. The study also found that creeks within the same watershed, but not directly downstream of coal mining operations also had bull trout with high concentrations of Selenium. Normally occurring Selenium concentrations of 0.1 – 0.4 micrograms per liter were found in reference streams in the same region (Palace et al., 2004). The concerns about high concentrations of Selenium in fish populations near coal mining operations of west central Alberta have resulted in numerous studies and the formation of a Working Group to address the issue. According to Alberta Environment, the issue may also be evident with vegetation and wildlife (State of the Environment). Future land use. When coal mining operations cease and reclamation is imminent, it is important to understand the intended future use of the land. Depending on the vintage of the mine, future land use may not have been a consideration at the time or the land use expectations may have changed. Adjacent land use is a major factor in the reclamation standards for reclaiming a coal mine. Whether it is commercial, agriculture, residential, or nature areas such as federal or provincial parks, will be significant in the design and planning of the reclamation. Agricultural land use may involve the recontouring of lands to match surrounding landscapes and the addition of soils and crops. Post reclamation monitoring for vegetation might be all that is required. If commercial activity has encroached over time, the land use may have changed. This could result in more of a decontamination effort rather than full reclamation. Park land reclamation will likely be the most difficult and involve contouring and soil replacement, re-introduction of native Coal Mine Closure 37 plant species, wildlife habitat restoration, water resource rehabilitation, and long term monitoring. These considerations all have an impact on the estimate of financial costs to meet these requirements and expectations. It also means that these costs may have changed substantially over time. Thus it is important to regularly update the cost figures to reflect not only current cost of services but the current expectations. Social and Economic Issues Leading up to, and during the closure of a mine, one of the many challenges a mining company will face is the impact on the community. The need to include social and community interests when planning for mine closure has gained traction in recent years. This is a result of heightened attention on the mining industry and its role in sustainable development (Laurence, 2006) The social and economic issues associated with coal mining in Alberta are interlinked on many fronts. Coal mining, would not be possible without the support of local communities and the services they provide. Equally compelling is the fact that these same coal mines are often a major source of economic prosperity for the local communities. It would seem as though the community and the coal mine are dependent on each other to a certain extent. The most significant community service is the supply of labor. In many cases hundreds of people of employed from local communities to fulfill the labor requirements. According to a Natural Resources Canada information bulletin published in August 2008, total employment for metal, nonmetal, and coal mining industries in Canada was 46,336. Alberta, at that time, had 2,948 persons employed through mining. The employment data specific to coal mining was confidential, so these numbers are not available. Given the vast majority of mining in Alberta is for coal, one might conclude the bulk of these 2,948 people are employed by the coal mining sector. Communities that depend solely on the operation of a mine can suffer much greater consequences when closure is imminent. The impacts are often harder to manage and longer term than the environmental aspects. The issue of community health and well-being following the closure of a mining operation has begun to garner attention. Historically, the concern was for the government and the company due to lost revenue and from a health and safety perspective, minimization of the risks. Now, in addition to the above, the dialogue is also centered on Coal Mine Closure 38 environmental issues and the social well-being of the individuals and community (Roberts, BVeiga, & Peiter, 2000). The closure of any mining operation brings a number of issues that have a negative impact on the social fabric of a community. The loss of individual and community income is the most obvious. Training and skills development, health of the individuals, both mental and physical, alternative opportunities for work, and the ability of workers to mobilize for new work are also significant issues resulting from a mine closing. Much as it is with environmental impacts, it is also important to look beyond the obvious, to those areas of the community that will experience a shift in quality of life due to an indirect relationship to the mining operation (Roberts et al., 2000). A brief synopsis of the individual and community impacts follows. Individuals. The mental and physical effects associated with the closure of a mine have been studied and written about. The results show that family breakup and violence, substance abuse, and increased blood pressure and cholesterol levels can result from the loss of employment (Roberts et al., 2000). The impacts do not stop there. Table 8 shows the impacts of a 1% increase in unemployment on the community and the individual.

Table 8 Social Impacts of a 1% Increase in Unemployment Category Percent Increase Suicides 4.1 Homicide 5.7 Stress-related Illness 1.9 Admissions to Mental Institutes 4.3 Adapted from (Warhurst & Noronha, 2000)

In order to respond to these issues and concerns, both government and industry need to understand the unique characteristics of the individual and community response to job loss. Only then can appropriate support systems be established (Roberts et al., 2000). Coal Mine Closure 39

