Bloomberg View

Into the post-Rouss­eff era • A fail­ing coal gi­ant’s bil­lion-dol­lar messes

Bloomberg Businessweek (Europe) - - NEWS -

The bankruptcy of Pe­abody En­ergy, the largest U.S. coal pro­ducer, is the most vivid il­lus­tra­tion yet of the mar­ket’s deep and wel­come shift away from coal. It could also be calami­tous for the en­vi­ron­ment: If Pe­abody goes out of busi­ness, who will clean up the pol­lu­tion it has left be­hind?

Un­der fed­eral law, com­pa­nies must pay for the recla­ma­tion of the land they have con­tam­i­nated through min­ing. The usual way to do this would be to re­quire them to put up money or col­lat­eral to cover those costs. But some states, with the fed­eral govern­ment’s bless­ing, al­low com­pa­nies to “self-bond”—es­sen­tially, to prom­ise that when the time comes to clean up a mine, they’ll have enough money to do the job.

Pe­abody’s bankruptcy shows the folly of this prac­tice. Of the six states in which Pe­abody has mines, four—Wy­oming, New Mex­ico, Illi­nois, and In­di­ana—al­low self-bond­ing. In those states, tax­pay­ers could be on the hook for up to $1.15 bil­lion.

A fed­eral bankruptcy judge has some dis­cre­tion to force Pe­abody to make good on its com­mit­ments to states, and the judge should use it. Fail­ing to clean up an old mine, be­yond leav­ing be­hind an eye­sore, can let tox­ins leak into the wa­ter sup­ply, threat­en­ing an­i­mals and peo­ple alike. Leav­ing a sur­face mine un­re­claimed can also pre­vent lo­cal com­mu­ni­ties from us­ing the land for graz­ing, farm­ing, hunt­ing, and recre­ation. Wy­oming’s Pow­der River Basin alone will re­quire an es­ti­mated $800 mil­lion.

The broader ques­tions are how many more Pe­abodys there may be and how to pay for the en­vi­ron­men­tal dam­age they have caused. The com­pany is the lat­est in a string of U.S. coal pro­duc­ers to fail, in an in­dus­try that has lost 20,000 jobs and 94 per­cent of its mar­ket value since 2011. U.S. coal pro­duc­tion in the first three months of 2016 fell 38 per­cent from the same pe­riod last year. <BW>

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