Taxpayers on hook for environmental disasters: outgoing commissioner

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Canadian taxpayers may have to foot the bill for future environmental disasters like oil spills, according to Scott Vaughan, outgoing federal Commissioner of the Environment and Sustainable Development.

In his Fall 2012 report, published on February 5, Vaughan discussed the tension between environmental protection and resource development, with special attention to marine protected areas, the risks of offshore oil and gas development, and setting financial guarantees and liability limits for mining, shipping, offshore oil platforms, and nuclear power.

Vaughan noted that marine protected areas (MPAs) are a good way to protect the oceans while allowing offshore resource development, but said Canada is still far short of the goal of 10 percent of ocean areas falling under such protection:

Here in Canada, 20 years after signing the Convention on Biological Diversity, only about 1 percent of our oceans and Great Lakes is protected. Our audit showed that at the current rate of progress, it will take Canada many decades to establish a fully functioning MPA network and achieve the target to conserve 10 percent of marine areas. While the process of establishing MPAs takes time, and there are many reasons for this slow progress, the fact remains that conservation actions are not keeping up with the increasing pressures faced by our oceans.

The commissioner also raised concerns about the way offshore oil spills can result in very high cleanup costs, beyond those required by law:

The Macondo (Deepwater Horizon) incident in 2010 captured global attention, with the well blowout resulting in an estimated 4.9 million barrels of oil being spilled into the Gulf of Mexico. That incident demonstrated starkly the absolute importance of being ready to respond to a spill of that magnitude and the need for strong regulatory oversight to help prevent environmental disasters. The Macondo spill reminded us how quickly environmental damage can occur, and how expensive that damage can be—the estimated cost of that single incident is over $40 billion US dollars.

… Are the boards and their federal partners adequately prepared to respond to a major oil spill? In my view, the boards and their federal partners are not adequately prepared and, although the probability of a major spill in the Atlantic offshore area is relatively low, they need to do more to prepare for one. This is particularly the case given the potential for increased risks due to deepwater drilling and expanding exploration and development activities.

… The federal government requires financial assurances for several key industries to operate in Canada. These assurances help manage risks to the environment and to the public purse by ensuring that funding is available from operators to decommission and restore sites after major resource projects have ended and to clean up incidents such as spills.

… We found that the federal departments we examined had procedures in place to obtain environmental financial assurances. We noted, however, that the departments lacked complete inventories of the assurances they held and did not know whether these assurances were sufficient to address the risks they were meant to cover. More concerning, given the expected increase in activity in the natural resource sector, we found that Aboriginal Affairs and Northern Development Canada, the department responsible for resource development in the North, was not conducting the required inspections that are essential for ensuring that the terms and conditions of project approvals are being met.

We also found that liability limits have not kept pace with the potential consequences of an incident. For example, the $75 million absolute liability limit for nuclear facilities has not changed since it was introduced in the 1970s, while the absolute liability limits for incidents involving offshore oil and gas development (which range up to $40 million) have not been updated in nearly 25 years. We found that Canada’s limits are significantly lower than those of other countries.

To put it in context, the United States’ National Commission on the BP Deepwater Horizon Oil Spill and Offshore Drilling found the US$75 million absolute liability limit for offshore incidents in the United States was “totally inadequate,” and placed the economic risk on the backs of taxpayers. As noted above, the Macondo (Deepwater Horizon) incident has resulted in estimated costs of over $40 billion US dollars.

This year’s report has identified other shortcomings. For example, the current level of inspections of major resource projects in the North is very low relative to the level of activity. The government does not know the actual cost of its support to the fossil fuel sector. Meanwhile, offshore resource development continues to expand even as the government makes slow progress establishing marine protected areas. As well, the petroleum boards on the east coast and their federal partners are not adequately prepared to respond to a major oil spill should they need to step in.

Vaughan is leaving the commissioner’s post to become the president and CEO of the International Institute of Sustainable Development, effective April 1.

Crawford Kilian is a contributing editor of The Tyee.