Community. By ensuring the whole impact of mine closure is recognized, and efforts to mitigate the issues are undertaken, the sustainable development gap in a non-renewable resources industry will close. The broader community also suffers great losses when a mine closes. As the community’s dependence on a mine increases, so do the impacts of mine closure. As downsizing commences and job losses mount, hostility between those employed and those not, increases (Roberts et al., 2000). While the development and operation of the mine spurred business in the community, the closure of that mine results in the opposite. Loss of revenue for both business and government requires major adjustments (Laurence, 2006). Diversification is fundamental to a community’s ability to recover. Other factors that factor heavily into the effects of mine closure on the community include the life span of the mine and how deeply people form community attachments. This is especially true in situations where mining has provided employment over several generations. These are circumstances where people have formed deep attachments to the community, home ownership is high, and the population is older. It is very difficult in these situations for communities to see a future without (Roberts et al., 2000). Obligation and Sustainability The terms obligation and sustainability mean different things to different people. Defining these terms has been, and will continue to be, the foundation of many debates. This diversity of definition means that the terms become that which best meets the needs of the person or group using them. This lack of clarity is often where problems begin. Therefore, to context these terms now is both appropriate and necessary. Obligation is a term used to describe a moral or legal duty (Neufeldt & Guralnik, 1988). The same dictionary defines moral as conduct that is right. Thus, a moral obligation is behavior that is based on doing what is right, not necessarily a legality. A moral obligation can be the expectations implicitly directed towards a company as part of a “social license to operate”. Legislative and social licenses are quite different. To debate the context of moral obligation at this time will result in multiple interpretations that would continue to evolve. In essence, moral obligation becomes what an individual or other stakeholder deems it to be. For the purpose of this paper, obligation is the legislative mandate by which a company conducts its operations. It Coal Mine Closure 40 defines the minimum requirements and expectations that a company must meet in order to obtain a license to operate. This is the only legal avenue available to hold a company to a minimum standard. Sustainability, frequently paired with corporate responsibility, is a term used to describe the positive and negative implications of business from a social and environmental perspective (Jenkins & Yakovleva, 2006). “The truth is that sustainability implies something quite different depending on which side the bulldozer you are on” (Whitmore, 2006). Corporate responsibility must include a commitment to continuous improvement in the areas of social, environmental, and economic sustainability (Jenkins & Yakovleva, 2006) A fundamental aspect of determining the impact and cost associated with coal mine closure is understanding the obligations of the mine owner. As discussed, the issues and impacts extend beyond the scope of reclaiming the landscape and addressing the environmental impacts. The socio-economic impacts are often much more difficult to manage. However, much like planning for reclamation starts during the early stages of mine planning and development, socio- economic considerations should start early. One of the fundamental socio-economic considerations to consider during the early stages of mine development is whether the operation of a mine will create a community that is mine dependant. According to the World Bank and International Finance Corporation, all stakeholders have responsibilities throughout the mine life (Sheldon, Strongman, & Weber-Fahr, 2002). Table 9 provides an overview of these responsibilities. Although directed at developing countries, I believe some of the suggestions and comments are appropriate for the Alberta situation.

Coal Mine Closure 41

Table 9 Roles and Responsibilities of Stakeholders Stakeholder Responsibility Mining Company Begin closure planning early Partner with governments and community Ensure availability of financial resources for mine closure Meet all laws, regulations, and commitments Local Communities Avoid dependency on a mine Participate in the mine closure planning Use income to plan for the future Central Government Provide adequate regulatory framework, monitoring, and enforcement Use fiscal revenues from mining responsibly Promote sound local and regional planning Local Government Prepare for life after mine closure Develop a sustainable service delivery Support economic diversification Civil Society Support communities in minimizing mine dependency Engage in service delivery before and after closure Monitor mining and closure activity

Adapted from (Sheldon et al., 2002)

