Because of their location, nature and often their scale, resource projects can have significant environmental and social effects and the government must account for those in any plan to initiate exploration or to develop the resource. The initial decision to explore or develop should be informed by an understanding of the possible environmental and social consequences, usually through a strategic or project impact assessment and these consequences need to be weighed in the decision of whether to invest. Public participation is an integral part of the process. If the decision is made to invest, then environmental and social monitoring should be maintained throughout the project’s life consistent with a plan to minimize or mitigate possible adverse environmental and social consequences specific to the project.
The environmental costs of extraction are often borne disproportionately by those in the vicinity of the extraction process. These citizens have an overwhelming claim to be compensated through services or cash for these environmental costs. Indeed, without a clear commitment to provide reasonable compensation for these costs as well as equitable participation in the national benefits, local communities are liable to sabotage the extraction process and even assert ownership claims.
The government is responsible for setting, and enforcing, environmental standards and determining the rights of local communities for compensation. These standards may be set by reference to international standards such as the Equator Principles, now widely accepted. While governments must set standards and monitor their enforcement, the costs of mitigation, avoidance, and compensation are part of the economic cost of the project and must be accounted for.
The investor is in the best position to control or mitigate environmental damage during operations and is likely to be the most efficient party to conduct reclamation at the time of project closure. To ensure, however, that the investor does not evade or fail to carry out its obligations especially in the termination phase of operations, investors should in most instances be required to fund during the production life cycle an independent account that can be used to fund clean-up and reclamation or through bonding or other means to provide independent security. Any account should be held with a highly credit worthy entity, independent of investor and the government, with amounts payable in accordance with its terms. The funded amount should be adjusted over time as the estimates of future closing and reclamation costs become more refined. Closing plans must also address the social impacts of closure and the need to provide strategies for the ongoing viability of communities affected by closure.
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