Law360
(By Robert Stonestreet, Christopher (Kip) Power and Ben Clapp)
State and federal lawmakers are creating economic opportunities for the coal industry and landowners to support production of critical materials in high demand for technology products.
The term “critical materials” refers to a group of 50 minerals, elements, substances and materials, including substances known as rare earth elements, that the U.S. Department of Energy has identified as key components of products that are essential to the economic or national security of the U.S., and that are susceptible to supply chain disruption.
According to the U.S. Geological Survey, approximately 97% of rare earth elements are produced in China. The federal legislation known as the Infrastructure Investment and Jobs Act, or IIJA, seeks to reduce the risk of supply chain disruption by diversifying and domesticating production of these materials.
To that end, the act allocates over $1.3 billion to support a number of new and existing DOE initiatives directed toward research, development and production of critical materials generally — and in some cases, rare earth elements specifically.
Rare earth elements are essential for many high-tech products, such as smartphones and other sophisticated electronic devices. They are key components of important defense applications, such as guidance systems, sonar and radar. These elements also serve as important raw materials used in the manufacture of renewable energy equipment, such as solar panels and wind turbines.
Rather than being rare, these elements exist in many places throughout the U.S. and the rest of the world, although generally in very low concentrations that make them difficult to economically recover and process.
But relatively greater concentrations of rare earth elements, along with other critical materials, can be found in coal seams and adjacent geologic formations. Even higher concentrations often exist in polluted water flowing from surface and underground coal mines — commonly referred to as acid mine drainage, or AMD.
The heightened concentration of rare earth elements and other critical materials in AMD, AMD sludge (a byproduct of AMD treatment) and legacy coal refuse disposal areas (also known as gob piles) presents potential opportunities for the mining industry to leverage grants and other funding sources provided by the IIJA to subsidize AMD treatment costs, and promote reclamation of legacy abandoned mine lands.
Companies operating in the mining industry — not just academic institutions or research foundations — are eligible to apply for large amounts of funding created by the IIJA related to the extraction of critical materials generally and rare earth elements specifically. These programs include:
- $400 million appropriated to fund pilot projects for the processing, recycling and development of critical materials, at least 30% of which must be granted to projects relating to secondary recovery, which includes recovery of critical materials from mine waste piles, AMD sludge or byproducts produced through legacy mining activities. Each grant for chosen pilot projects can be up to $10 million, and the DOE will prioritize projects that are shown to be economically viable in the long term.
- An allocation of $127 million in grants focused on research to improve the security of rare earth elements, including through the development and assessment of advanced separation technologies for the extraction and recovery of rare earth elements and other critical materials from coal and coal byproducts, such as AMD, and evaluation of environmental or health impacts associated with the recovery of rare earth elements from coal-based resources and methods of mitigating those impacts.
- Grant funding totaling $140 million dedicated toward establishing a rare earth demonstration facility, that would demonstrate the feasibility of a comprehensive, full-scale operation to extract, separate and refine rare earth elements from AMD, mine waste and other “deleterious material” at a single site. The cost share for an award recipient is expected to be approximately 50%. The DOE seeks to “catalyze development of an economic, competitive, sustainable domestic REE supply from unconventional and secondary sources capable of supporting [approximately] 10% of current U.S. demand.” With specific reference to this funding opportunity, the DOE recently issued a request for information, seeking input on a number of different topics from industry, academia, government agencies, investors and other key stakeholders with interest in developing such a facility. Interested parties are asked to comment upon all aspects of the development, design and construction of a demonstration facility, including potential impacts to environmental justice and energy transition communities, and the types of information that will be needed to determine whether a project is successful. The request for information is not a formal funding opportunity, which is expected to be issued in the fourth quarter of 2022.
- $600 million in grant funding available for projects to establish a sustainable long-term supply of critical materials, including innovations in technologies to diversify commercially viable sources of these materials, and development of advanced critical material extraction, production, separation, alloying or processing technologies.
- $75 million to fund contracts supporting construction of a research facility to be used for pilot projects focused on developing a reliable supply chain for rare earth elements and other critical materials.
Opportunities to apply for these grants and contracts through the DOE are expected to open beginning in the fourth quarter of 2022, subject to the development of appropriate policies or regulations to guide the process.
State lawmakers in West Virginia are also taking important steps to promote rare earth element recovery associated with coal mining operations. Legislators have recently introduced multiple bills in the 2022 legislative session intended to clarify that those who successfully extract rare earth elements from mine drainage may derive a commercial benefit from doing so.
These efforts seek to resolve the issue of who owns the substances present in AMD, which historically has been considered a liability rather than an asset, due to the costs and permitting liability associated with treating it. Under current proposals, ownership of rare earth elements and the right to assign, sell or otherwise financially benefit from their production, may also be vested in the state where AMD is being treated at abandoned or bond-forfeited reclamation sites.
Other states where AMD could serve as a potential source of rare earth elements may pursue similar legislation. But West Virginia appears to be the only state currently doing so.
West Virginia’s proposed legislation is important, because attributing specific volumes of mine drainage water to specific properties can present difficult challenges. Key considerations include whether the water flowing from a site is properly considered to be surface water or groundwater, and whether the analytical framework is one focused on the right to consumptive use or liability for treatment prior to discharge.
At least from a regulatory perspective, in a growing number of cases, the distinction between surface water and groundwater is a determination that is not easily made. For example, in the past, it may have been reasonable to assume that any point source discharge of water subject to a permit issued under the Clean Water Act’s National Pollutant Discharge Elimination System program is a purely surface water.
But in light of the U.S. Supreme Court‘s 2020 decision in County of Maui v. Hawaii Wildlife Fund, introducing the functional equivalency test for pollutants conveyed through groundwater, that line of demarcation may not be so clear. Things can be even murkier in the underground mine context.
A single mine may span multiple tracts with many different mineral owners. Since water moves through the subsurface in both mined-out voids and unmined geologic formations, mine drainage in underground areas can be an amalgamation of water flowing from and/or through a number of different underground mines forming one or more underground mine pools.
While volumes of water flowing from or through certain mine voids can be reasonably calculated, estimating what quantity of rare earth elements came from a particular mine void or source would be challenging, to say the least. Technical approaches that have been accepted in similar legal contexts — e.g., in the context of the Underground Injection Control permitting program under the federal Safe Drinking Water Act — may prove helpful in addressing this question, and enabling interested parties to reach agreements to facilitate rare earth element extraction.
In short, these and other legislative actions present substantial opportunities for members of the coal industry to participate in grant programs, and otherwise derive revenue from recovery and sale of rare earth elements and other critical materials associated with mining operations.
In the best case scenario, those treating AMD may find that they can turn a liability into an opportunity for financial gain. Regardless of the specific application, participating in these programs will take careful planning, and an early focus on the key issues in the development of a framework for project success.
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The article was first published on Law360, February 28, 2022.
