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by Diamond, Jared

  Finally, new technology has made it easier for oil companies to operate more cleanly now than in the past. For instance, several horizontal or diagonal wells can now be drilled from a single surface location, whereas formerly each well had to be drilled vertically from a separate surface location, each causing environmental impacts. The rock debris (the so-called cuttings) that is ground up as a well is drilled can now be pumped into an isolated underground formation containing no producible oil, instead of (as before) dumping the rocks into a pit or into the ocean. Natural gas obtained as a by-product of oil extraction is now either reinjected into an underground reservoir (the procedure used in the Kutubu Project), or (in some other oil fields) shipped out by pipeline or else liquefied for storage and transport by ship and then sold, instead of burning it off (“flaring” it). In many oil fields, as in much of the Kutubu fields, it is now routine to operate exploration drill sites by means of helicopters rather than by putting in roads; helicopter use is of course expensive, but road construction and impacts are often even more expensive.

  These, then, are reasons why Chevron and the handful of other big international oil companies have been taking environmental issues seriously. What it all adds up to is that clean environmental practices help them make money and gain long-term access to new oil and gas fields. But I should reiterate that I am not thereby claiming that the oil industry is now uniformly clean, responsible, and admirable in its behavior. Among the most widely publicized persisting and serious problems are recent large spills at sea from wrecks of poorly maintained and poorly operated single-hulled tankers (such as the sinking of the 26-year-old tanker Prestige off Spain in 2002), belonging to shipowners other than the large oil companies, which have mostly switched to double-hulled tankers. Other major problems include legacies of old, environmentally dirty facilities, constructed before the more recent availability of cleaner technologies and difficult or expensive to retrofit (e.g., in Nigeria and Ecuador); and operations under the auspices of corrupt and abusive governments, such as those of Nigeria and Indonesia. Instead, the case of Chevron Niugini illustrates how it is possible for an oil company to operate in a way that delivers environmental benefits to an area of operations and to the people there—especially compared to alternative proposed uses of the same area for logging, or even just for subsistence hunting and farming. The case also illustrates the factors combining to produce that outcome in the Kutubu oil fields but not in many other large industrial projects, and the potential role of the public in influencing outcomes.

  In particular, the question remains why I observed indifference to environmental problems in the Salawati oil field of the Indonesian oil company Pertamina in 1986, but clean practices in Chevron’s Kutubu field when I began visiting there in 1998. There are several differences between Pertamina’s situation as a national oil company in Indonesia in 1986, and Chevron’s situation as an international company operating in Papua New Guinea in 1998, that may account for the differing outcomes. The Indonesian public, government, and judiciary are less interested in, and expect less from, the behavior of oil companies than do their European and American counterparts encompassing Chevron’s major customers. Pertamina’s Indonesian employees have had less exposure to environmental concerns than have Chevron’s American and Australian employees. Papua New Guinea is a democracy whose citizens enjoy the freedom to obstruct proposed development projects, but Indonesia in 1986 was a military dictatorship whose citizens enjoyed no such freedom. Beyond that, the Indonesian government was dominated by people from its most populous island (Java), looked on its New Guinea province as a source of income and a place to resettle Java’s surplus population, and was less concerned with the opinions of New Guineans than is the government of Papua New Guinea, which owns the eastern half of the same island. Pertamina did not face rising environmental standards from the Indonesian government, such as those that international oil companies face. Pertamina is largely a national oil company within Indonesia, competing for fewer overseas contracts than do the big international companies, so that Pertamina does not derive an international competitive advantage from clean environmental policies. Pertamina has not had CEOs who send out monthly newsletters stressing the environment as the highest priority. Finally, my visit to Pertamina’s Salawati oil field was in 1986; I don’t know whether Pertamina policies have changed since then.