Estimating the Financial Cost of Coal Mine Closure As we have seen, the issues associated with the closure of a coal mine vary and cover a complex array of issues and problems. The fundamental questions that need to be answered are site specific and highly dependent on the degree and type of work required to close a coal mine. Estimating the financial cost of closing a coal mine is the final critical piece of information needed to understand if legislation in Alberta is to be effective at managing the public’s financial exposure to coal mine closure issue. This relates directly to the legislation requiring coal mining Coal Mine Closure 42 companies to provide adequate security to ensure reclamation can be completed, in the event a responsible party is no longer available or able to do the job. As such, it is important to understand how the costs are being determined so that proper type and amount of security is provided. In Alberta, the operator of a coal mine is required to submit an annual report that details the estimated cost to reclaim their mine site. Once received by the government several things occur. Firstly, it is compared against the prior year’s submission and that of other companies submissions for reasonableness. Second, any outstanding issues are resolved. The government will require that the company explain any situation that does not seem reasonable. Finally, it is determined what the required amount of security should be (C. Powter, personal communication, January 9, 2009). The question of what constitutes a reasonable cost estimate is dependent on the circumstances surrounding how the estimate was derived. We must be clear what the goals are and how they are determined. For example, the estimated cost to the company might be quite different that the cost to the government. We must also consider the timing of the mine closure. If the cost estimate is based on end of life reclamation versus early closure, the costs again might be quite different (Government of British Columbia, 2008b). It is not unreasonable that a company would complete a cost estimate on the assumption that they would be completing the work. It is also reasonable that a company would complete the estimate with the expectation that reclamation occurs as planned. The estimating of costs to reclaim a coal mine involves several steps. These include remediation of contaminated areas, decommissioning and abandonment of all surface infrastructures, reclamation of disturbed lands, and finally ongoing maintenance and management of the site through to certification by the government. Table 10 provides a brief adaptation from information provided in the “Mine Reclamation Costing and Spreadsheet” published by the British Columbia Ministry of Energy and Mines in 2008. This represents a sampling of what can be expected when assessing the cost of closing a mine. This is fairly straight forward and does not include social or unforeseen environmental costs. It is also likely that some post closure costs may extend for many years. This will be further addressed in the discussion section of this paper. When reclamation is conducted concurrent with the mining activity, the costs can likely be reduced by half (Doyle, 1976). It is clear that the estimation of Coal Mine Closure 43 funds required to complete the closure of a coal mine is not a routine procedure. Although some elements may be similar, each site is unique. The proximity to services and equipment will vary from site to site. The geographic variations from mine to mine will influence estimates. Perhaps the most significant issue with estimating costs is the timing of closure. Estimating costs based on premature closure is not reasonable. It is unpredictable and provides no basis in fact.

Table 10 Categories of Mine Closure Activity Area Disturbance Lump Sum Items Post Closure Settling Ponds Buildings Operating Tailings Areas Power Lines Maintenance Roads Pipelines Monitoring Plant Site Conveyors Engineering Dumps Stockpiles Reporting Administration Area Structures Maintenance Shops Adapted from (Government of British Columbia, 2008b)

In Alberta, the “Environmental Protection Security Fund” holds security deposits to assure land reclamation is satisfactorily completed (Government of Alberta, 2008b). This is important when considering the estimation of costs. Land reclamation does not necessarily mean site abandonment or care and due diligence. In the case study example of Smoky River Coal Limited, security funds in the amount of $7.2 million had been posted (C. Powter, personal communication, January 9, 2009). When the company went into receivership an immediate need for funds was required to secure the site and address any ongoing environmental concerns (R. Puhlmann, personal communication, March 25, 2009). In the event of an unplanned closure, some of the security funds will likely get utilized on non-reclamation activity. It is also common practice to make the assumption that the salvage value of infrastructure such as buildings and equipment will offset decommissioning and abandonment cost of that infrastructure. It is now well understood this is not always the case (R. Puhlmann, personal communication, March 25, 2009). Coal Mine Closure 44

Alberta Environment requires submissions to be completed using standard equipment rates such as those published the Alberta Roadbuilder’s and Heavy Construction Association (R. Puhlmann, personal communication, March 25, 2009). This ensures some level of consistency in the submissions. Research Methodology This research is intended to explore the question, “Does legislation in Alberta protect the public from the financial obligations of coal mine closure?” This will involve a review and understanding of the economic, environmental, and social issues associated with coal mine closure and the financial exposure to society. This research is focused on the Alberta coal mining experience; however, much of the available literature is not coal mining specific but is relevant with respect to the environmental, economic and social issues associated with sustainable development of a natural resource based industry. This level of research should provide all the necessary information to answer the main research question. By thoroughly understanding the issues, sound recommendations and conclusion will be reached. The research approach is three fold. Literature Review A review of existing legislation in Alberta, British Columbia, and Saskatchewan sets the stage for understanding the regulatory requirements and expectations. An assessment of the financial security options available and in use in Canada and around the world is also completed. A comprehensive literature search of peer reviewed journals and books will aid in the understanding of the environmental, economic, and social issues related to coal mine closure. Case Study A case study of the Alberta coal mining company Smokey River Coal Limited that went into receivership in 2000 will be completed. The case study will examine the history of the mine, the bankruptcy, and finally discuss the current state of the mine. Personal Interviews Personal communications were conducted with individuals who have expert knowledge of the coal mining industry in Alberta, including the case study. These individuals are employees of Alberta Environment. The discussions were focused on the Alberta situation as it relates to posting of reclamation security, assessment of the financial costs of mine closure, shortcomings of the existing system, and learning and insights directly related to the case study. Coal Mine Closure 45

