In the context of US capitalism, corporate bankruptcy has become less an admission of failure or a final chapter than a kind of R&R, a chance to shed some flab and come back stronger. As anyone who has followed Donald Trump’s career knows, a big company declaring Chapter 11 bankruptcy is like Lindsay Lohan checking into rehab. They’ll be back.

So it is with Peabody Energy, the world’s largest private coal company, which entered bankruptcy back in April. It is currently undergoing its bankruptcy spa treatment — shedding workers and retirees, their health and pension benefits — and preparing to get back to work (or so it hopes).

In the case of Peabody and other coal companies, however, there’s another sort of flab, er, liability at issue, for which there is less precedent in bankruptcy court: namely, environmental remediation obligations.

Put more simply: Who’s going to pay to clean up all those old mines?

Coal companies promise to pay for mine cleanup, really and for true

The Surface Mining Control and Reclamation Act of 1977 says that coal companies have to clean up old mines and reverse their environmental damage, costs which can run to the hundreds of millions. Before they receive a permit for a new mine, coal companies have to prove that they can afford to clean it up. They do so by posting a bond.

These days, however, coal companies rarely have to meet this requirement. Instead, they are allowed to "self-bond," which amounts to promising the states they operate in that they can pay for mine cleanups.

This cozy arrangement between coal companies and state regulators is longstanding, but it has come under increased scrutiny lately, as coal companies have tried to use bankruptcy to squirm out of those obligations. Wyoming just struck a deal with (bankrupt) Arch Coal to "accept up to $75 million in place of the company’s $486 million in bonding obligations." That means if Arch Coal liquidates, Wyoming is first in line to collect at least $75 million in assets.

Who will cover the $411 million in remaining cleanup costs? Taxpayers.

And it’s not an isolated case; there’s a lot of dough at stake. In addition to the $9 billion in mine cleanup costs already outstanding under the Abandoned Mine Land Program (covering mines abandoned before 1977), "officials estimate that roughly $3.6 billion in self-bond liabilities could fall to taxpayers."

That would amount to a $3.6 billion subsidy to big coal, the latest (maybe the last?) in a century-long tradition of subsidies.

Worries about self-bonding led WildEarth Guardians and other environmental groups to file a petition to the Office of Surface Mining Reclamation and Enforcement (OSMRE) in March, asking the agency to ensure that "companies with a history of financial insolvency are not allowed to self-bond coal mining operations."

In August, OSMRE announced that it was beginning the rule-making process for strengthening self-bonding regulations. Separately, it issued a rare policy advisory, counseling states to crack down on the practice.

In June, Sens. Maria Cantwell (D-WA) and Dick Durbin (D-IL) introduced the Coal Cleanup Taxpayer Protection Act, which would prohibit self-bonding. The bill won’t go anywhere, Congress being Congress, but it’s a clear sign that self-bonding has lost its social license.

Which brings us back to Peabody.

Peabody is on the hook for lots of cleanup costs …

Peabody has an estimated $1.4 billion in self-bonded cleanup obligations.

In July, a federal bankruptcy judge ruled for the first time ever that environmental organizations were parties of interest in the bankruptcy proceeding and could argue that Peabody should fully meet its cleanup obligations.

"Per the above decision," writes ClimateNexus, "several organizations filed formal complaints in Wyoming, Illinois and Indiana arguing that states should require Peabody to set aside full funds for reclamation as part of any restructuring plans."

Full funding was not to be had, however. In August, Peabody won court approval for deals with Wyoming, New Mexico, and Indiana in which it put up cash covering 17.5 percent of its self-bonding obligations — $127, $32, and $17 million respectively. If Peabody goes under (again, completely) and bails on cleanup, who will cover the remaining 72.5 percent of costs? Taxpayers.

… but it says, implausibly, that continued self-bonding will work just fine

Peabody also submitted its five-year business plan to the Securities and Exchange Commission in August, and received approval from lenders.

The plan is important, because for Peabody to argue that it should be able to continue self-bonding any of its environmental obligations, it needs to show that it has a viable plan to emerge from bankruptcy into financial health. Remember, the whole premise of self-bonding is that it’s a special arrangement for companies that have enough cash to cover the costs.

According to a new brief from the Institute for Energy Economics and Financial Analysis (IEEFA), however, Peabody’s five-year plan is "not credible."

First, the company’s production projections are optimistic to the point of delusion. It says that the US coal industry overall will increase production by 20 to 25 million tons annually between 2016 and 2021 (despite the fact that demand has been declining). Yet during the same period, it projects that annual production at its own Powder River Basin (PRB) mines will increase by 31 million tons, from 100 million to 131 million.

Somehow, then, the rest of the industry is going to continue losing customers and scaling down while Peabody flourishes, responsible for all net new coal production in the next five years, and more. That is … dubious.

Second, the company acknowledges that its per-ton revenues from PRB coal will decline by 8 percent over the next five years, but says it will maintain its current profit margins through (wait for it) cost-cutting. Historically, though, costs have been rising. And the estimate Peabody uses for the price of oil (diesel oil is a big part of its costs) is far below more credible projections from EIA and World Bank. The cost-cutting numbers verge on magical thinking.

Third, it overstates its assets, claiming 6.3 billion tons in "proved and probable" reserves, though extracting anything close to that is highly unlikely given its thin margins, declining per-ton revenue, and overly bullish cost-cutting projections.

To its environmentalist critics, who question whether putting up cash to cover 17.5 percent of its cleanup obligations is sufficient given the company’s, ahem, "history of financial insolvency," Peabody responded, in effect, tough shit. The states in question offered the company sweetheart deals, and it’s not within OSMRE’s jurisdiction to overturn them.

Given OSMRE’s recent rule-making, however, that seems at least an open question.

Taxpayers may get screwed by Big Coal one last time as it exits stage left

What if, as is entirely plausible, Peabody emerges from bankruptcy, crashes up against a terrible market, and goes bankrupt again? (Patriot Coal is currently emerging from its second bankruptcy.) What happens to its cleanup obligations in that case?

I asked Tom Sanzillo, IEEFA’s Director of Finance and author of the brief. Legally speaking, he said, "it is a vagary." There isn’t much precedent to go on.

Hmm. Okay then, putting aside the company’s own inflated projections, what would it take for Peabody to regain its financial health, such that it could be trusted to meet those obligations?

"They would have to close several of their mines" and consolidate, effectively becoming a much smaller company, Sanzillo said. "Absent that, there’s no chance. Even if that occurs, it may not work."

There are simply "too many companies," he said, "selling too much coal to too few customers."

Peabody doesn’t want to sell its mines, though, and even if it did it would have trouble finding buyers. (Despite what it says in its rose-colored business plan, those mines aren’t worth much.) It doesn’t just want to close them down, either, since that means acknowledging grim market conditions, spooking investors, and triggering cleanup costs.

So instead, the company is whistling past the graveyard, issuing starry-eyed business plans and paying its executives big bonuses. And given the latitude bankruptcy judges have shown coal companies so far, there’s a good chance the court won’t stop it.

What remains to be seen is whether OSMRE can forcefully intervene, or states find the wherewithal to impose tighter rules. Otherwise, taxpayers will once again get stuck with the bill for coal companies’ social costs, propping them up because no one in US officialdom seems prepared to allow them to die a natural death.