Brazil Needs to Get Past Dilmageddon The Lesson From a Coal Giant’s Collapse
Vice President Temer is preparing for the postRousseff era. There’s lots to do—and quickly Bankruptcy shouldn’t stop Peabody from cleaning up the mess it’s leaving behind
The vote by Brazil’s lower house to push forward the impeachment of President Dilma Rousseff promises an end to a long political impasse. Markets have been responding with an optimistic surge. But once Rousseff is out of office, Brazil’s next leaders will need to appreciate that the window for new cooperation and reform will be narrow.
The wide margin of the lower house vote suggests the Senate may conclude impeachment proceedings as early as midMay. Vice President Michel Temer, the leader of the Brazilian Democratic Movement Party—previously Rousseff’s chief coalition partner—has already been reaching out to potential cabinet members to form a government of national unity.
Temer has his work cut out for him, and not only because he lacks widespread public support and will face stubborn resistance from Rousseff and her patron, the former President Luiz Inácio Lula da Silva. Like many other members of the Democratic Movement Party—including the leaders of the lower house and the Senate—temer himself may yet be implicated in the multibillion-dollar bribery and kickback scandal at the state-owned oil company, Petrobras, that is central to Rousseff’s crisis. There’s still a chance the electoral court will call for new elections because of campaign finance irregularities in the 2014 contest.
Even setting aside such threats, the work needed to improve the economy is considerable. Rousseff’s administration squandered the fruits of the global commodity boom. With that boom now a bust, public and private debt is growing. Last year the economy shrank by almost 4 percent, and the contraction is expected to continue in 2016. Unemployment has almost doubled since Rousseff’s 2014 reelection.
So voters are in no mood to see a caretaker government impose the kind of austerity it would take to get Brazil out of its fiscal bind. Temer will need to work with other market-friendly parties to spur growth. In a manifesto issued last fall, his party 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>