Now that Coal Companies are Troubled, Who Should Pay for Environmental Cleanups?


by | Aug 25, 2016

coalCoal companies are going dark. They are economically troubled, with nearly all of them experiencing bankruptcy or emerging from it in a different form. The reasons are numerous and depending one’s view, can range from depleted coal seams to less demand to strict environmental regulations.

Regardless of how their troubles started, coal companies still have to clean up their sites. But the companies are bankrupt, which leads to the question of just who is going to pay. At least one company is getting off with a liability of between 15-17 cents on the dollar: Peabody Energy. Fair?

“In short, if the coal company goes bankrupt, the state or federal governments—that is, we, the people—might have to pay to clean up the company’s messes,” writes Clark Williams-Derry, analyst with the Sightline Institute.

No doubt, the world is turning greener. That’s just bad news for coal, which led the country during the industrial revolution and has helped it to become the powerhouse it is today. But times change. And coal has lost a lot of its relevance, as noted by its loss of market share in the utility market place. A decade ago, it was to the go-to fuel to make electricity, providing more than half that market. Now it is at 32 percent, and dropping.

At issue here is a self-bonding law that has allowed the bigger and stronger coal companies to essentially self-insure. That has worked up until now, or the recent spate of bankruptcies — something that will just add to the current cost of clean ups: The United States has been working to reclaim more than 500,000 acres that were abandoned before the bonding law took effect in 1977 at a cumulative cost of potentially $12 billion.

It wasn’t until 1977 that the U.S. Congress passed laws that were signed by the president to restore mine sites and to post a bond. The purpose of the so-called Surface Mining Control and Reclamation Act is to not just ensure that mine sites are cleaned up but to also make sure that taxpayers don’t get stuck with the bill. Already, $8 billion has been spent to reclaim abandoned mine sites and another $4 billion is necessary for pre-1977 sites, says the Taxpayers for Commonsense.

“They’re trying to shift the costs from the coal mining companies back to the states, and basically onto taxpayers,” said Howard Learner, executive director of the Environmental Law and Policy Center, in an interview with “And unfortunately, for example, the state of Indiana seems to have agreed to take 15 to 17 cents on the dollar.”

The bankruptcy courts have a lot of say here. But it is ultimately up to the Office of Surface Mining Reclamation and Enforcement to oversee the clean up process. As such, the agency is now reviewing its policy of allowing major conglomerates to self-bond in light of their financial woes. In other words, the original value of their assets is far more than what they would fetch in today’s markets, meaning they are hamstrung and probably can’t fully cover the liabilities.

To remain qualified to self-bond, the agency’s web site says that coal companies must have a tangible net worth of at least $10 million, possess fixed assets in the U.S. of at least $20 million, and either meet certain financial ratios or have an “A” or higher bond rating.

“The U.S. coal market is dramatically different from when our self-bonding regulations were last updated 30 years ago,” said the agency’s director Joe Pizarchik, in a release. “This is a turbulent time of energy transformation in our country, of declining use of coal and increased use of cheaper natural gas and renewable energy. These conditions have exposed the limitations of the current self-bonding rule and we have a responsibility to protect the public’s interest by keeping up with these changes.”

Needless-to-say, this practice of self-bonding is likely to come an end, given the current set of circumstances. Until it might come to an official halt, however, the states are presumed to be the ones to give the Okay to the coal companies as to whether they can explore and just how they make sure the sites get cleaned up. And some of those states might be more desperate for the economic activity than they are for just how the reclamation would be paid.

Editor’s Note:

Peabody Energy has written the following note:

Ken Silverstein’s piece mischaracterizes Peabody’s restoration assurances and we weren’t contacted for comment.  The settlement agreement offered a revised financial assurance program for four states as noted in the two attached releases. Please update the piece.  Our comment follows. Thank you.  (It has enclosed the following release, issued Monday, which we will run in full.) 

Peabody’s Comment: 

Peabody is funding every dollar of our coal mine reclamation and even pays tens of millions of dollars each year for a reclamation fund for other producers’ former coal mines. The company is continuing to provide assurances to states through a variety of forms including self-bonding, third-party surety bonding, letters of credit and now superpriority claims.  We are pleased to reach agreement with the four states that provides additional security toward our reclamation obligations, and we look forward to ongoing discussions regarding Peabody’s reclamation bonding long term.  

The additional financial assurances are through our bonding accommodation facility that is part of our debtor in possession financing (DIP) facility.  The DIP provides financing for up to 18 months during the Chapter 11 process.  We are continuing discussions on our go-forward requirements [after emergence] with the states.  We’ll be able to share more in due course. 


ST. LOUIS, Aug. 22 – Peabody Energy announced today it has reached agreement with the Illinois State Department of Natural Resources regarding financial assurances in support of coal mine restoration.

The company has reached a superpriority settlement agreement with Illinois, a state in which Peabody has self-bonding obligations. The agreement follows agreements with Wyoming, New Mexico and Indiana that were approved by the bankruptcy court Aug. 17.

The superpriority agreements provide the relevant state authorities with the ability to receive cash first in priority as additional assurance for Peabody’s performance before distribution to any lender or other pre-petition creditor, up to the full amount of the company’s

$200 million bonding accommodation facility.

Illinois and the three other states are entitled to a percentage of the company’s $200 million bonding accommodation facility based on their proportion of self-bonding relative to the company’s total obligation as of April 12, 2016. The motion for the Illinois agreement is expected to be heard by the court Sept. 15 and is available online at

Peabody’s $800 million Debtor-in-Possession financing facility, which includes the bonding accommodation facility, provides financing for up to 18 months during the Chapter 11 process as described further in the company’s SEC filings on Form 8-K on April 13 and May 24, 2016.

Land restoration is an essential part of the coal mining process. Over the past decade, Peabody has spent approximately $185 million to restore 48,000 acres. As of June 30, the company had approximately $1.14 billion of self-bonding and $320 million of surety bonds supporting reclamation activities outstanding.

Peabody has three surface and underground operations in Illinois that employ approximately 500 workers and injected more than $715 million into the region in direct and indirect economic benefits last year.


Peabody Energy (OTC: BTUUQ) is the world’s largest private-sector coal company and a Fortune 500 company. The company serves metallurgical and thermal coal customers in

25 countries on six continents and has earned more than 90 environmental honors since 2000. For further information, visit


And here is Howard Learner’s reply to Peabody:

Howard Learner’s Comment:


Peabody’s management decisions to overinvest in coal mines when the markets were declining have landed the company in bankruptcy court.  Peabody has entered into stipulations with four states, but they unfortunately would provide only between about 17.5 cents and 24.5 cents in funds on the full dollar ($1.00) needed to cover Peabody’s self-bonded estimated mine reclamation costs if Peabody walked away from its cleanup obligations through bankruptcy or otherwise.


The federal Office of Surface Mining Reclamation and Enforcement is now focusing on Peabody’s (and other coal mine companies’) self-bonding allowed by states like Wyoming and Indiana that have resulted in taxpayers being at risk of holding the financial bag for Peabody’s legal responsibilities to conduct full mine reclamation and environmental cleanups.


Peabody’s “assurances to states” are, sadly, bankrupt when the flawed self-bonding approach is used much of the time. The federal government and the states should no longer allow Peabody’s self-bonding, the federal bankruptcy court should find that a reorganization continuing to rely primarily on self-bonding is not feasible under law, and taxpayers and the environment should be better protected going forward.



Howard A. Learner

Executive Director

Environmental Law & Policy Center

35 East Wacker Drive, Suite 1600

Chicago, Illinois 60601

[email protected]

(312) 673-6500

Please visit ELPC’s website at


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