Ethical Considerations The ethics committee of Royal Roads University approved the interviewing of human participants for this research. All individuals who participated in the interviews were fully informed of the purpose of the research and agreed to participate. A disclosure statement that explained the purpose of the research and that participation was voluntary was provided to each participant. All persons cited in this paper have provided written acknowledgment of their willingness to participate. Case Study – Smoky River Coal Limited Mine Background The town of Grande Cache is located in west central Alberta approximately 435 kilometers west of Edmonton. According to information published by the Town of Grande Cache, the town was established by the Alberta government to “open the area for the development of coal mines” and construction of the town commenced in 1969. The town in 2006 had a population of just under 3,800 (Town of Grande Cache, 2009). The Smoky River coal mine is located in the eastern foothills of the Rocky Mountains approximately 20 kilometers from the town of Grande Cache. The area is characterized by mountainous and forested lands with wildlife and recreational use. About 25 percent of the mine is situated above the tree line (Craven, Kostic, & Blandford, 2004). Coal mining in the region began in 1969 when McIntyre Porcupine Mines Ltd. began operations in the Smoky River coalfield (Craven et al., 2004). The H. R. Milner coal fired electricity generation station situated adjacent to the coal mining plant site began operations in 1972. Historically, the electricity generation station consumed lower grade coal and coal tailings supplied by Smoky River Coal Limited (SRCL) (Grande Cache Coal Corporation, 2009a). The station is currently operated by Maxim Power Corp. In 1985, Dome Mines Ltd. purchased McIntyre Mines Ltd. and established SRCL as an operating company (Craven et al., 2004). SRCL was purchased from Dome Mines Ltd. in 1987 by a private corporation owned by Kaieteur Investments Inc., an Alberta corporation, and Dong Jin Commercial Inc., a commodity trading company based in Korea (Craven et al., 2004). The mine continued operations with established sales to 12 companies in eight countries. By the time SRCL went into receivership in 2000, the mine had operated under several names during the 31 year history of the mine from 1969 to 2000. The mine produced Coal Mine Closure 46 approximately 3 million tonnes of coal annually and over 50 million tonnes was high quality metallurgical coal was mined (Craven et al., 2004). At that time, the mine operations were shutdown, assets liquidated, and 380 employees, most of who lived in the nearby community of Grande Cache, were laid off (Grande Cache Coal Corporation, 2009a). Bankruptcy Several factors led to the demise of SRCL. During the mid 1990’s, the company decided to pursue a longwall mining system for its underground mine and acquired significant financing for this purpose. The longwall system was found to be unsuitable for the mining conditions at the Smoky River Coal Mine. At the same time, world coal markets became depressed. This combination proved lethal to SRCL. Operations at the Smoky River Coal Mine and coal processing plant were discontinued and the mine was effectively returned to the crown in 2000. At the time SRCL held coal leases totally 37, 475 hectares which represented a significant portion of the Smoky River Coalfield (Craven et al., 2004). The liabilities associated with the Smoky River mine over 31 years of operation include both underground and surface mines, coal processing and handling facilities, haul roads, tailings ponds, storage and loading areas, offices, and maintenance shops. In addition the physical mine there was significant debt outstanding. At the time of bankruptcy SRCL had posted reclamation security with the Alberta government in the amount of $7.2 million (C. Powter, personal communication, January 9, 2009). Considering the sudden and unplanned nature of the mine shut-down, there were immediate needs that had to be addressed. These immediate needs had to be paid for from the $7.2 million reclamation security posted with the Alberta government. Site security and safety was of utmost importance. Mine entrances had to be sealed off, tailings ponds properly managed, and the site secured for public safety reasons (R. Puhlmann, personal communication, March 25, 2009). The Alberta government realized that the Smoky River mine still had extensive reserves of coal and that it was just a matter of time before market conditions improved and another operator decided it was worth re-opening the mine. In discussions with officials at Alberta Environment, it is estimated that current liabilities are likely in the range of $20 – 30 million (R. Puhlmann, personal communication, March 25, 2009). Coal Mine Closure 47

