Appendix D: Financial Assurance

Owners or operators of all landfill facilities must demonstrate at the consenting stage that they have sufficient funds to cover the costs associated with closure, post-closure, and corrective action/remediation measures. Financial mechanisms to pay for potential corrective action, should it be determined that a facility poses a threat to the environment or human health, must also be presented at the consenting stage. The cost estimates associated with these requirements must be based on the assumption that a third party will implement the activities.

The following financial assurance mechanisms may be appropriate sources for the required funding.

Funds: held by a reputable third party or trustee until the funds are needed. Payments are made annually into the trust fund. The initial payment must be made before waste acceptance, or before the effective dates for closure and post-closure as specified in the facility's resource consent conditions.
Surety bonds: issued by private firms, which typically require full collateral for the bond, excluding the landfill. A payment or performance surety bond is acceptable for closure and post-closure financial assurance. However, only performance bonds should be acceptable for corrective action. If the surety bond is the main source of financial assurance, then a standby trust fund must also be set up. The bond must be made effective before waste acceptance or before the effective dates for closure and post-closure as specified in the facility's resource consent conditions.
Letter of credit: which must be good for at least one year and irrevocable. The letter of credit must be re-issued at the end of each term. It must also be made effective before waste acceptance or before the effective dates for closure and post-closure as specified in the facility's resource consent conditions.
Insurance: an insurance policy must be issued for face value in the amount of at least the current cost estimate of closure and post-closure. The policy must include a provision to provide the assured funds to a third party, if necessary. The policy must be made effective before waste acceptance or before the effective dates for closure and post-closure as specified in the facility's resource consent conditions.
Corporate orlocalgovernmentfinancialtestsandguarantees: criteria for financial assurance for corporate and government tests and guarantees will be set by central government and/or appropriate regulatory or statutory authorities.
Combination of the previously mentioned sources:any combination of the above-mentioned mechanisms or any other mechanism may be used, as long as they are determined to be independent of each other and acceptable to the appropriate regulatory/statutory authority.

The financial requirements for landfills in the United States and Australia are given below for comparison.

United States

In the United States, municipal solid waste landfills (MSWLs) are regulated under Subtitle D of the Resource Conservation and Recovery Act (RCRA). The municipal solid waste landfill facility criteria are described in Part 258 of Chapter 40 of the Code of Federal Regulations (40 CFR Part 258). Financial assurance criteria for MSWLs are described in Sub-part G of Part 258.

The following is a brief summary of Sub-part G: Financial Assurance Criteria. It has been extracted from Sub-part G of Part 258.

The Part 258, Subpart G, financial assurance criteria require demonstration of responsibility of the costs of closure, post-closure care, and known corrective action. EPA (United States Environmental Protection Agency believe that compliance with these requirements will help ensure responsible planning for future costs. Adequate funds must be available to hire a third party to carry out all necessary closure, post-closure care, and known corrective action activities in the event that the owner and operator declares bankruptcy or lacks the technical expertise to complete the required activities.

Cost estimates

The amount of financial assurance, using acceptable financial mechanisms, must equal the cost of a third party conducting these activities. To determine these costs each MSWLF owner and operator must prepare a written, site-specific estimate of the costs of conducting closure/post-closure care and known corrective action.

Closure

The owner and operator must calculate a detailed cost estimate for closure based on the largest area of a MSWLF unit that may ever require a final cover during its active life. The cost estimate must equal the expense of closing the area when the extent and manner of operation would make closure most expensive.

... the owner and operator must increase both the closure cost estimate and the amount of financial assurance maintained if the closure plan is adjusted or if changing unit conditions (e.g. increases in design capacity) raise the maximum cost of closure. The closure cost estimate and the amount of financial assurance maintained may also be reduced if, as a result of changes in facility conditions (e.g. partial closure of a landfill), the existing cost estimate exceeds the maximum cost of closure during the remaining life of the MSWLF unit. The owner and operator must document evidence supporting such a reduction.

Post-closure care

The financial assurance requirements for post-closure are similar to the requirements for closure of MSWLF units. The owner and operator must have a detailed, site-specific written estimate of the cost of hiring a third party to conduct post-closure care for the MSWLF unit. This cost estimate must account for the total costs of conducting post-closure care, including annual and periodic costs described in the post-closure plan. Post-closure care cost estimates must be based on the most expensive costs during the post-closure care period. As with closure cost estimates, changes in facility conditions or the post-closure plan may require the owner and operator to modify the post-closure care cost estimate and the amount of financial assurance.

