Environmental Impact Assessments not living up to promise, says study

A recent paper, co-authored by Rosemary Collard, Jessica Dempsey, Bruce Muir, Robyn Allan, Abigail Herd, and Peter Bode, argues that Environmental Impact Assessments (EIA), which look at the trade-offs between environmental damage of large scale projects and the economic benefits those projects bring to the province, are not doing their job. 

Instead, argue the authors, EAIs are rarely followed up on and monitored, allowing companies to overstate the economic benefit the projects will bring. “Regulators and decision-makers trade adverse impacts for economic benefits. [This raises] a further question: how accurate are the economic benefit predictions that underpin regulators’ recommendations of project approval, and governments’ ultimate decisions to authorize projects?”

Determining the extent to which economic benefits materialize is necessary to establish whether the trade-offs underpinning project approval are accurately assessed. And economic impact follow-up can answer this question, especially “predictive auditing.” This is the process of comparing what the company promised the outcomes would be vs what the actual outcomes are. 

However, very little of this has been done, so the authors set out to do their own predictive audit. At the heart of the study are the three mines operated by Conuma: Brule, Willow and Wolverine. 

“Decision-makers often reason these benefits outweigh the potential adverse effects to environmental and social valued components, e.g. endangered species,” argue the authors, “but rarely are the economic impacts monitored and audited. Based on data collected from publicly available documents, including financial reporting, we compare the predicted employment and corporate tax revenue against the projects’ actual performance for these two indicators.”

Indeed, say the author, the three mines have only brought 59 percent of forecasted employment and 34 percent of forecasted tax revenue. 

“The results challenge the credibility of trade-off analyses that underpin rationales for these project approvals and more broadly raise questions about the confidence and uncertainty of economic predictions in other EIAs and decision rationales.”

If this sounds familiar, the study authors released a paper with similar findings two years ago. Though that one was focused on the impact mining had on caribou, it makes many of the same points as this new paper, though the new paper includes new and updated research. 

This paper starts from the premise that “follow-up in the EIA process is essential for achieving sustainable development,” and that the most important function of follow-up is to “identify [a] projects’ actual effects, which EIA scholars argue are the most relevant to sustainability.”

The authors argue that major industrial developments like mines, dams and pipelines contribute to land-use change, and in most countries in the world, undergo an EIA before they can begin operating. “Effective EIA should ensure these major developments do not contribute to species loss.” Yet, they say, according to other research “the time period during which EIA has emerged and spread globally has coincided with largely worsening ecological indicators, including wild animal depopulation and species depletion.”

Of course, not being part of the regulatory body (the provincial or federal government), the authors had to rely on public data and were only able to look at “two direct economic benefit indicators, tax revenue and employment, as well as a third contextual indicator, coal production.”

They admit this is far from an exhaustive study, but point out that these are the two indicators “most commonly employed by the mining industry and regulators in BC to describe positive impacts of proposed developments. Tax revenue and jobs are thus two key indicators EIA regulators use to determine whether projects will foster a “sound economy.”

The first part of the project was easy: determining the mine’s predicted benefits, which were outlined in the mine’s Environmental Assessment Reports, as well as securities and exchange filings, namely technical reports, press releases and other publicly available sources. 

The report looks back on twenty years of history on the mines, from 1999 to 2019. The reason for this, they say is “for much of their history they were owned by public companies, which enabled greater access to their financial records.” 

This is no longer the case, as Conuma is not a public company, but still Conuma is the company upon who scrutiny is now cast. 

Which is a problem, says Conuma CEO Brian Sullivan. They’re the ones being targeted, but they’ve only been running the mine since 2016. “Most of the observations appear to be for Environmental Assessments that were done, even back to when Western [Canadian Coal] was running the mine. Then it was inherited by Walter [Energy], and we took over in August of 2016, so our first tax payout of any consequence was in 2017. It only goes to 2019 and certainly doesn’t reflect the most recent information about Conuma being in the community. You can certainly see some of the effects we have now.”

Consider, he says, what the study says about employment. “From 1999 to 2019, mining proponents forecasted 12,245 person-years of employment at Willow Creek (3767), Wolverine (4960) and Brule (3518). Only 7260 person-years of employment—59 percent of what was projected—materialized.” To put that another way, they say, “while 583 jobs were forecasted, only 346 jobs materialized.”

Right now, says Sullivan, the mines have about 1100 employees between the three operations and supporting industry. “That’s significantly different from some of the data that they used,” he says. “Certainly in 2017, we would have only been operating Brule. And then in 2018, we would have started to operate Wolverine that would not have represented a full year of operation of Wolverine. But if you’re looking at what we’re doing now with three operations running in a healthy price environment, we have 1100 employees and almost 3000 dependents. So that’s a fairly significant impact on those families of our employees. Our total payroll in 2022 was $180 million. Our tax bill for Provincial and Federal was about $100 million. These are rounded estimations, but I think it was pretty close to $100 million.”

This latter is in response to the study’s second indicator. According to the authors, “Pine Valley and Western Canadian Coal predicted that the Willow Creek, Brule and Wolverine mines would contribute $75 million, $123 million and $52 million respectively in corporate tax revenue to the provincial and federal treasury, a collective total of $250 million between 1999 and 2019.”