Current State of the Mine In 2000, Grande Cache Coal Corporation (GCC), a private corporation, was formed to re- establish coal mining at the former SRCL mine. GCC acquired coal leases No. 7 and 8 from the Alberta government in September 2000. This acquisition was conditional on GCC executing a “phased development and approval schedule”. At the same time GCC commenced the regulatory approval process that included an Environmental Impact Assessment for the No. 7 and No. 8 Mines, and the coal processing infrastructure (Grande Cache Coal Corporation, 2009a). In addition, coal processing and handling facilities were acquired through agreements with Alberta Environment and the receiver of SRCL. In 2003 and 2004, GCC was granted five additional coal leases that now provide the company a foundation for long term planning and operation (Craven et al., 2004). GCC went public in May 2004 with proceeds of $54.1 million. This money was used to re-establish productivity in the No. 7-4 underground mine, overhaul the coal processing plant, post reclamation security with the Alberta government, operating cash, and complete the necessary work to permit the No. 16 East Surface Mine (Grande Cache Coal Corporation, 2004). Today the mine consists of both surface and underground mining operations, a refurbished coal processing plant and handling facility, and numerous haul roads, tailings areas, buildings, and a loading area for transport by railcars. The following text is distilled from information obtained from the Grande Cache Coal Corporation main website and provides a brief description of the two mine types. The link to this source is www.gccoal.com/operations/. The surface mining operation occurs in the No. 12 South B2 Mine. This area was mined by SRCL from 1998 until its bankruptcy in 2000. After redesigning the mine and obtaining necessary approvals, GCC commenced mining this area in August 2004. Surface mining is conducted via conventional open-pit mining or truck and shovel method. After overburden is removed the coal is excavated and transported by truck for processing at the main plant. The plant crushes the coal to a set size and removes any waste rock. The final process is to wash, dry and move the coal to a clean coal stockpile. The underground mine is referred to as the No. 7 mine. Production from this mine began in November 2004. This mine utilizes a room and pillar approach. As described by GCC on their website: Coal Mine Closure 48