  Let’s now turn from the oil and gas industry to the hardrock mining industry. (That term refers to mines that excavate ores from which to extract metals, as opposed to mines that excavate coal.) The industry is currently the leading toxic polluter in the U.S., responsible for nearly half of reported industrial pollution. Of western U.S. rivers, nearly half have sections of their headwaters polluted by mining. In most of the U.S. the hardrock mining industry is now declining towards extinction, largely because of its own misdeeds. Environmental groups have for the most part not taken the trouble to learn essential facts about the hardrock mining industry, and declined to participate in an initially promising international initiative that the industry commenced in 1998 to change its behavior.

  These and other features of the hardrock mining industry’s current status are initially puzzling, because the industry seems superficially so like the oil and gas industry that we just discussed, and also like the coal industry. Don’t all three industries involve extracting non-renewable resources from the ground? Yes, they do, but they have nevertheless unfolded differently, for three reasons: different economics and technology, different attitudes within the industry itself, and different attitudes of the public and government towards the industry.

  The environmental problems caused by hardrock mining are of several types. One involves disturbance of land surface by digging it up. This problem especially affects surface mines and open-pit mines, where the ore lies near the surface and is reached by scraping away the earth over it. In contrast, no one now extracts oil by digging the surface off of an entire oil formation; instead, oil companies typically disturb only a small surface area sufficient to drill a well to tap down into the oil formation. Similarly, there are some mines at which the ore body does not lie near the surface but deep underground, and at which tunnels and waste piles disturbing only a small surface area are dug down to the ore body.

  Further environmental problems caused by hardrock mining involve water pollution by metals themselves, processing chemicals, acid drainage, and sediment. Metals and metal-like elements in the ore itself—especially copper, cadmium, lead, mercury, zinc, arsenic, antimony, and selenium—are toxic and prone to cause trouble by ending up in nearby streams and water tables as a result of mining operations. A notorious example was a wave of cases of bone disease caused by cadmium discharged into Japan’s Jinzu River from a lead and zinc mine. Quite a few of the chemicals used in mining—such as cyanide, mercury, sulfuric acid, and nitrate produced from dynamite—are also toxic. More recently, it has become appreciated that acid draining out of sulfide-containing ores exposed to water and air through mining causes serious water pollution and leaches out metals. Sediment transported out of mines in runoff water may be harmful to aquatic life, for instance by covering up fish spawning beds. In addition to those types of pollution, the mere consumption of water by many mines is high enough to be significant.

  The remaining environmental problem concerns where to dump all the dirt and wastes dug up in the course of mining, consisting of four components: the “overburden” (dirt scraped away to get down to the ore); waste rock found to contain too little mineral to be of economic value; tailings, the ground-up residue of ore after its minerals have been extracted; and the residues of heap-leach pads after mineral extraction. The latter two types of residue are generally left in the tailings impoundment or pad respectively, while the overburden and waste rock are left in dumps. Depending on the laws in the particular country where the mine is located, the methods of disposing of tailings (a slurry of water and solids) involve either dumping them into a river or ocean, piling them up
on land, or (most often) piling them up behind a dam. Unfortunately, tailings dams fail in a surprisingly high percentage of cases: they are often designed with insufficient strength (to save money), they are often constructed cheaply from wastes themselves instead of from concrete, and they are built over extended periods so that their condition must be monitored constantly and can’t be subjected to a final inspection declaring them completed and safe. On the average around the world each year, there is one big accident involving a tailings dam. The largest such accident in the U.S. was West Virginia’s Buffalo Creek disaster of 1972, which killed 125 people.

