International Bar Association Annual Conference – Miami 2022

Construction project eschatology: sustainable project decommissioning

International Construction Projects Committee

Douglas Stuart Oles
Co-Chair, IBA Project Execution Subcommittee
Moderator

Katherine Bell

Sarah Biser

Lucila Hemmingsen

Tuomas Lehtinen

Introduction

Although the Great Pyramid, the Parthenon, and the Roman Colosseum are all still standing after many centuries, most modern construction and mining projects are viewed as having a finite useful life. When that useful life is achieved (and sometimes sooner), there are social and environmental incentives to decommission the facilities. In many cases it makes sense to remove the facilities completely.

This decommissioning process can, however, be highly controversial, especially when it proves to be very expensive. In recent decades, some projects were constructed with budgets that prudently made financial allowances for future decommissioning. Many projects were built, however, without any budget for decommissioning costs. Moreover, plant decommissioning under contemporary standards often proves much more costly than what could reasonably be expected when the project was originally built.

Lawyers have important roles to play in negotiating and drafting contracts to anticipate costs and liabilities associated with decommissioning that will ultimately occur. Lawyers are also needed to coordinate the multiple risks and liabilities that will arise when the decommissioning process actually begins.

This article is intended to offer an introduction to the key legal issues, and its accompanying bibliography allows readers to find much more detail that should be helpful if they are called upon to participate in the decommissioning process.

Decommissioning categories

Plant decommissioning tends to achieve the most publicity when it is motivated by concerns of the environment or public safety.

Germany has been a recent focus of attention as its federal government adopted a policy that simultaneously moved to decommission all coal-burning and nuclear power plants. The phasing out of coal plants was motivated by a desire to cut carbon emissions, while the exit from nuclear power generation was largely a result of fears following the nuclear accidents at Chernobyl and Fukushima. This programme of shutdowns was balanced by an increased reliance on importing natural gas from the Russian Federation, a decision that drew substantial criticism after Russia attacked the Ukraine in February 2022 and threatened to use natural gas as leverage against customers in the NATO alliance. This criticism has led to re-examination of the German policy and tentative decisions to prolong use of some facilities that were scheduled for shutdown. Meanwhile, the German experience has given rise to a substantial body of academic commentary that helps focus the issues relating to plant decommissioning.

Categories

One category of projects that obviously have a finite operating life is facilities for extracting natural resources from the ground. These facilities are obviously no longer needed when the natural resources are exhausted (or when the licence for extracting them expires). Principal examples include:

• open pit and shaft mines; and
• land-based and offshore oil drilling platforms.

In 2009, the World Bank and the Government of Norway launched a Petroleum and Governance Initiative entitled ‘Towards Sustainable Decommissioning and Closure of Oil Fields and Mines: A Toolkit to Assist Government Agencies’. The March 2010 edition of that Toolkit offers many practical details for decommissioning that can reasonably be adapted to other industries.

A second category of projects, that has a fairly clear finite operating life, is power generating plants. These facilities are typically licensed for a fixed period (often 50 years), after which the operators can expect that they will either have to decommission the facilities or apply for an extended licence. Some plants (eg, hydroelectric dams) have demonstrated that they can operate efficiently for longer periods, which has led to some licence extensions. If power generating facilities are constructed on leased land, however, the applicable lease agreements are likely to require decommissioning and/or site restoration after the lease expires.

A third category of projects includes facilities that are not set up with fixed expiration dates, but which become less functional or unsafe if they are not periodically rebuilt or replaced. Some of the many examples include:

• elevated bridges;
• marine piers, jetties and sea walls;
• factories and mills;
• schools and office buildings;
• power transmission towers;
• long distance pipelines;
• hydroelectric dams.

The useful lives of such facilities will, of course, depend in part on the environmental conditions that impact them (eg, storms, earthquakes, wars or civil unrest).

A fourth category is facilities that governments may decide to terminate, even though they have not yet functioned for their expected useful lives. Again, the German experience is a prominent example. By setting fixed timelines for shutting down coal-burning and nuclear plants, the German Government required decommissioning at earlier dates than the operators reasonably anticipated, raising multiple legal issues.

A fifth category is facilities that are often expected to continue indefinitely, assuming they are properly maintained. Examples might include:

• surface roads;
• surface railway lines;
• port facilities; or
• military bases.

