Canadian governments are facing pressure to raise liability limits for offshore oil spills, as critics argue that companies are being indirectly subsidized and encouraged to engage in reckless behaviour.
In the wake of BP PLC's devastating Gulf of Mexico blowout, federal and provincial governments are reviewing regulations covering Canada's offshore oil sector.
Opposition parties in Ottawa, along with environmental groups, are stepping up calls to raise liability limits. Max Ruelokke, the top offshore regulator in Newfoundland, has said the caps, which were set years ago, probably need to be raised.
Current laws cap a company's potential cleanup cost from a spill at $40-million in Arctic waters and $30-million off Eastern Canada - a figure that would be quickly exceeded in the event of a major spill.
The liability caps do not apply if the company is at fault or negligent in the spill, an issue that would typically be decided by the courts.
Though it faced a $75-million (U.S.) liability cap, BP has consistently pledged that it would cover all reasonable costs that result from the Gulf of Mexico blowout. Under pressure from President Barack Obama, the company has set aside a $20-billion fund to cover those costs.
Companies operating in Canadian waters benefit from the liability caps because they effectively shift the risk from the drilling operators to the taxpayers, the University of Ottawa-Ecojustice Environmental Law clinic says in a study to be released today.
"When offshore oil companies are given statutory guarantees that their spill liability cannot exceed $40-million for operations in Canada, it arguably increases the risk of environmental damage since liability caps make it economically attractive for industry to take risks," says the report by centre director Will Amos.
"If oil companies are not prepared to accept the full costs of potential liability arising from such high-risk activities as offshore oil drilling, perhaps they should not be in this business in the first place."
The National Energy Board, which regulates activity in the Arctic, is conducting a public review of federal rules, including "financing for spill cleanup, restoration and compensation for loss or damage." Mr. Amos said he hopes to participate in that review if he can obtain funding.
At the same time, Captain Mark Turner, who was appointed by the Newfoundland government to review the province's offshore rules, confirmed in an e-mail Tuesday that he will be considering liability limits.
Despite the liability cap, the Canada-Newfoundland and Labrador Offshore Petroleum Board requires oil companies to have $100-million that can be accessed by the board for spill-related cleanups, and to show they have an additional $250-million available to cover such costs.
The board on Tuesday issued a call for bids on two deepwater parcels, close to the Mizzen discovery announced by Norway's Statoil last year.
The University of Ottawa report notes that the federal government is moving to raise liability limits for nuclear power operators to $650-million from $75-million. But it has not made a similar commitment to adjust levels for the oil industry.
Liberal MPs have urged the government to raise the oil spill limit, with natural resource critic Geoff Regan arguing that the $40-million cap represents "a drop in the bucket" compared to expected costs from a major spill.
He complained that the liability limits would "leave the taxpayers on the hook" if there is a major spill off the East Coast, or in the Arctic where companies are hoping to begin drilling within four years.
Natural Resources Minister Christian Paradis has deflected the Liberal criticisms, saying Canada has one of the most rigorous regulatory systems in the world.
A U.S. Senate panel voted last week to raise the liability cap there to $10-billion (U.S.) from $75-million, amid warnings from the industry that such an action would drive up costs of exploring in the offshore. The full Senate has yet to debate the change in the liability cap.
After the Senate natural resources committee passed the bill last week, the American Petroleum Institute warned that it would drive away independent operators who could not afford the rising insurance premiums, and would limit domestic oil production.
"The accident in the Gulf of Mexico has shown us that we need to focus on safety and environmental protection," API president Jack Gerard said in a statement. "But legislative proposals that would make domestic resources unavailable or uneconomic, instead of focusing on improving safety, must be turned aside."