  Several of these environmental problems are illustrated by the status of the four most valuable mines on New Guinea and neighboring islands, where I do my fieldwork. The copper mine at Panguna on Papua New Guinea’s Bougainville Island was formerly the country’s largest enterprise and biggest earner of foreign exchange, and one of the largest copper mines in the world. It dumped its tailings directly into a tributary of the Jaba River, thereby creating monumental environmental impacts. When the government failed to resolve that situation and associated political and social problems, Bougainville’s inhabitants revolted, triggering a civil war that cost thousands of lives and nearly tore apart the nation of Papua New Guinea. Fifteen years after the war’s outbreak, peace has still not been fully restored on Bougainville. The Panguna mine was of course closed down, has no prospect of reopening, and the owners and lenders (including the Bank of America, U.S. Export-Import Bank, and Australian and Japanese subscribers and lenders) lost their investment. That history provided a reason why Chevron worked so closely with local landowners at the Kutubu oil fields to gain their acceptance.

  The gold mine on Lihir Island dumps its tailings into the ocean via a deep pipe (a method viewed by environmentalists as highly damaging), and the owners claim that this is not harmful. Whatever the effects of that one mine on marine life around Lihir Island, the world would have a major problem if many other mines similarly dumped their tailings into the ocean. The Ok Tedi copper mine on the mainland of New Guinea did construct a tailings dam, but experts who reviewed its design before construction warned that the dam would fail soon. It did fail within a few months, so that 200,000 tons of mine tailings and wastes are now discharged each day into the Ok Tedi River and have destroyed its fishery. From the Ok Tedi the water flows directly into New Guinea’s largest river with its most valuable fishery, the Fly River, where suspended sediment concentrations have now increased five-fold, resulting in flooding, deposition of mine wastes on the river’s floodplain, and killing of floodplain vegetation over an area of 200 square miles so far. In addition, a barge carrying barrels of cyanide for the mine up the Fly River sank, and the barrels have gradually been corroding and releasing their cyanide into the river. In 2001 BHP, the world’s fourth largest mining company, which operated the Ok Tedi mine, sought to close it, explaining, “Ok Tedi is not compatible with our environmental values, and the company should never have been involved.” However, because the mine accounts for 20% of Papua New Guinea’s total exports, the government arranged for the mine to be kept open while permitting BHP to withdraw. Finally, the Grasberg-Ertsberg copper and gold mine of Indonesian New Guinea, a huge open-pit operation that is Indonesia’s most valuable mine, dumps its tailings directly into the Mimika River, whence they reach the shallow Arafura Sea between New Guinea and Australia. Along with the Ok Tedi mine and another gold mine in New Guinea, the Grasberg-Ertsberg mine is one of only three large mines in the world that is currently being operated by an international company and that disposes of its wastes into a river.

  The prevalent policy of mining companies towards environmental damage is to clean up and restore the mined area only after the mine has shut down, rather than follow the coal mining industry’s practice of reclaiming the area as mining proceeds; the hardrock mining industry opposes that strategy. Companies assume that what is called “walkaway” restoration will be adequate: i.e., that cleanup and restoration will incur minimal costs, will go on for only 2 to 12 years after mine closure (whereupon the company can walk away from the site with no further obligations), and will involve nothing more than resloping of disturbed areas to prevent erosion, applying a growth medium like salvaged topsoil to stimulate revegetation, and treating water flowing out of the mine site for a few years. In reality, this inexpensive walkaway strategy has never sufficed for any major modern mine and regularly leaves water quality standards violated. It is instead necessary to cover and revegetate all areas that could be sources of acid drainage, and to capture and treat polluted groundwater and surface water flowing out of the site for as long as the water remains polluted, which often means forever. The actual direct and indirect costs of cleanup and restoration have typically proved to be 1.5 to 2 times mining industry walkaway estimates for mines without acid drainage, and 10 times those estimates for mines with acid drainage. The biggest uncertainty in those costs is whether the mine will produce acid drainage, a problem recognized only recently at copper mines though appreciated earlier at other mines, and almost never predicted accurately in advance.