Of course, these facilities may also require decommissioning if leases expire or social priorities change.

Financing

A key issue in plant decommissioning is deciding who should pay for it.

One approach is to require a deposit, bond or letter of credit for decommissioning costs when a new plant is first built. On public facilities, a government agency may accept responsibility for future decommissioning cost even if no funds are actually set aside for that purpose. In limited cases (eg, when decommissioning accompanies clean-up after partial or complete plant destruction), insurance proceeds may play a part in funding.

Another approach is to establish a sinking fund that sets aside money from operating revenues to make sure money is available when the time for decommissioning arrives.

On certain types of facilities, the components or materials in a plant may have substantial recycling value, in which case that value can help pay costs of decommissioning.

In many cases, however, none of the foregoing steps have been taken, and the operator of an old facility may simply lack sufficient funds to cover decommissioning costs. This is particularly likely to occur where decommissioning includes substantial costs to handle and dispose of undesirable materials like spent nuclear fuels or oil-contaminated soils. In these situations, the taxpaying public often ends up paying a share of cost in exchange for removing an environmental hazard.

Even when some level of funding has been established in anticipation of decommissioning, issues can arise if clean-up costs far exceed what was predicted. If the operator has become financially insolvent, this may pose another obstacle.

If decommissioning is being required due to a change in government policy (as in Germany), there may also be legal challenges claiming denial of fundamental rights or wrongful expropriation of private property rights. These issues are addressed in articles listed in the accompanying bibliography.

Methods of decommissioning

One obvious method of decommissioning is to physically remove an existing plant and restore the site to its status quo ante. This level of complete restoration is not always practical or affordable, however, so there are other alternative approaches.

One alternative is to seal or encapsulate a decommissioned facility. In the case of a nuclear facility, spent nuclear fuels are typically transported to a secure storage location, although commentators debate the degree to which such locations can be truly secure over the long half-lives of nuclear materials. In the United States, the decommissioning of nuclear facilities, in accordance with the regulations of the Nuclear Regulatory Commission (NRC), can take up to 60 years.

Participants in a decommissioning process should commence their work only after satisfying themselves that a comprehensive insurance programme is in place to protect against accidental personal injury or property damage.

There are also obvious hazards in demolishing large antiquated facilities, especially when this process is undertaken without accurate as-built information on the structures to be demolished. Decommissioning, therefore, may require a detailed engineering analysis, just as the original construction project also depended on engineering.

There is also a genuine question as to how far decommissioning should reasonably go. Is it enough to remove above-ground structures while leaving underground structures in place? Does demolition of an offshore oil drilling platform also require removal of all underwater pipelines connecting to the mainland? Is it enough to fill underground fuel tanks with sand, or do the tanks themselves need to be removed? Is redevelopment of the area a viable alternative? Can a new site be constructed for another type of technology? The answers to these and similar questions can greatly affect the overall cost of decommissioning.

Administration

In addition to the question of financing decommissioning, there are many issues relating to allocation of risk during the decommissioning process.

Operators are generally liable for personal injuries or property damage caused by a power generating facility, and this liability is likely to extend through the period of plant decommissioning. This provides added incentive for operators to take great care in dismantling plants and handling the transport and disposition of hazardous materials that are being removed or buried.

Since decommissioning may be tied to fixed dates (eg, expiring leases or government-imposed mandates), it is important the contracts for the work have reasonable mechanisms to achieve those dates.

As mentioned above, it is also important to assure that proper insurance is in place before decommissioning begins at a project site.

In the US, the NRC publishes a list of regulatory activities that helps outline the scope of issues to be addressed:

Decommissioning programme activities include:

‘Decommissioning program activities include: (1) developing regulations and guidance to assist staff and the regulated community; (2) conducting research to develop data, techniques, and models used to assess public exposure from the release of radioactive material resulting from site decommissioning; (3) reviewing and approving decommissioning plans (DPs) and license termination plans (LTPs); (4) reviewing and approving license amendment requests for decommissioning facilities; (5) inspecting licensed and non-licensed facilities undergoing decommissioning; (6) developing environmental assessments (EAs) and environmental impact statements (EISs) to support the NRC’s reviews of decommissioning activities; (7) reviewing and approving final site status survey reports; and (8) conducting confirmatory surveys.¹

With regard to military bases, the US Department of Defense actually has a full-time process called Base Realignment and Closure (BRAC), which determines which facilities should best be closed. Members of Congress often fight against base closures in their home states, because those facilities tend to generate many jobs.

