A recent study by Water Institute member Margaret Insley, professor, Department of Economics, and Waterloo alumna Sara Aghakazemjourabbaf, has been featured in “Science for Environment Policy” by the European Commission, a publication designed to help policymakers stay up to date with the latest environmental research findings needed to develop effective policies.
The study entitled “Leaving your tailings behind: Environmental bonds, bankruptcy and waste clean-up,” assesses the impact of environmental bonds on meeting environmental clean-up obligations by mining firms.
The article explains that abandoned mines can leave a toxic legacy that must be cleaned up. Firms may be legally obliged to cover the cost but can escape this obligation by declaring bankruptcy. Governments must then take responsibility and fund the clean-up. ‘Environmental bonds’ – deposits paid to the government – can encourage firms to meet their obligation and to minimize waste during operation. The study focuses on the North American context, but the findings are also relevant across the EU.
“In many parts of the world, government policies are sorely lacking with regards to preventing orphan mine sites. Stricter environmental bond policies would go a long way towards curbing this toxic legacy,” explains professor Insley.
Margaret Insley, associate professor, Faculty of Arts, Department of Economics
The study models the lifecycle of a hypothetical mine to compare the effects of environmental bonds on mine value, firm actions and expected clean-up costs for government.
Where bankruptcy is an option, the absence of a bond can be an incentive to generate additional waste, the study shows. Where there is a bond however, this ensures that the firm reduces waste, and no financial burden is left to government. The researchers conclude that an appropriately structured environmental bond not only shields a government from clean-up liability but also ensures efficient waste abatement.
Too stringent bonds may, however, reduce the number of mining projects initiated, note the researchers, posing a trade-off between promoting economic activity and an efficient environmental policy. However, given the number of waste sites currently abandoned and requiring clean-up, in North America and elsewhere, they argue that such bonds seem necessary.
Download the entire European Commission policy brief here.