This mining method develops roadways into the coal to be extracted, leaving pillars of coal between roads. This is known as the "Development" phase. When the roadways reach the boundary, the pillar of coal between roads is systematically extracted as operations retreat out. This is known as the "Depillaring" phase. The roadways are driven 2.1 meters high and 6 meters wide. These are developed in 12 meter cuts with the remote controlled continuous miner moving from one roadway to another, while a roof and side bolting machine moves in to support the roof and side walls (Grande Cache Coal Corporation, 2009a). The coal is transported from the mine to a machine that monitors the size of, and the rate at which, coal is loaded onto the conveyor s that move the coal to a storage area. The mine is serviced by a rail line that provides access to export terminals in British Columbia and the Great Lakes (Grande Cache Coal Corporation, 2009a). GCC is currently licensed by to operate under EPEA and ERCB regulations. As an example of an existing approval, a copy of EPEA Approval No. 155804-00-00 for the No. 7 mine is located in Appendix I. As part of GCC’s requirement to provide security to the Alberta government, GCC has on deposit just under $5.2 million (Government of Alberta, 2008b). As recently as March 24, 2009, GCC announced that it intends to seek regulatory approval for the No. 12 South B2 Underground Mine. This mine is the successor to the existing No. 7 mine and will start within the existing No. 12 South B2 Surface Mine. Subject to approvals, GCC is prepared to start work in early 2010. According to GCC this new underground mine will ensure “continuity for our workforce and the community” (Grande Cache Coal Corporation, 2009b). Discussion It is clear that a certain inherent risk to the public accompanies any development, and coal mining is no exception. This paper provides a comparative analysis of the varying approaches used to manage the financial liabilities that accompany coal mine closure. Key components of this assessment are the legislative mechanisms that attempt to govern the exploration and development of the coal mining industry in Alberta, through to abandonment and reclamation. Principle among these approaches, and also governed through the legislative process, are the financial security options available to support risk management. To enable the effective use of these vehicles we must continuously increase our understanding of the environmental, economic, and social implications associated with coal mine closure. Finally, all Coal Mine Closure 49 stakeholders must seize the opportunity to learn from actual situations that have challenged these very processes. It is necessary and appropriate to discuss the findings of these important risk management tools and techniques. Legislation Legislation in Alberta is currently designed to include decommissioning and abandonment of coal mine infrastructure, remediation of contaminated areas, and reclamation of disturbed lands. In theory, the public exposure to financial risk is removed if a coal mine is properly reclaimed in accordance with existing regulations. The regulations provide for a financial security mechanism that allows some level of assurance that reclamation activity can be carried out regardless of the circumstances surrounding the mine shut-down. No regulation can be prescriptive enough to anticipate a premature mine closure. These situation arise quickly and are often outside of any one person or organizations control. It is therefore necessary to expect some level of risk when dealing with coal mining and the associated liabilities. Coal mining in Alberta falls under the jurisdiction of numerous provincial government agencies. The two main agencies are the Energy Resources Conservation Board (ERCB) and Alberta Environment (AE). The ERCB is the approving body for any coal mine development and also unilaterally manages all underground coal mines. Issues related to environmental protection up to and including site reclamation is the jurisdiction of AE. If the coal mine is on crown land then Alberta Sustainable Resources Development becomes the legislative body that oversees environmental and reclamation matters. In addition, the requirement to post reclamation security occurs within each of these three agencies, although the management of that security lies with the Alberta government via the “Consolidated Cash Investment Trust Fund”. This current framework of legislation and the number of governing agencies complicates the process of managing coal mine development in Alberta. The adjacent jurisdictions of British Columbia and Saskatchewan manage their coal mining industries in much the same manner. Various agencies have oversight depending on the nature of the activity. In all cases the respective environmental departments either directly manage aspects of the coal mine activity or provide consultation as required. Financial Security The requirement to post financial security to cover the estimated cost of mine closure occurs throughout the industry and in many jurisdictions and countries. It is a difficult process to Coal Mine Closure 50 ensure all the possible outcomes are addressed and accounted for. The government must accept some level of risk when developing these types of programs. The requirement to post financial security can have an impact on a company and its ability to manage its financial future. In most Alberta cases the company must post hard letters of credit or cash to satisfy regulators. There is a cost associated with letters of credit and it also impacts a company’s ability to finance continuing operations, which might include reclamation. Although this is a strong motivator for a company to commence reclamation as soon as possible, there is no guarantee this will happen. In the interest of fairness and consistency, all companies in Alberta are required to meet financial security provisions regardless of company size or reputation. The provision for financial security to be provided by the coal mine operator is also a dominant feature in British Columbia and Saskatchewan legislation. Working towards minimizing the public risk associated with development is fundamentally what the Environmental Protection Security Fund is designed for. Although the regulations that govern the Environmental Protection Security Fund have shortfalls, they do achieve a large degree of risk aversion. This, in essence, protects the public from the financial obligations of coal mine closure. Coal Mine Closure Issues The issues that can accompany the closure of a coal mine are environmental, economic, and social in nature. We have demonstrated that environmental issues include wide ranging impacts to soils, water, vegetation, and wildlife. These are all considerations that must be recognized and understood before effective planning and estimation of cost can begin. Although we describe reclamation as the fundamental goal or objective, remediation of is integral to this effort and includes contamination and water quality issues. This paper also ventured into the socio-economic factors that are present during the life- cycle of a coal mine. Much of the research tends to be associated with and directed at mining in third world countries. In many of these regions coal mining is the only industry. It is within these situations that impacts associated with closure of a mine are most evident. Although the nature of overall development in Alberta does not present the same magnitude of impact, the impacts do exist. Consider the case study presented. The town of Grande Cache was created in 1969 for the sole purpose of supporting coal development in the region. When Smoky River Coal Limited went into receivership, 380 people suddenly became unemployed in a town of 3,800 people. That Coal Mine Closure 51 represents a significant proportion of the town’s employed people and no doubt had serious economic and social impacts on the town. We have also presented information on how industry closure impacts rates of suicide and homicide, stress related illness, and admissions to mental institutes. It is important to the fabric of society that these issues and concerns are recognized as real and every effort to manage these affects is undertaken. This is not to say that the responsibility is solely with the proponent. All levels of government, and this means local regional, provincial, and federal, have a significant stake in managing these issues. Ultimately the coal mining company will one day be gone and society and government will be all that is left. Financial Cost Estimation The estimating of financial costs associated with reclaiming a coal mine is perhaps the most critical factor in addressing the question posed in this paper. The amount of financial security required by legislation is strictly dependant on the monetary cost estimate provided. This requires the culmination of knowledge from the three pillars of development, namely economic, environmental, and social. The government requires financial security on the presumption that a coal mine owner falls short of their regulatory obligations. Under this scenario the government would be completing the reclamation. The fact that surface reclamation is the main driver leaves the potential for shortfalls in the case of a mine owner going bankrupt. Frequently there is decommissioning and abandonment of surface infrastructure prior to commencement of reclamation. The idea that salvage value for surface infrastructure will cover the cost of abandonment is not always the case. The British Columbia government provides a standardized template for estimating the costs of reclamation for all mining activity. The template provides a consistent method of submission and review of the findings. Case Study The case study provides a current perspective of how a coal mining operation can suddenly fail and leave the Alberta public with a financial burden. Although certain aspects that contributed to the demise of Smoky River Coal Limited were outside the company’s control, there were definitely things that were. The heavy financing of a technology that proved ill-suited to the nature of the operation was likely the deciding factor in the collapse of the company. What ensued was the realization by the Alberta government that significant liabilities existing and the security provided was not sufficient. With just over $7.2 million of security posted with the government it has been suggested that true liabilities might be closer to $20 – 30 million (R. Coal Mine Closure 52