Sustainability

‘Sustainability’ is a word that is frequently used today.

When designing and constructing a new facility with a fixed operating life, it is, of course, useful to consider how to minimise its consumption of non-renewable resources. It is also helpful to consider using materials in a way that may promote recycling at some future date when the plant is decommissioned.

Not everything, however, is sustainable or renewable. And many types of facilities do not contain enough valuable recyclables to cover the future cost of their decommissioning. For these and other reasons, it makes sense to provide in advance a budget that will cover the anticipated costs of future decommissioning. If governments adopt policies requiring plants to be shut down long before the end of their planned operating lives, those governments should expect that they may have to offer compensation to the affected owners.

Conclusion

The projects discussed in our bibliography offer a variety of approaches to plant decommissioning. They suggest advance planning when possible, and when decommissioning has not been anticipated, the resulting cost should be weighed against the public benefit of removing hazardous and unsightly facilities.

Lawyers can help parties plan for these liabilities in advance, and they can help negotiate equitable allocations of the related costs.

This article was prepared by members of the ICP Project Execution Subcommittee.

Notes

1 See www.nrc.gov/waste/decommissioning.htm, accessed 27 January 2023.

Bibliography

General infrastructure

Saxer, Shelley Ross, ‘The Aftermath of Takings’, 70 Am U L Rev 589 (December 2020) (discussing decommissioning of railroads, dams, wells, mines, pipelines, power lines, nuclear plants, and gas and coal plants)

Office of Environmental Management, US Department of Energy, ‘West Valley Moves Waste Container, Creating Space for Main Plant Teardown’, (23 August 2022)

Office of Environmental Management, US Department of Energy, ‘Deactivation & Decommissioning (D&D)’, (6 September 2022)

Office of Environmental Management, US Department of Energy, ‘EM’s Nelson-Jean Views Cleanup Progress at PPPO Sites’’, (6 September 2022)

Bridges

Bektas, Basak Aldemir and Albughdadi, Ahmed, ‘Drivers of Bridge Decommissioning in the United States’, Journal of the Transportation Research Board Vol. 2674, No 8 (February 2019) https://journals.sagepub.com/doi/abs/10.1177/0361198118822810.

Nuclear plants

Hogan Lovells ‘Risks and opportunities for the decommissioning of nuclear power plants in Germany’ (2020), www.hoganlovells.com/-/media/germany_folder-for-german-team/broschueren/brochure_nuclear-plants-decommissioning_2020_e.pdf

Borchardt, Ralf, ‘Stilllegung und Rückbau von Kernkraftwerken in Deutschland’ (2018), https://journals.ub.uni-heidelberg.de/index.php/icomoshefte/article/view/74525/68213

Zentgraf, Patricia, ‘Der Atomaussteig und seine Folgen’, Europäisches Wirtschafts-und Steuerrecht’ 2016 p 154, www.jstor.org/stable/j.ctv1q69t99.11.

Riederer, Flurin, ‘Rückstellungen in Kernkraftwerken’, Zeitschrift der juristischen Nachwuchsforscher 1/2016, p 10.

Raetzke, Christian, ‘Nuclear third party liability in Germany’, Nuclear Law Bulletin No 97, Vol 2016/1, NEA No 7311 (2016)

Winter, Gerd, ‘The Rise and Fall of Nuclear Energy Use in Germany: Processes, Explanations and the Role of Law’, Journal of Environmental LAW 25:1, p 95 (2013)

Int’l Atomic Energy Agency, ‘Organization and Management for Decommissioning of Large Nuclear Facilities’ (Vienna 2000) www-pub.iaea.org/MTCD/Publications/PDF/TRS399_scr.pdf

Johnson, Gary L, Procedures, Costs and Rate Structures for Decommissioning Nuclear Reactors, J Energy Law and Policy 5:245 (1984)

Office of Environmental Management, US Department of Energy, ‘H Canyon Does “Electric Slide”’ at Savannah River Site’ (12 April 2022)