Corrective action

... the owner and operator of a MSWLF unit required to undertake corrective action must have a detailed, site-specific written estimate of the cost of hiring a third party to perform corrective action for known releases. The corrective action cost estimate must account for the total expense of activities described in the corrective action plan. Again, the corrective action cost estimate and amount of financial assurance must increase or decrease in response to changes in either the corrective action program or MSWLF unit conditions.

Adjustments for inflation

Due to changes in inflation and interest rates, cost estimates must be annually adjusted for inflation. Updated cost estimates must account for added inflationary costs to ensure that adequate funds will be available if needed ...

Allowable mechanisms

The mechanisms used to demonstrate financial assurance must ensure that the funds necessary to meet the costs of closure, post-closure care, and known corrective action will be available when needed. Owners and operators may use any of the following financial mechanisms:

Trust fund

Surety bonds guaranteeing payment or performance

Letter of credit

Insurance

Corporate financial test

Local government financial test

Corporate guarantee

Local government guarantee

State-approved mechanism

State assumption of financial responsibility.

In addition, the Agency expects to add financial tests and guarantees as allowable mechanisms for corporations to demonstrate financial assurance. The performance standard requires that any approved financial assurance mechanism satisfy the following criteria:

The amount of funds assured is sufficient to cover the costs of closure, post-closure care, and corrective action for known releases when needed

The funds will be available in a timely fashion when needed

The mechanisms for closure and post-closure care must be established by the owner and operator by the effective date of these requirements or prior to the initial receipt of solid waste, whichever is later. The mechanisms for corrective action must be secured no later than 120 days after the corrective action remedy has been selected, and maintained until the owner and operator are released from financial assurance responsibilities

The mechanisms must be legally valid, binding, and enforceable under state and federal law.

Two further financial assurance mechanisms, in addition to those listed above, are available (effective 9 April 1997) for local government owners and operators of MSWL facilities. These additional mechanisms - a financial test for use by local government owners and operators, and a provision for local governments that wish to guarantee the costs for an owner or operator - are designed to be self-implementing.

Effective 10 April 1998, two mechanisms were added to those currently available to corporate owners and operators of MSWL facilities. The two mechanisms are a financial test for use by private owners and operators, and a corporate guarantee that allows companies to guarantee the costs for another owner or operator.

Australia

The following has been extracted from the New South Wales Environmental Protection Authority's Environmental Guidelines: Solid Waste Landfills (1996):

Financial assurance is a means of ensuring that landfill occupiers adequately plan for emergency closure, site remediation and post-closure care, by providing a specific mechanism to accumulate requisite funding during the life of the landfill. This mechanism encourages development of the necessary long-term financial planning to protect all environmental objectives.

The Landfill Environmental Management Plan (LEMP) should include a well-documented assessment of the potential cost, prepared by an independent consultant, for a third party contractor to undertake each of the following:

- close down the current operation at any time and remediate the site to a standard acceptable for its planned future use

- continue post-closure care and monitoring (bearing in mind that the period of after-care is significantly influenced by the design philosophy)

- complete the required remediation of environmental impacts that may be identified.

The financial assurance required by the Environment Protection Authority (EPA) will be negotiated in one or more of the following forms:
- an insurance policy

- a bank guarantee of funds or letter of credit

- a bond

- a third party guarantee

- a fund established and maintained by a public authority

- any other form of security that the EPA considers appropriate and specifies in the licence as a condition.

The preferred approach must be nominated in the LEMP.

The annual report for a landfill ... may nominate any variations for the level at which the financial guarantee is set for the forthcoming years' activity for a particular site based on the current operations and the extent of site activity planned. The nominated variations must be approved by the EPA.

A financial assurance (or any part of it) may be called on by the EPA if the EPA:

- is satisfied that the last licensee has failed to comply with the requirements of the closure plan approved by the EPA, or

- is satisfied that a licensee has contravened any condition of the licence relating to site remediation work, or

- incurs or proposes to incur costs or expenses in taking action that is covered by financial assurance.

The requirement to provide a financial assurance lapses and no longer binds the person who was required to provide it if the EPA is satisfied:

- that the site remediation work has been completed in accordance with a post-closure plan approved by the EPA (as detailed in 29. Closure of Landfill), and

- that further environmental management of the premises is not required.

The person may provide the EPA with a certified statement of completion to the effect that site remediation work has been completed and the further environmental management of the premises is not required. If the EPA approves the statement, the requirement for provision of the financial assurance lapses.

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