This document discusses environmental payments in the minerals extraction sector, including environmental liability insurance, pollution taxes, non-compliance fees and penalties. It provides examples from Kazakhstan, including pollution tax rates set as coefficients multiplied by an index to account for inflation. Administrative penalties in Kazakhstan are imposed only for pollution exceeding permit limits, but authorities interpret this to mean penalties should also multiply relevant emissions. The document calls for comprehensive reform, including revising standards, introducing integrated permits linked to best available techniques, and aligning payments exclusively with environmental policy objectives.

1. Environmental payments
in the minerals extraction
sector
Krzysztof Michalak
Green Growth and Global Relations Division
Environment Directorate, OECD

2. Land and soil use
Air pollution, impact on climate
Water pollution and use (quality/quantity,
surface/groundwater)
Adverse effects to biodiversity
Mining waste (toxic/inert)
Noise
Energy use
Emergency preparedness and response
Closure and rehabilitation/recultivation
HUMAN HEALTH!!!
Environmental Management in Mining
 direct extraction (mining)
 processing of metals and minerals,
including iron, coal, precious metals,
industrial minerals and uranium, etc

3. Environmental policies, including impacts of mineral explorations and extraction
Environmental quality standards (as policy objectives)
Environmental impacts assessment (in addition to a baseline description of current
conditions, submissions should describe risks and impacts together with proposed
alternative and mitigation measures
Permitting process with environmental management programmes and plans for the
eventual closure of the mine and the provision of adequate financial assurance to cover
the costs of closure and monitoring;
Environmental payments: environmental liability insurance, pollution taxes, non-
compliance administrative fees, non-compliance judicial penalties
Compliance monitoring and promotion: information, advice, guidance,
incentives/awards, partnership with trade associations
Environmental policy and regulatory framework

4. Environmental liability
insurance
Meeting Financial Assurance (FA) requirements is necessary for obtaining
and maintaining operating permits in the mining industry.
Letters of credit and bonds are the most common but there are several
other instruments
E.g. Financial Security Deposits under the Mine Financial Security
Program in the Province of Alberta, Canada
New Mines – Mine Type Base Security Deposit (BSD)
Mine-mouth coal mine $2 000 000
Export coal mine $7 000 000
Oil sands mine with no Environmental Protection and Enhancement
Act (EPEA) approval as of January 1, 2011
$30 000 000
Oil sands mine and upgrader with no EPEA
approval as of January 1, 2011
$60 000 000

5. Environmental liability
insurance
Other financial instruments for managing oil sands and coal liabilities in a consistent and
transparent manner in Alberta:
Operating Life Deposit (OLD): a company is required to start posting financial security
when there are less than 15 years of reserves remaining in order for all outstanding
abandonment, remediation, and surface reclamation costs to be fully secured by the time
there are less than 6 years of reserves remaining.
Asset Safety Factor Deposit (ASFD): In the event that a company’s assets (net cash flow
from remaining reserves) fall below an acceptable level, this deposit ensures that all MFSP
liabilities are fully funded. When a project’s MFSP-asset-to- liability ratio falls below 3.0, the
company must at that time post sufficient financial security to bring the ratio back up to 3.0
Outstanding Reclamation Deposit (ORD): addresses the risks posed by a company that
defers its reclamation obligations. According to the Alberat Energy Operator approved
reclamation schedule, the company must post an ORD when they fail to meet their
reclamation plan targets.

6. Environmental taxes in Kazakhstan
The payments for authorized (below-limit) emissions
based on each enterprise’s ELVs for air and water
pollutants and the volume of generated waste
Important reform in 2008 - the number of pollutants
subject to calculating emission charges was drastically
reduced.
Pollution tax rates are set as coefficients multiplied by
the Kazakhstan monthly calculation index to take into
account inflation and other factors
For above-ELV emissions, the locally applicable rates
are further multiplied by a factor of 10.
Design guided by the desire to generate sufficient
revenues for supporting regional or local budgets, and
not for addressing environmental problems.

7. Environmental administrative penalties in
Kazakhstan
Administrative penalties are imposed by
authorities only for pollution exceeding the
ELVs set in permits.
However, the authorities interpret this to
mean that the penalty should be calculated
not only by multiplying the rates, but also
by multiplying the product by the amount of
the relevant emissions
Excessive penalisation

8. Non-compliance response
Kazakhstan’s Environmental Code defines economic value
of environmental damage as the cost of environmental
remediation that can be assessed directly or indirectly.
The Environmental Code gives “priority” for the
remediation to be undertaken by the party responsible
for the damage.
It also provides for the engagement of independent
experts whose fee must be paid by the responsible party.
The direct method of assessment aims to determine the
expenditure (in market prices) necessary to restore natural
resources and living organisms through “most effective
engineering, management and technological measures” in
accordance with a time-specific project.

9. Non-compliance response
However, unlike the practice in OECD countries, the
Kazakhstan environmental authorities mostly use the
indirect method
This method determines the “pollution damage” from
each pollutant using a mathematical formula and
then combines the resulting assessments of damage
caused by each pollutant.
It does not require measurements (or proof) of
actual damage to the environment in determining the
amount of compensation that must be paid.

10. Challenges
The use of multiplied taxes and the indirect method for calculating
monetary damages, with their focus on revenue raising, makes it
impossible to reliably gauge the relation between pollution payments
and marginal pollution reduction costs.
Lack of willingness by local authorities to implement green reform due
to fear of the reallocation of revenue from environmental payments away
from local budgets; and
Strong vested interests in the energy-intensive sectors, such as
domestic electric power, mining or chemical industries not to allocate their
own resources in the improvement of their environmental performance.

11. Need for comprehensive reform
Environmental quality standards need to be revised
Integrated environmental permits should be introduced linked to best
available techniques (BATs) which are associated with lower emissions.
Environmental taxes, fines and damages should be aligned exclusively
and transparently with environmental policy objectives and the
international commitments of Kazakhstan
Discrimination against specific industrial sectors should be eliminated
and rates for taxes and fines should be set in a uniform way for all
industry sectors and set rules for assessing damages, which are also
non-discriminatory.
More regulatory guidance should be provided on how to assess the
extent of the damage, needs and costs of remediation, and how to
select clean-up measures

12. Focus on reform of non-compliance response
The permit plays no role in determining liability for
environmental damages (no pollution charges but
payments for the use of water or land)
Assessment of environmental damage estimates the
needs and costs of restoring affected resources or
environmental services
The remediation scope may be mandated by law or
left to the discretion of the competent authority, which
determines specific measures using criteria such as
technical feasibility, effectiveness and efficiency
Liability for damages arises only upon a claimant
bringing physical evidence of actual harm