But, the report says, financial analysis of the companies’ reporting shows that net corporate tax paid over this period for all three mines was “$86 million, meaning actual corporate tax revenue was 34 percent of what was forecasted.” Indeed they say, most years, the mines’ owner paid no corporate tax. “Western Coal was the first owner to pay corporate taxes, in 2010. Due to operating losses in the following two years, however, the mines’ next owner, Walter Energy, reported in its financial statements that those taxes were refunded, taking the cumulative balance for corporate taxes paid back to zero. This means that by 2016 these companies had paid no corporate taxes, in total.” 

According to their estimates, Conuma only paid corporate taxes of $17 million in 2017, $45 million in 2018 and $24 million in 2019, for a total of $86 million.

Which, says Sullivan, is not the case, and the company’s tax bill is growing. “In addition to the $100 million in taxes last year, we paid $12.5 million in coal royalty. And then I think we paid Tumbler Ridge $2.6 million in property tax. So if you look at those numbers against what was cited in the study, those numbers exceed the figures that were being discussed in the study.”

And, he says, the company is only getting started. “What we have done in the last year and a half coming out of the pandemic is representative of what the potential of these operations are, in terms of impact on the local and regional economy,” says Sullivan. “It’s very important to our ethos that we are a community member, that we’re making a positive benefit in the community to account for the fact that we’re in an extractive industry. Our vendor spend in 2022 was just about $180 million as well, going to businesses in Tumbler Ridge, Chetwynd, Dawson, Fort St. John, Grande Prairie, Mackenzie and Prince George.”

Another issue with the study, says Sullivan is that it approaches mine closures as 100 percent bad. While he acknowledges the closures in the past have not been economically beneficial at the time, it does mean that the resources stayed in the ground so that when prices came back up, the community could benefit. “The value of that resource remains in the ground for the future,” he says. “So it may not have been captured in the precise time that was intended by the project proponent, but the value is still there.”

He points to the recent closure of Willow Creek in 2020. “When the price of coal dropped down to $60/tonne in 2020, we had to curtail operations at Willow Creek. We furloughed people until December, then reopened in January, 2021. When the price recovered we made offers to everybody that had been furloughed. Lots of them came back and the operation had a real success in 2022 and has been doing really well in 2023. We employ 330 people or there abouts directly at Willow Creek. And for every direct job that we employ, it impacts three other indirect jobs, in different ways. Some companies exist solely to, you know, provide support to Conuma. Some of them have significant parts of their revenue generated by services provided to Conuma so, you know, you look around town and, and some of the businesses—whether it’s LaPrairie, or Industrial Metal Works, or the town mechanics that provide us maintenance services, to the employees that are coming into the area for CN, all the way up to the 100 plus jobs at Ridley Terminal where our coal is unloaded. So we have a significant impact beyond just the 1100 direct jobs and then the 3000 dependents. We estimate we’re impacting more than 5000 jobs in the region.”

Sullivan says that it is important to Conuma to get the balance right between providing benefits to the community in exchange for extracting the natural resource. “Every extractive industry that has an impact on the environment should be put to that test.”

When Walter shut down, he says the plan was to sell off all the equipment. “There were 35 Cat 793s, there were shovels. There was ancillary equipment and the court was looking at the option of selling all the equipment for something like $30 million, even though it was worth much more than that. Part of the bargain that Conuma made with the regulators was we wouldn’t sell the equipment. If we had done that, or if the liquidator had done that then all three of those operations would have had the same fate as Quintette and PRC had when they removed the equipment. It makes it much harder to restart in the face of an improving market. So we informed the regulators that we would open Brule and hire 100 people and make a go of it. We didn’t make any promise about reopening Wolverine or Willow Creek at the time. We focused on Brule and then the market started to recover in the fall of 2016, and took off in 2017 and 2018. And that market recovery allowed us to really reopen all three operations. So in terms of what did we promise? We promised the regulators that we would reopen Brule and hire 100 people and that’s what we did.”

He says some of the statements the authors have made are “literally, utterly false,” including the charge that Conuma paid out too much to its shareholders between April 2018 and 2020. “Yes we paid $225 million to shareholders, which essentially repaid the cost of starting the business. I don’t know how the report authors believe businesses get started, but the people who start them typically make an investment that gets repaid, so that was part of the original bond we undertook in 2018. It was an offering a private notes offering to sophisticated investors in 2018. And that was in the original amount of $200 USD even. And we repaid in order to take dividends during that period. While the notes were outstanding. We had to pay the note holders an equal sum if we took a dividend. So that original dividend was to repay the initial capitalization of Conuma.”

Sullivan says they still haven’t heard from the report authors. “I don’t want to go out of my way to throw mud on the authors. They did what they think is their job as public advocates, which is to go back and look to see if a resource projects did what they said they were going to do. But we are unaware of any effort made to try to talk to us and get a sense of what Conuma is doing now versus what is available just from a cold look at public documents. It ignores the efforts that we’re making in the community, to really affect change. We’re not always going to be perfect at it. But we are certainly going to try and make people’s lives better in Tumbler Ridge, Chetwynd and the communities we operate. We can certainly always do better and this reminds us that we have a covenant with the communities in which we operate. And so we’ve got to hold up our end of the bargain. And it doesn’t hurt to be reminded of that. But it also doesn’t hurt if you’re going to take a fair look at it to come and talk to the people who are living it, and to my knowledge they didn’t do that.”

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Trent is the publisher of Tumbler RidgeLines.

Trent Ernst
Trent Ernsthttp://www.tumblerridgelines.com
Trent is the publisher of Tumbler RidgeLines.

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