EI Sourcebook | 9.8 Policy Instruments

9.8 Policy Instruments

Governments have at their disposal an array of instruments designed to ensure compliance with policy, including:

Legislation and regulations. As noted in Chapter 5, it is increasingly common to see social and environmental protection policies, together with related procedures, instruments, compliance standards, and assignment of responsibilities spelled out in laws and regulations as opposed to contracts or agreements. The laws and regulations clearly stipulate: the process by which the various data, impact assessments and management plans (see ESIA and ESMP below) will be reviewed and by whom; the process by which any needed corrections and improvements will be made; and the process and criteria for approvals to be given and by whom.

Decommissioning and Closure Planning. Oil field abandonment decommissioning and mine closure have moved from end of project life events to processes that start at the time of project design and continue throughout the life of project operation. Initial plans are typically included in the development plan when it is submitted by project sponsors to the authorities for approval. Plans then are updated on a regular basis (e.g., every three to five years) throughout the project life and re-submitted for approval.

The Theory Behind Mine Closure, Leon Gerber, CEPMLP

Environmental Permits. As noted in Chapter 4 previously, environmental permits should be required for oil, gas and mining operations to manage and mitigate key environmental impacts such as water use and wastewater discharge quality; atmospheric emissions; noise and, for mining, project-related waste and tailings storage and disposal. Processing these permits according to a common timetable can enable investors and operators to be able to plan construction and operation in an orderly manner. Environmental and social regulations can be used to provide clear guidelines and specify requirements for the preparation of baseline data, assessments, and management plans

Compliance Standards. Many countries set compliance standards for environmental impacts. Standards are most effective when they are achievable and set in line with good international practice. If they are unrealistically strict, the risk is that they will become meaningless given the institutional capacity limitations of most developing countries. Equally, if they are too lax, good enforcement will not accomplish very much. The best results are achieved when compliance standards are well set and the capacity to implement them is put in place.

Penalties. The law and regulations should clearly present the penalties for violations of environmental requirements and compliance standards which would range from fines for minor violations to suspension of permits and licenses for the most serious violations. In the most extreme case, licensees would be subject to termination of license. Companies should be pay penalties commensurate with the violation and where other parties are harmed they should provide compensation commensurate with the harm.

Social Risk Mitigation. While not all social impacts are amenable to regulation, requirements related to process designed to mitigate social risks such as community notification, information dissemination, community consultation, land acquisition, compensation, and involuntary resettlement should be included in laws and regulations to ensure that they are implemented in an orderly and responsive manner.

Instruments. A modern environmental and social protection regime will include the following instruments prepared for each operation and submitted to the environmental authority for approval:

Baseline Environmental and Social Data;
Sector Strategic Environmental and Social Assessment (SESA);
Environmental and Social Impact Assessments;
Environmental and Social Management Plan;
Management Plans for Health and Safety Ompacts;
Hazardous material handling, Transport and Storage Management Plan; and
Decommissioning and Closure Management Plan (including post closure monitoring if needed).

The various baseline data, impact assessments and management plans need to be prepared not only for the core operation itself but also for associated water storage; product, fuel and materials transport, handing and storage facilities; processing plants and infrastructure associated with the operation including roads, and railway routes, waterways and ports along which hazardous materials may be transported and locations where they are stored. For mining waste dumps and tailings impoundments will also be included. Environmental audits may also be required in situations where there has not been strong enforcement of environmental requirements or where there are community or other stakeholder concerns about environmental performance and practice.

SESA.One of the most important issues for social and environmental protection is the capacity of the authorities to enforce compliance standards. Good practice, relatively recently introduced, is to undertake a SESA. The purpose of the SESA is to: identify social and environmental priorities for different EI sector stakeholders; provide a regulatory, institutional, capacity and political assessment; and develop recommendations to improve the situation including, in particular, actions needed to strengthen capacity of the social and environmental authorities. The intended follow-up requires a sustained effort to ensure that the actions are implemented successfully.

Base-line Studies. Almost all social and environmental legislation today would require that, before any EI activity begins, baseline social and environmental data be collected and reported. The baseline data would include year round measurement of environmental conditions during different seasons of the year, information on vegetation and animal life and identification of established legal and customary community residents and users and their assets, crops andlivelihoods at the earliest stage practical so that they can be identified separately from any newcomers who might arrive as news of a potential development spreads. This might be paralleled by an initial scoping study indicating the likely social and environmental impacts and providing a basis for initiation of consultations with affected communities

ESIA. Environmental and Social Impact Assessments (ESIAs) are now routinely required of project sponsors. The primary intention of the ESIA is to analyze short term and long term impacts and risks, including: direct impacts (the project site and neighboring communities, infrastructure such as ports, pipelines, pumping stations, roads and railways, as well as all plant, equipment, landfills and other facilities at the site); indirect impacts; cumulative impacts; trans-boundary impacts (e.g., from air emissions) and global impacts (e.g., GHG emissions). These impacts are identified through all stages of the planned project (pre-development, development, production, abandonment, or closure and post-closure). Assessment of potential social impacts might include local communities and local land use, resettlement, and issues affecting women, youth and the elderly. Assessment of environmental impacts would typically include air and soil resources, marine resources, water and wetlands, biological and biodiversity resources. Legislation usually requires that ESIAs be prepared by qualified experts in accordance with international standards, and that the documents are made public allowing sufficient time for review and comment before the EI project commences.