  Hardrock mining companies facing cleanup costs frequently avoid those costs by declaring bankruptcy and transferring their assets to other corporations controlled by the same individuals. One such example is Montana’s Zortman-Landusky gold mine mentioned already in Chapter 1 and developed by Pegasus Gold Inc., a Canadian company. When opened in 1979, it was the first large-scale open-pit cyanide heap-leach gold mine in the U.S., and the largest gold mine in Montana. The mine proceeded to cause a long series of cyanide leaks, spills, and acid drainage, abetted by the fact that neither the federal government nor the Montana state government required the company to test for acid drainage. By 1992, state inspectors had established that the mine was contaminating streams with heavy metals and acid. In 1995 Pegasus Gold agreed to pay $36 million to settle all lawsuits by the federal government, state of Montana, and local Indian tribes. Finally, in 1998, at a time when less than 15% of the mine site had undergone any surface reclamation, Pegasus Gold’s board of directors voted themselves more than $5 million in bonuses, transferred Pegasus’s remaining profitable assets to the new company of Apollo Gold that they created, and thereupon declared Pegasus Gold bankrupt. (Like most mine directors, those of Pegasus Gold did not live in the downstream watershed of the Zortman-Landusky mine, and they thus exemplified elites insulated from the consequences of their actions as discussed in Chapter 14.) The state and federal governments then adopted a plan of surface reclamation to cost $52 million, of which $30 million would come from the $36 million payment by Pegasus while $22 million would be paid by U.S. taxpayers. However, that surface reclamation plan still does not include the expense of water treatment in perpetuity, which will cost taxpayers much more. It turns out that five out of the 13 recent major hardrock mines in Montana, four of them (including the Zortman-Landusky mine) open-pit heap-leach cyanide mines, were owned by the bankrupt Pegasus Gold Inc., and that 10 of the major mines will require water treatment forever, thereby increasing their closure and reclamation costs by up to 100 times previous estimates.

  A bankruptcy more expensive to taxpayers was that of another Canadian-owned heap-leach gold mine in the U.S., Galactic Resources’ Summitville Mine in a mountainous area of Colorado receiving over 32 feet of snow annually. In 1992, eight years after the state of Colorado had issued an operating permit to Galactic Resources, the company declared bankruptcy and closed the mine on less than a week’s notice, leaving a large local tax bill unpaid, laying off its employees, stopping essential environmental maintenance, and abandoning the site. A few months later, after the start of the winter snowfalls, the heap-leach system overflowed, sterilizing an 18-mile stretch of the Alamosa River with cyanide. It was then discovered that the state of Colorado had required a financial guarantee of only $4,500,000 from Galactic Resources as a condition for issuing the operating permit, but that the cleanup would cost $180,000,000. After the government
had extracted another $28,000,000 as part of the bankruptcy settlement, taxpayers were left to pay $147,500,000 through the Environmental Protection Agency.

  As a result of such experiences, American states and the federal government eventually began to require hardrock mining companies to guarantee in advance some form of financial assurance that enough money would be available for cleanup and restoration, in case the mining company itself refused or proved financially unable to pay for the cleanup. Unfortunately, those assurance costs are typically based on a cleanup cost estimate made by the mining company itself, because government regulatory bodies lack the time, knowledge, and detailed mine engineering plans necessary to make such an estimate for themselves. In the many cases where mining companies have not cleaned up and the government has been forced to fall back on that assurance, the actual cleanup costs have proved to be up to 100 times the mining company estimate. That’s not surprising, because the estimate was provided by the company, which regularly underestimates because it has no financial incentive or government regulatory pressure to estimate the amount fully. The assurance is provided in one of three forms: cash equivalents or a letter of credit, the safest form; a bond that the mining company obtains from an insurance company in return for an annual premium; and a “self-guarantee,” meaning that the mining company pledges in good faith that it will clean up and that its assets stand behind its pledge. However, frequent breaking of such pledges has shown self-guarantees to be meaningless, and they are now no longer accepted for mines on federal land, but they still account for most assurance in Arizona and Nevada, the American states most friendly to the mining industry.