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oil and gas

The Deepwater Horizon oil spill in the Gulf of Mexico.© Lee Celano / Reuters/Reuters

Ottawa is reviewing outdated liability limits that could leave taxpayers on the hook for billions of dollars after a major offshore oil drilling accident.

Environment Minister Peter Kent has said the Harper government plans to introduce "significant" legislative changes that would make polluters pay more, and close what environmentalists see as a gap in Canada's existing rules.

Mr. Kent's remarks came shortly before the release of an audit in February by Federal Environment Commissioner Scott Vaughan, who says Canada is not prepared for a major accident.

"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," he said. "This is particularly the case given the potential for increased risks due to deepwater drilling and expanding exploration and development activities."

The audit identified several shortcomings, including insufficient spill response tools across the federal government, inadequately tested capacity, poorly co-ordinated response plans, and out-of-date or missing agreements between the boards and supporting departments.

Only one per cent of Canada's oceans and Great Lakes is protected 20 years after signing the Convention on Biological Diversity, the audit said. It stated that at the current rate of progress, it will take Canada many decades to achieve the target to conserve 10 per cent of marine areas.

But "protecting Canada's oceans requires more than setting aside protected areas. It requires vigilance by various resource extraction industries," Mr. Vaughan wrote in the report.

Under existing rules – which haven't been updated in more than two decades – an offshore drilling company faces a maximum cleanup cost of $40-million in the Arctic and $30-million elsewhere, when there is no fault or negligence. Any costs incurred over that amount would be paid by taxpayers.

To put that into context, Mr. Vaughan wrote, the United States national commission on the BP Deepwater Horizon oil spill found the $75-million (U.S.) absolute liability limit for offshore incidents in the Gulf of Mexico was "totally inadequate," and "placed the economic risk on the backs of taxpayers."

There is unlimited liability for companies when fault or negligence is proven.

"However, going to court against a well-heeled company to prove negligence is a challenging endeavour," says William Amos, director of the Ecojustice Clinic at the University of Ottawa. "Oil companies should face unlimited absolute liability for spills, in accordance with the polluter-pays principle."

Mr. Amos said that Canada's environmental protection laws have not kept pace with the development of offshore drilling and are "woefully inadequate."

Phasing out heavy reliance on fossil fuels, instead of pursuing ever more remote and difficult-to-bring-to-market reserves, is the best way to avoid catastrophic oil spills in the Gulf of St. Lawrence, Mr. Amos said.

"Now that the government has gutted Canada's environmental protections through omnibus budget laws, it is the least they can do to increase the liability limit to help pay for the inevitable spills," he added.

Travis Davies, a spokesman for the Canadian Association of Petroleum Producers, said his organization is engaged with the government review of the offshore liability issue.

"If 'non-fault' cap increases are merited in keeping with international standards, these can and should be addressed with an eye to maintaining industry competitiveness," Mr. Davies said.

Stuart Pinks, CEO of the Canada-Nova Scotia Offshore Petroleum Board, says the commissioner's report raised many valid issues. Currently, there is no offshore drilling in Nova Scotia, however, BP and Shell have acquired licences to drill.

"We intend to complete and act on the recommendations by 2015," Mr. Pinks said. "We're the regulators and we'll impose whatever legislation the government has."

Even if there was a spill for which the company was found to be not negligent, he said the drilling company would likely pay for the cleanup anyway.

"If a company chose to do that, well, you can imagine the publicity they would get then," he said.

Considering the central role of natural resources in today's economy, Mr. Vaughan said it is critical that environmental protections keep pace with economic development. He added that the Canada-Newfoundland and Labrador Offshore Petroleum Board has yet to complete its review of operators' spill response capabilities and, therefore, does not have adequate assurance that operators are ready to respond effectively to a spill.

Mr. Davies said the oil and gas industry is supportive of ensuring regulators are appropriately resourced to deal with growing production activity.