McManus, Joseph, ‘Lights Out: Decommissioning the American Nuclear Plant’, 36 Journal of the National Association of Administrative Law Judiciary 518–563 (Fall 2016)

Irrek, Wolfgang, ‘Financing Nuclear Decommissioning’, The Technological and Economic Future of Nuclear Power, eds R Haas et al, 2019

Cron, Raymond, ‘Financing Arrangements for NPP Decommissioning in Switzerland’, International Conference on Financing of Decommissioning, Stockholm 2016

Coal-burning generation plants

Schomerus, Prof Thomas, ‘Phasing-Out Coal in Germany – not only, but also a Legal Challenge’, Renewable Energy Law & Policy Review 9:60 (2019)

Schomerus, Prof Thomas, and Gregor Franßen, ‘Klimaschutz und die rechtliche Zulässigkeit der Stilllegung von Braun-und Steinkohle-Kraftwerken’ (December 2018)

Baudisch, Katharina, and Dörte Fouquet, ‘Germany’s coal exit plan – a legal and political outline on how Germany plans to phase out coal fired power stations by 2038’, Renewable Energy Law & Policy Review 9:45 (2019)

US Energy Information Administration, ‘More U.S. Coal fired power plants are decommissioning as retirements continue’, (26 July 2019)

United Stated Environmental Protection Agency, ‘Coal Plant Decommissioning, Remediation and Redevelopment’ (June 2016), www.epa.gov/sites/default/files/2016-06/documents/4783_plant_decommissioning_remediation_and_redevelopment_508.pdf

Petroleum facilities

Alba, Eleodoro Mayorga (World Bank), Towards Sustainable Decommissioning and Closure of Oil Fields and Mines: A Toolkit to Assist Government Agencies 3.0 (March 2010) (https://openknowledge.worldbank.org/
bitstream/handle/10986/16964/
827200WP0decom00Box37986

4B00PUBLIC0.pdf) Martin, Tim, ‘Decommissioning of International Petroleum Facilities Evolving Standards & Key Issues’ (January 2010)

Chevron Corp, ‘West Coast Decommissioning Program’ of oil platforms in US federal waters, (September 2020)

Interagency Decommissioning Working Group, ‘A Citizen’s Guide to Offshore Oil and Gas Decommissioning in Federal Waters off California’ (2019)

Hall, Keith, ‘Decommissioning of Offshore Oil and Gas Facilities in the United States’, 14 Charleston Law Review 437 (2020)

Ripley, Ed and Roche, Eldy, ‘Managing Offshore Decommissioning Liability in a Difficult Economic Environment: Considerations for U.S. Bankruptcy Proceedings’, (March 2017)

Gray, Adam and Almonte, Erich, ‘More Platforms, More Problems’, The Critical Path (September 2021)

Ebadian, M A, Bermudez, J Valverde, Lagos, L E, Mayerle, M, ‘Latin America’s Decontamination and Decommissioning Needs’, Final Report, US Department of Energy (August 1997)

Hydroelectric dams

Marquez, Carlos M, ‘Federal Power Act Limitations on FERC Dam Decommissioning Authority: Shielding Preexisting Licensees and Revisiting Trust Funds to Protect the Public Interest’, 27 Colorado Natural Resources Energy & Environmental Law Review 17 (Summer 2016)

Scalia, Dominique R, ‘I’ll Take the Benefits if You Pay the Costs: Weighing the Equities of Public and Private Funding Sources for Hydroelectric Dam Decommissioning’, 2 American Indian Law Journal 354 (Spring 2014)

Widerschein, Mark, ‘Flowing Water, Flowing Costs: Assessing FERC’s Authority to Decommission Dams’, 49 Environmental Law Reporter News & Analysis 10925 (October 2019)

Bowman, Margaret B, ‘Legal Perspectives on Dam Removal’, BioScience Volume 52, Issue 8, August 2022

Military bases

US Department of Defense website for Base Realignment and Closure (BRAC): www.acq.osd.mil/brac/

‘Military Decommissioning: Acquisition and Implementation Mechanisms’: https://depts.washington.edu/open2100/pdf/3_OpenSpaceImplement/Implementation_Mechanisms/military_decommissioning.pdf