Puhlmann, personal communication, March 25, 2009). This situation provided the Alberta government an opportunity to reduce some of its liabilities. In reality the emergence of a scenario that challenged the very regulations designed to protect the taxpayer, ultimately showed how important it is to continually assess risk and plan accordingly. Even when a situation arises, such as the Smoky River Coal Limited bankruptcy, the government may not be inclined to completely reclaim the mine. In situations were economic conditions result in a company defaulting on their regulatory obligations, the mine may continue to have productive potential. With valid economic reasons the government can leave the mine in a safe state in the hope a new company will step forward when conditions change. To complicate matters, a new company will not likely want all the prior assets, and liabilities, of the previous owner. The government must balance this prospect with the reality that risk to the public is being reduced by accepting a partial transfer of assets and liabilities. In addition, by working with a potential new owner to get the mine operating again, employment, taxes, royalties and community stability can be re-instated. This is indeed what occurred with the Smoky River Coal Limited case. General Issues We know from ERCB records that approximately 2,000 coal mines have been in operation since the late 19th century. There are no records that indicate the state of these mines. Although most of these mines are very small, the potential risk for public safety and exposure to financial liability is real. Without an accurate record of the state of these mines we have no way of knowing. Conclusions and Recommendations Alberta benefits from substantial reserves of coal and will continue to exploit this natural resource into the foreseeable future. It is for this reason the issue of financial liabilities associated with coal mining are important. To begin, it is prudent to restate the question posed at the beginning of this paper. Does legislation in Alberta protect the public from the financial obligations of coal mine closure? Conclusions An in depth assessment of the legislative process in Alberta, as well as British Columbia and Saskatchewan, seemed to be the logical path to follow. What evolved was the realization that existing legislation only provides a partial answer to the question presented. Legislation is only Coal Mine Closure 53 as good as the knowledge on which it is based and only as effective as the government’s willingness to evolve the legislation to meet the needs and best interests of the Alberta public. At the same time it is critical that the public be given the opportunity to understand, at their behest, how coal mining in Alberta is managed and how the government is protecting the public interest. It is fair to say that public interest is the proper management of public natural resources and the impacts on environment and society. In the 21st century world of coal mining, the defining question of obligation and accountability persists. We cannot require the coal mining industry to go above and beyond the regulatory framework established. Is it even reasonable to expect a company, or a government, to be responsible for the social and economic fallout that can result after a mine closure? The answer on both counts is yes. Companies can, and do, work with communities and government when mine closure is imminent. Through this process of active engagement, the community can plan for the eventual loss of income and employment. Government, local, regional, and provincial can also plan ahead for the social and community services that will be needed. This lead time to plan and prepare can result in smoother transition once the coal mine is actually closed. It is imperative this process be encouraged and supported by all stakeholders. The majority of coal mines in Alberta produce coal for the specific purpose of providing feedstock to coal fired power generation plants. This situation can limit risk because the economic factors that contribute to premature coal mine closure are significantly reduced. Alberta needs electricity and almost half of the current requirement is provided by coal fired power generation. Until a major shift in energy production occurs, coal mining will continue well into the future. Finally, we must continue to have high expectations of our governments, business communities, and ourselves to protect the health and safety of the environment and the public. Ultimately, we residents of Alberta all derive benefits from the mining of coal. It is imperative that we be engaged in the overall process. I believe the evidence shows that legislation in Alberta does protect the public from the financial obligations of coal mine closure. We have seen that coal mining has been, and continues to be, very active in Alberta. In the past ten years we have only seen one instance in Alberta, our case study that has resulted in the public having to absorb the financial burden of reclaiming a coal mining operation. This can be attributed directly to the legislation in place and the level of corporate accountability in Alberta. Coal Mine Closure 54

Recommendations Coal mining legislation serves two purposes. First, it provides the standards and guidelines expected of proponents involved in the development of coal resources. Second, legislation provides a level of public confidence that the best interests of society are given equal weighting under the law. Although the existing legislation in Alberta provides a reasonable level of financial protection to the public as a result of coal mining activity, it is not without its shortcomings. Based on this study the following recommendations should be considered as additional avenues that might enhance an already competent legislative and regulatory framework: 1. Requirements for the calculation of security funding should be consistent with that of other sectors subject to the same legislation. This requires a look forward for one year to ensure the expected disturbance is captured in the calculation and subsequent submission of financial security. 2. The legislation should remain flexible and not overly prescriptive. It is nearly impossible to anticipate all the situations that may arise and cause a negative impact on the environmental, social, and economic aspects of a coal mine. A level of flexibility provides a means to manage these situations. 3. The Alberta government, in conjunction with industry, must provide greater transparency in the process of how the costs for mine closure are determined. The parameters for reporting the cost estimates for reclamation could be further defined to provide better clarity. The range of issues considered and methodology for calculating the associated costs should be publically accessible. This will increase the level of trust and understanding between the resources owners (public), the regulators, and industry. 4. A program to address the legacy of coal mines that have existed for over 150 years in Alberta should be created. A preliminary fund to conduct site visits and document the state of each coal mine should be created by assessing a levy of $0.10 per tonne of coal produced over three years. The government of Alberta could participate proportionately through royalties collected on all coal produced. This is a small burden on the price received for coal. Based on stated production in Alberta, this would provide $9 million. Once there is a clear understanding of what, if any, issues need to be addressed to bring Coal Mine Closure 55

