How Mining Externalities Affect Liberty, Ecology, and Prosperity

Introduction by John Baden

FREE works in the intellectual policy arena, never in partisan politics.  We stress the critical importance of responsible liberty.  Such liberty includes liability for the consequences of actions that harm others.

Economists have an awkward word for imposition of costs on others, externalities.  This word is commonly used when describing pollution such as mine runoffs or toxic smoke or fumes.   Many legislative actions also generate externalities--or immunities from the consequences of externalities.  (f.n. Economists also recognize positive externalities but rarely write about them.  Positive externalities occur when one party generates public benefits at no charge. Most ranchers enjoy having wildlife roaming freely on their property, however when the ranch’s hay becomes an easy food source for the wildlife, this becomes a problem. In this FREE Insight I only consider negative externalities.) 

The photo below shows a herd of elk wintering on Ramona and John's ranch.

Externalities generated by firms are the unintended consequence of some productive activity.  Companies don't set out to pollute.  Pollution is an accidental rather than an intentional by-product. Fertilizer runoff from corn production in the Midwest is a common example.  This nitrogen rich runoff enters the Mississippi drainage, degrades water quality, and ultimately creates a growing dead zone in the Gulf of Mexico.

Because externalities ignore costs imposed on others they waste resources.  They often reduce value of affected lands and waters and violate people and their property rights.  For example, two small spring creeks flow on our land.  If the ground waters that produce them were contaminated, we would suffer losses. And many trout fishers with special needs would be greatly disappointed.  We've made our place available to them for decades. 

Governments have responsibility to monitor and regulate negative externalities.  However American government has become a system of political capitalism.  Here politics often distorts or thwarts the responsibility to control externalities. In a regime of political capitalism, special interests reward politicians for policies that produce externalities.

Federal regulations mandating and subsidizing corn ethanol for example, encourage excessive fertilizer usage.  This is one of many cases were politics generates rather than reduces externalities. Politicians may also benefit when they insulate producers of externalities from paying the consequences. 

That is the theme of this week's FREE Insights by wildlife biologist, Bruce Farling.  Bruce has been the Executive Director of Montana Trout Unlimited for twenty-one years. Montana Trout Unlimited is a special interest conservation group founded in 1964. Montana TU works "... in the Montana Legislature and within state agencies for protective laws and rules...."

It is a special interest group, one dedicated "...solely to conserving and restoring coldwater fisheries. Montana Trout Unlimited is comprised of 13 chapters representing approximately 3,400 Trout Unlimited members.

.... contributions to Montana Trout Unlimited are tax-deductible and support conservation, protection and restoration efforts in Montana."

"The Montana Mining Industry Should Pay Its Way"

by Bruce Farling, Executive Director, Montana Trout Unlimited

A common theme at the Montana Legislature is that Montanans must take personal responsibility and not depend on taxpayers for help. It’s too bad many lawmakers steadfastly refuse to apply this standard to the hard-rock mining industry.

In February, Sen. Mary Sheehy Moe (D-Great Falls) introduced Senate Bill 218, a modest measure requiring some hard-rock mines — those with potential to generate highly damaging acid-mine drainage — to post reclamation bonds representing 100 percent of the estimated cost of reclamation plus 50 percent. Today large mines post amounts equal only to the estimated costs of reclamation, with no buffer if estimates are wrong.

SB 218 was intended to help fix a long-standing problem: Montana’s Department of Environmental Quality and industry consistently low-ball bonds, resulting in modern mines closing and leaving taxpayers with multi-million dollar bills for cleanup and pollution treatment.

For instance, state and federal agencies have so far spent nearly $13 million in public money to stabilize and reduce pollution from the shuttered Beal Mountain Mine near Anaconda. Permanent closure could cost taxpayers another $39 million. Federal and state agencies have also spent nearly $24 million in public funds for reclamation and water treatment at the closed Zortman-Landusky mines near Malta. That site requires future Montanans to fund treatment of acidic pollution forever. The bonds were exhausted years back.

Despite this evidence, at the prodding of industry and DEQ, the Senate Natural Resources Committee killed SB 218. Per usual, mining spokespeople were condescending and misleading in their testimony. The Montana Mining Association’s spokesperson claimed insurance companies cannot offer surety bonds to cover SB 218’s requirements, supposedly making bonding impossible. Not quite. The industry knows state law also allows companies to meet higher bonds using letters of credit, certificates of deposits and real property.

A lawyer for Canyon Resources, which not long ago proposed a huge open-pit mine along the upper Blackfoot River, testified the bill was ridiculous. He forgot to mention his client still hasn’t reclaimed its Kendall Mine near Lewistown, closed since 1997. Local ranchers whose water sources the miners disrupted are growing old waiting for DEQ to finalize reclamation, water management plans and an adequate bond. The lobbyist for Tintina Resources, the Australian-controlled company seeking approval for a mine that could produce acid mine drainage in the Smith River’s headwaters, joined the anti-SB 218 chorus.

Curiously, no one from industry or DEQ mentioned that the Troy Mine, a large underground copper operation, according to some agency staff, is currently bonded for less than 50 percent of what it could cost to button up the site. The mine is now closed. The bond remains inadequate.

When asked if his agency was adequately bonding mines, DEQ’s spokesman told lawmakers unequivocally, yes. The record says otherwise. He didn’t mention the agency’s expensive miscalculations at Troy, Beal Mountain, Kendall, and the closed Basin Creek mine south of Helena. He only obliquely referred to Zortman-Landusky.

In March, lawmakers voted on partisan lines in a House committee to reject another common-sense measure to coax responsibility from miners. House Bill 626, sponsored by Rep. Nate McConnell, (D-Missoula) would have prevented DEQ from approving mines that after closure require perpetual collection and treatment of pollution. It’s a simple idea: if the only way you can mine is to leave pollution for future generations than you shouldn’t get a mining permit. Naturally, industry spokespeople distorted the bill’s purpose, essentially claiming if companies weren’t allowed to create pollution problems for future Montanans the state would suffer.

It’s curious. Many legislators balk about paying for education or programs for the poor and underemployed, but they continue supporting the habit of the state’s most polluting industry to leave future Montanans with multi-million dollar cleanups.

The record is clear: The mining industry doesn’t want to be responsible for the impacts it creates. And the evidence shows DEQ can’t nudge responsibility. And so when industry seeks new mines in sensitive places — such as the headwaters of the Smith River — and joins DEQ in telling us not to worry, the public should be forgiven for not believing them.