ESMP. The project sponsor’s Environmental and Social Management Plan (ESMP), also a standard feature of modern EI regulation, is based on the ESIA, and consists of operational policies, procedures and practices designed to comply with applicable laws and regulations and reduce the risk of adverse impacts during each phase of a project. It too, should reflect international standards (see Table 10.1). It will generally also include an in-migration management plan and resettlement and compensation plan. The sponsor is expected to amend and update the ESMP as necessary to reflect changes in circumstances or applicable standards. Importantly, ESMPs are required to include emergency preparedness and response measures designed to address both unforeseen and foreseeable accidents and events. As with the ESIA, ESMPs are meant to be disclosed to affected stakeholders for comment and feedback.

CDA. Good practice in the EI sectors involves improving local economic development. This can be done through a variety of measures, processes and structures as vehicles for delivering development benefits to communities. They include: the preparation and implementation of community economic development plans, incorporating or supported by building local planning capacity, job skills training programs, micro-finance schemes, community-controlled trusts and development funds, undertakings with respect to local employment, local procurement and sourcing of goods and services. Some of these plans and undertakings are often formalized in one particular instrument, the Community Development Agreement (CDA). This is concluded between the local community and the project sponsors (see World Bank resource Sharing Mining Benefits in Developing Counties). In this connection, we note the comprehensive report on this subject and Brief - Good Practice Notes authoerd by CSRM at the University of Queensland.

The CDAs reflect the growing importance assigned to close and regular consultation and communication with affected communities on EI projects, and their social and environmental impacts. However, this is not always done well. To do this properly requires building the local capacity (of both government and community) to both plan well and implement effectively with good accountability, checks and balances and capacity regarding local expenditure control systems – a substantial task – and to avoid 'elite capture' of the processes and economic benefits. By placing an operation in the regional context, it is possible to identify opportunities for growth through 'resource clusters' and/or resource based growth corridors – where the operation can contribute to broader regional growth while at the same time the broader regional growth can feed back to facilitate possible development of other operations in the region as well as development of non-mining, oil, or gas activities to reduce regional and local community dependency on the operations themselves.

Box 9.4: CDAs and their Context in the Mining Sector

The emergence of CDAs has been linked to three distinct settings in recent years:

Where Governments have imposed a specific obligation on developers to formally enter into a CDA (Papua New Guinea, Mongolia);
Where there is a legal regime that requires developers seeking access to indigenous lands to negotiate the conditions of access or use with the traditional owners of that land (Australia, Canada); and
Where there has been significant conflict involving the developer and local communities, and an agreement has been negotiated in an effort to resolve these conflict (Peru).

Source: Wall and Pelon: (Sharing Mining Benefits)

Provisions in the Plan. Provisions in the plan include: decommissioning and removal of plant and equipment; land reclamation and restoration to an alternative use; decommissioning and closure plans should also address the handover of potentially useful social assets such as buildings (e.g., health or educational facilities and possibly even repair shops for small road vehicles) and equipment (e.g., working vehicles) that can remain to be used by the community after the mine is closed. If any such buildings and assets are identified early in the project life, towards the end of the project they can progressively handed over and operated and maintained by the community agency or organization that well eventually receive and use them, so that that group is well equipped to own and operate them once the operation closes and the company has departed. But buildings that are not suitable to be handed over such as laboratory or office buildings or workshops for large mining trucks and shovels) should be closed and removed. In situations where there may be legacy issues from past operations, environmental audits and surveys of the legacy sites should be undertaken on a regular basis to identify any environmental risks and set action priorities and mobilize needed funding according to the severity of the risks.

Assurance Mechanisms. One or more financial mechanisms, contained in legislation or the petroleum or mining agreement, should be included and put in place to ensure that the necessary funding is in place for work related to closure once production, and revenue, cease. Such mechanisms can include cash held in trust, bonds, and certificates of guarantee, letters of credit, securities, deeds and assignments. The value should be built up progressively over time so that sufficient funds are available at the time of closure. Funds should be tax deductible at the time they are irrevocably committed. The amount of funding needed would need to be updated and approved each time the decommissioning and closure plan is updated and the financial assurance provision adjusted accordingly. Where cash or comparable financial instruments are used, they should be held by an independent trustee, satisfactory to both the government and the license holder and kept in a safe but income bearing form in a stable currency so that value is preserved and increases over time.

Warranties. These may also be required for completion of abandonment or closure work in accordance with government requirements and with respect to liability for persistent post-closure risks.

Governments should obtain both closure-related warranties (that the closure will be completed subject to government requirements and approval) and post-closure warranties that the company will remain legally responsible for any environmental risk that persists (i.e., acid mine drainage in the case of mining) or emerge (i.e., slope stability of impoundments for mining) and will be corrected by the company even after the license is handed back.

Project Decommissioning and Closure Plans. These should be available for each operation. If a commercial scale mining, oil or gas operation does not have, or is not required to have, a decommissioning and closure plan, then this should be corrected and an initial plane prepared without delay. A decommissioning and closure plan is essential even for an operation at the start of production or for an operation with many decades of remaining life since even a conceptual or highly preliminary plan will inform present operating practices and planning and indicate possible benefits of reducing both short-term and long-term land and water course disruption and undertaking on-going reclamation and restoration.

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