Natural Resources Committee on June 3rd, 2014

[Theresa McClenaghan]

The concern there is that the amount is insufficient. I have a slightly different view in that I agree there should be an absolute liability amount in both sectors. What I also think is that there should be negligence beyond the absolute liability amount in both sectors, but I don't think a billion dollars is sufficient, in any way, shape, or form, in either sector. For example, in the Deepwater gulf situation, we saw the President introduce a $20 billion fund right after that accident. A billion dollars might be a drop in the bucket in the Arctic context. The issue about demonstrating adequacy of resources means that you have to make sure that those resources are available right away for the absolute liability amount, both to deal with the implications of the spill, as well as the impact on livelihoods that's happening right away.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Could you clarify the “right away” component? Why is “right away” such a concern for you?

Are you worried about extended court proceedings and not having the money flow fast enough? We have $100 million that's going to be put aside under this legislation.

[Theresa McClenaghan]

Yes, you can deal with a few months or a few weeks with people whose livelihood is on the land or tourist operators or others who might be impacted, but the issue is, if they're embroiled in longer claims periods, they could well eventually obtain their funds but they may be out of business by then, or so far set back they can't recover. In addition, the ability to mitigate on the part of the governments and having access to that funding from the oil and gas sector is critical because if the business is a tourist operator or a fishing operator or another operator that relies on the natural resources, then you may have a situation where if they're not addressed immediately, the cleanup now takes years and years instead of potentially months. That's the difference.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

This is a slight switch of topics but it's incorporated in this. There was a report a couple of years ago that some of your members had been quietly petitioning the government to remove the in-season relief well requirements that are now on the books in the Arctic. Is that CAPP's position, or is that just a couple of member companies that had taken that view of the world?

[Paul Barnes]

That CAPP's position is that a same-season relief well is required; is that the question?

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

That's right.

[Paul Barnes]

We support the NEB's recommendation that a capability to have a same-season relief well is required. We support that recommendation.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Mr. Amos, you talked about whether this is commensurate or not. It's a legal term used in court, to some Canadians. One thing that surprised me, and I wonder if you might be able to comment on this, is that the government official said there hadn't been another incident that had exceeded a billion dollars outside of the BP disaster in the gulf. When one starts to go through accidents, adjusted for proper dollar terms, the Piper Alpha, the Ixtoc I, which preceded the gulf by 40 years, one in excess of $3 billion and one approaching $3 billion....

You've talked about whether a billion dollars is commensurate or not. The question around this, for industry, is, whether a limited liability cap is in effect a subsidy, in which any cost beyond that cap is in effect a subsidy by the taxpayer to clean up an accident. There have been other [Inaudible — Editor] over a billion dollars. Why did you paint that as not commensurate right now as drawn up in this bill?

[Prof. William Amos]

For me, what isn't commensurate is the notion that the foundation of the legislation would be the polluter pays principle, but then on the other hand, the only guaranteed payment pursuant to this legislation would be the absolute liability of one billion dollars. Thereafter, fault or negligence would have to be proven.

You're referencing historic spills. None has been as horrific as the Deepwater Horizon event, but as you point out, there have been others that were very serious. I think that once one starts to examine the impacts of these catastrophic spills through the lens not only of economic damages incurred, but also in terms of the environmental damages that are now, much more so than in the 1970s, 1980s, or even the 1990s, being quantified in ecological terms, in terms of damages to ecological systems, from plankton all the way up through, once one starts to calculate those kinds of damages, I think it's fair to say that the damages of these past spills have reached—

[The Chair, Conservative, Leon Benoit]

Mr. Cullen, you are out of time.

Mr. Regan, you have up to seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman, and thank you to all the witnesses for joining us today.

Mr. Amos, if you were asked to give three recommendations to strengthen the bill, what would they be?

[Prof. William Amos]

I'll give you four.

First, remove the $1 billion cap on absolute liability in accordance with the polluter pays principle. That's proposed subsection 26(2.2).