these historical coal mines into compliance with existing legislation and ensure the health and safety of the public, the program can be further developed. 5. Another shortcoming of the Environmental Protection Security Fund program is that it is established for the sole purpose of reclamation only. It is not clear what level of consideration is given to the broader range of environmental considerations such as hydrology and wildlife. 6. Socio-economic impacts do not appear to be factored in the environmental security funding formula. The Alberta government could participate with industry, as both are direct beneficiaries of the coal mining industry, to create separate funding to aid in the community transition during coal mine closure.

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Glossary

The following terms appear throughout this paper and warrant some clarity of use. In some cases, the definition is formal, from either regulation or other published sources, in which case they are referenced. In a few instances, the definition is that which I intended it to be used. In these cases, there is no citation.

Abandoned Mine A mine at which all mining activities have ceased but of which the owner, agent, or manager remains responsible for its compliance applicable regulations

Coal Mine Any open-pit or underground shafts for the extraction of coal. This includes any infrastructure used to extract, prepare, or ship the coal to market. Infrastructure includes physical structures, roads, power lines, holding ponds, or storage areas.

Equivalent Land Capability Is returning the land to a state that supports land uses similar to that, which existed prior to the disturbance but not necessarily the same (Environmental Assessment Team, 2009).

Financial Security Providing a level of monetary assurance that environmental risks are managed and society is protected in the event a regulated entity, for whatever reason, does not fulfill environmental obligations.

Life cycle Represents the period of time from the commencement of activity that creates any disturbance to the time when all activity has been reclaimed to regulatory standards.

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Mine Closure To decommission, remediate, abandoned, and reclaim the coal mine area, and any other impacted areas, to an equivalent land capability.

Obligation “A duty, imposed legally or socially; thing that one is bound to do by contract, promise moral responsibility, etc.” (Neufeldt & Guralnik, 1988)

Orphan Mine Is the result of an operating company ceasing mine operations without proper closure and society having no viable means to hold that company accountable. Society then becomes the responsible party that must address the ongoing management of the mine through to closure.

Reclamation The process of reconverting disturbed land to its former or other productive uses as outlined in specific regulations.

Remediation The removal, reduction, or neutralization of substances, wastes or hazardous material from a site so as to prevent or minimize any adverse effects on the environment now or in the future (AEP Glossary).

Stakeholders Include any person or organization that could claim to be a party with a vested interest in a project.

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Coal Mine Closure 65

Appendix A

List of Coal Mines in Alberta with Valid Permits http://www.ercb.ca/docs/products/STs/st45/st45-appF.pdf

Appendix B

Coal Conservation Act – Chapter C-17 RSA 2000 updated to June 3, 2008 http://www.ercb.ca/docs/requirements/actsregs/cc_act.pdf

Appendix C

Coal Conservation Regulation AR 270/1981 updated to 24/2009 http://www.ercb.ca/docs/requirements/actsregs/cc_reg_270_81.pdf

Appendix D

Environmental Protection and Enhancement Act – Chapter E-12 RSA 2000 updated to September 1, 2008. http://www.qp.alberta.ca/574.cfm?page=E12.cfm&leg_type=Acts&isbncln=9780779735495

Appendix E

Approvals and Registrations Procedure Regulations AR 119/1993 updated to AR 251/2001 http://www.qp.alberta.ca/574.cfm?page=1993_113.cfm&leg_type=Regs&isbncln=0779706463

Appendix F

Conservation and Reclamation Regulations AR 115/1993 updated to AR 68/2008 http://www.qp.alberta.ca/574.cfm?page=1993_115.cfm&leg_type=Regs&isbncln=97807797313 43 Coal Mine Closure 66

Appendix G

Activities Designation Regulations AR 276/2003 updated to 1/2009 http://www.qp.alberta.ca/574.cfm?page=2003_276.cfm&leg_type=Regs&isbncln=97807797380 21

Appendix H

User Manual for Reclamation Costing Reclamation Costing Spreadsheet http://www.empr.gov.bc.ca/Mining/ProjectApprovals/Pages/ReclamationLiabilityCostEstimates. aspx

Appendix I

Grande Cache Coal Corporation – EPEA Approval for Mine No. 7 http://envext02.env.gov.ab.ca/pdf/00155804-00-00.pdf