If there's an oil spill, who's at risk? Canadian taxpayers

How much would it cost to clean up an oil spill off Canada's coastlines? More important, who pays? Take, for instance, the oil spill in the Gulf of Mexico. Damages are now being assessed at upward of $100-billion (U.S.), or roughly 20 per cent of Canada's federal debt.

But if such disaster struck in Canada, the oil company responsible for the spill could find itself liable for a mere $40-million and, in some cases, even less. Ultimately, governments - and, by extension, taxpayers - are the ones most likely to foot the remainder of the staggering clean-up costs.

This is unacceptable. Canadian taxpayers' exposure to the proven financial risks of ecological catastrophe demands a comprehensive and independent review of these industry-friendly rules.

Offshore oil activities are governed by three main statutes: the Canada Oil and Gas Operations Act (COGOA), the Canada-Newfoundland Atlantic Accord Implementation Act and the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act. All three acts define a spill as "a discharge, emission or escape of petroleum, other than one that is authorized under the regulations or any other federal law." When unauthorized spills occur, the laws stipulate that the costs associated with their management are to be borne by the party originally authorized for the offshore drilling work (the oil company).

These regulations, however, impose strict limits on an oil company's spill liability. For spills under the National Energy Board's jurisdiction in Arctic waters, liability is capped at $40-million. For Atlantic offshore oil areas regulated by federal-provincial offshore petroleum boards, the liability limit is $30-million.

Both these limits apply only if the spill is not attributable to the authorized party's fault or negligence. In other words, an offshore oil company may invoke a "due diligence" defence to shelter itself from liability above the cap. Conversely, for any party (including third parties contracted to work on the offshore rigs) whose fault or negligence is established in relation to the spill, liability is unlimited.

Disturbingly, a potential loophole in the legislation may be interpreted to cap liability even where a company has been negligent. This matter should be rectified immediately.

The liability regime under the federal Fisheries Act could be applied to offshore oil and gas operations, if a "deleterious substance" is deposited without authorization in waters frequented by fish. This would potentially expose oil companies to clean-up and mitigation costs, as well as economic compensation payments to fishermen, which could exceed any limitation of liability contemplated by COGOA or the offshore accord acts. But liability under these statutes is absolute, making it easier for the government to recover costs relating to spills. As well, the penalties under the Fisheries Act liability regime are open to certain limited defences that are not available under COGOA or the offshore accord acts.

In the wake of the massive BP spill in the Gulf of Mexico, issues of environmental cost internalization and appropriate environmental risk-balancing have been brought to the fore. 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. Liability caps make it economically attractive for industry to take risks. It also makes it more attractive for private equity to support such economic ventures because risk levels are always factored into market investment decisions.

This is not to suggest that offshore oil companies have an incentive to act irresponsibly. Rather, federal and provincial governments have, through these statutory limitations on liability, made conscious decisions to remove a disincentive to engage in an economic activity that can cause irreparable environmental and economic damage.

Such liability limits amount to a public subsidy of the offshore oil industry. Canadian taxpayers should consider themselves forewarned.

Companies drilling off the Atlantic coast may be subject to "financial responsibility" requirements, but, given the magnitude of costs and liabilities now facing BP, such requirements are woefully insufficient. These must be increased substantially to ensure that similar liabilities do not go unpaid in Canada.

U.S. politicians are now taking a hard look at offshore liability caps. Debate is focused on the appropriateness of eliminating liability limits, and it is a virtual certainty that limits will be increased - possibly retroactively to cover the BP situation. Canada must follow suit.

With the National Energy Board about to begin a review of the safety and environmental requirements associated with Arctic offshore drilling, it is time to re-examine Canada's offshore oil liability regimes.

But given that the hearing will not examine offshore oil operations on the East Coast or the all-important leasing process that precedes drilling, it remains to be seen how the federal government will ensure that Canadian taxpayers are not left to assume the financial, much less environmental, risks of this economic activity.

One thing remains certain, though: Taxpayers must be protected.

Will Amos is director of the University of Ottawa-Ecojustice Environmental Law Clinic.