Second, and I haven't mentioned this so I'll put special emphasis on it, eliminate the discretion of the Minister of Natural Resources to reduce absolute liability levels to below the legislated level of $1 billion. Pursuant to advice from the NEB, we don't think that's appropriate.

Third, we have concerns around the elimination of the relief from liability, in specific cases, for the effects of the dumping of toxic chemicals, which are qualified as treating agents, into marine environments. If there is a spill and millions of litres of toxic chemicals are dumped, that is going to be an environmental calamity.

Fourth, we would support the introduction of a requirement for an operator to provide proof that it has the financial resources to pay for the entire amount of at-fault liability, that is, where wrongful conduct is demonstrated, so, much more significant proof of financial resources.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much.

Ms. McClenaghan, would you have a different list?

[Theresa McClenaghan]

The points I would add would be the ones I made about making sure the principles are consistent between the oil and gas side and the nuclear side of the bill. There's a huge inconsistency in the approach right now, where polluter pays is not in the purpose statement of the nuclear side, and there's no supplier and contractor liability, ever. Also, there's never any ability to go beyond the absolute liability in case of negligence, so I would make it consistent across the bill.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Mr. Barnes, what have you heard from your members about the ability to get insurance at a level of $1 billion for absolute liability, and also what about...?

[Paul Barnes]

For absolute, the majority of our members have no issue with getting insurance coverage. Many of our members are large multinational companies that probably have greater financial capacity than some of the insurers that insure them. But the ability to get some aspects of insurance to cover the absolute is a challenge, and it will be an extreme challenge, for some of the smaller junior players that are tending to be more active now in the offshore.

[Geoff Regan, Liberal, Halifax West, NS]

With respect to all of them, if it were unlimited liability for absolute liability, what would be the impact? Would they be able to get insurance in that case?

[Paul Barnes]

No, there would be challenges in getting some insurance when it comes to absolute liability, for sure. Insurers just wouldn't provide it.

[Geoff Regan, Liberal, Halifax West, NS]

If there were no cap on absolute liability, what problems would that create? What would be the impact on the industry in places like Newfoundland and Labrador?

[Paul Barnes]

I think it would cause an issue of not being able to do work and a competitive issue of not being able to do work in Canada versus other jurisdictions around the world.

[Geoff Regan, Liberal, Halifax West, NS]

Mr. Amos, what's your thought about what the impact would be in a province like Newfoundland and Labrador if you had unlimited liability for absolute liability?

[Prof. William Amos]

I think the critical point to make here is that there is a certain kind of drilling where it's better for companies to be self-insured, and where the only way Canadians can trust that we should move forward with any drilling is if they're able to pay themselves. If there are smaller companies that simply can't get insured, maybe they shouldn't be in the business. If the risks are just that high, then that's the reality of the business.

So I, and I think many Canadians, would feel very uncomfortable with the idea of a junior company trying to drill in the deep water of the Arctic. If they can't pay the bills, they can't pay the bills.

[Geoff Regan, Liberal, Halifax West, NS]

As you'll recall, my question was about Newfoundland and Labrador.

What would be the impact on Newfoundland and Labrador if you had the regime you're suggesting, which is unlimited absolute liability?

[Prof. William Amos]

My understanding is that with shallower water drilling, which is less dangerous, less technical, those are circumstances where smaller companies or mid-size companies are more easily able to participate because the challenges are less serious. However, as many of us know, Chevron has drilled very, very deep wells in the deep water off of Newfoundland, and those are areas where you probably wouldn't want a junior company playing ball.

In some respects, I think we need to identify specifically where these junior or mid-size companies would be looking to engage and where it would simply be the majors. I think that's important.

[Geoff Regan, Liberal, Halifax West, NS]

Let me pursue that for a second.

What you're suggesting is that a major would pursue it despite the unlimited absolute liability, whereas a smaller player wouldn't. What is the basis for that conclusion that a major would pursue it, even though they perhaps couldn't get insurance or would have to self-insure, as I think you're suggesting?