Natural Resources Committee on June 3rd, 2014

[Ryan Leef, Conservative, Yukon, YT]

Greater than 1,000 litres.

We've heard discussion today about risk and the liability being commensurate with the risk. I think it's important to distinguish between risk and consequence. Without a doubt, the consequences of a major spill are serious, but would you agree, Mr. Barnes, that historically the risk is low in this industry, albeit the consequences are high?

[Paul Barnes]

That's true. The risk of a spill is low and that's because of a lot of prevention measures that go into preventing a spill from occurring.

[Ryan Leef, Conservative, Yukon, YT]

Mr. Amos, you've heard my discussion on that, that we're talking a lot about the risk. One could play semantics here, but there is a definite distinction between risk based on history and context, and safety regimes, and the consequences of an action. We have to deal with some level of reality in terms of the actual risk and what history tells us about the safety of this regime, and then put that into context with the actual consequence of that.

Most certainly, as I've articulated, consequences can be high. I don't think, as you mentioned, that the Canadian taxpayer should be on the hook for the cleanup of some consequential thing, but I don't think we should overblow the actual reality of that occurring.

In that vein, let's say these companies operate for 50 or 60 years. There's certainly a net benefit to Canada in terms of jobs, GDP, and economic return, both direct and indirect, and induced benefits. From that, we collect royalties and those things.

Canada is benefiting from having these companies operating. Would it not then translate that after 50, 60, 70 years, in the unlikely event of a spill occurring, that the Canadian taxpayer, who has enjoyed 50, 60 years of benefit, wouldn't have some vested interest in putting some of that return into making sure a cleanup was done effectively and properly, and that it shouldn't exclusively and entirely befall the company where there's no fault of the company?

[Prof. William Amos]

If you're asking me, should the Canadian taxpayer welcome the shouldering of some burden of a catastrophic spill as a form of thank you for many years of royalties and jobs created, I'd say no.

[Ryan Leef, Conservative, Yukon, YT]

I wouldn't characterize it as a form of thank you, but Mr. Cullen characterized it as a subsidy, and I wouldn't see the taxpayer.... Where we've had 60 years of royalty return, jobs, economic prosperity, and a clear, defined safety regime where there's no fault of the company in terms of some spill, in the worst-case scenario, I wouldn't characterize it as a subsidy as much as I'd dare to characterize it as a thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Leef. Your time is up. There's no time for a response, but I'm not sure you're looking for one based on your last comment.

Madam Moore, for five minutes.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Thank you very much, Mr. Chair.

My questions go to Mr. Amos and Ms. McClenaghan.

My first question is about absolute liability, unlimited liability, that is. What are the consequences for business practices in that context? Could the lack of a limit mean better prevention? Would it allow rapid response measures to be put in place to limit the damage as much as possible?

Often measures like that are put in place in order to reduce the costs of insurance. The company provides its insurer with proof that it is ready and prepared for any disaster. The insurer can then trust the company and reduce the amount of insurance coverage.

What are the consequences for investment? Will the lack of a limit make investors more inclined to finance a company? They could conclude that a company like that is prepared to deal with anything, compared to another company that could go bankrupt.

Generally speaking, what are the consequences for investors doing business with a company with limited liability, compared with a company that assumes the entire responsibility for its actions?

I would like Mr. Amos to answer that question first.

[Prof. William Amos]

The goal of any extracontractual liability regime is to make sure that an operator’s actions in terms of prevention are at the highest possible level and to make sure that the company itself, not the Crown or the taxpayers, assumes the clear risks. Certainly, when a regime is based on the polluter pays principle, and when the provisions of the legislation require the company to pay a greater part of the damages in the case of a catastrophic spill, the company will take steps in advance to modify its behaviour. In this case, modifying the behaviour of those with a financial stake is most important. As Mr. Leef mentioned, the cases we are talking about are quite rare, but it makes sense to ensure that those involved act prior to an accident as much as possible.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

Can it be said that, the higher the limit of liability, the safer the operations are likely to be?

[Prof. William Amos]

Yes, I think that is a reasonable conclusion. I imagine that Mr. Barnes would also like to comment on that.

When absolute liability limits increase, the costs of insurance increase too. The government has clearly chosen to limit absolute liability, reasoning that the costs for the operators increase when that kind of limit is imposed. However, we feel that the costs are necessary and should be paid by the companies through their insurance.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

I have a question for you.

You said that the amount is insufficient if we do not move towards total and unlimited liability. What do you feel would be the appropriate amount for liability of this kind?

[Prof. William Amos]

That is the same question that officials from Mr. Oliver’s office and Prime Minister Harper’s office asked us a year ago. There is no good answer to that question. In our opinion, the only way to apply the polluter pays principle is to have no limit. If you pick a number, it could be $1 billion, $5 billion, $10 billion or $40 billion. You could take the final estimated costs of the Deepwater Horizon spill, but, really, you could have a spill in the Arctic, in the Beaufort Sea, that would cost a lot more. It really is impossible to determine.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Moore.

Finally we go to Ms. Crockatt, for up to five minutes.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you very much to our witnesses for being here today.

Mr. Amos, I just want to follow up briefly in the time I have left on some questions that Mr. Leef was getting at. Unfortunately, you didn't have the benefit of being here beforehand to hear our Natural Resources officials.

We've talked a lot about the risks of a catastrophic spill here and the possibility that we should insure for that. What is your assessment of the risks? In your view, what is the risk of a catastrophic spill offshore in Canada?

[Prof. William Amos]

Low probability, high consequence, and I think it's interesting to note that, yes—

[Joan Crockatt, Conservative, Calgary Centre, AB]

I'm just trying to see if we can quantify. What would low probability be, in your mind?

[Prof. William Amos]

I don't think it's fair to attach a number to it, and industry typically does try to do this, one in x number of thousand wells drilled, etc.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Do you know the statistics?

[Prof. William Amos]

I don't know them offhand here.

What is reality is back in 2009, when the offshore industry was seeking to have the National Energy Board dispense with the same-season relief well requirement, at that very time the Deepwater Horizon incident occurred and the Montara incident occurred off the western coast of Australia, both catastrophic incidents.

[Joan Crockatt, Conservative, Calgary Centre, AB]

I just wanted you to focus on Canada because that's what we're talking about here. Do you know what the risks of an oil spill in Canada's offshore are?

[Prof. William Amos]

The risk of an offshore spill in Canada would be calculated looking at all different.... It's a global industry and it would be best done by looking across jurisdictions, as industry does itself.

[Joan Crockatt, Conservative, Calgary Centre, AB]

I don't mean to put you on the spot, so I'll tell you what they are, just so you know.

We've had two incidents of any consequence, the largest one being 1,000 barrels in 2004, and the next largest being 38 barrels. The average size of a spill is less than one litre.

Are you aware of those statistics?

[Prof. William Amos]

I'm aware that Canada has not suffered the same catastrophic type of spill that Australia and the United States or Mexico have. However, it is not a stretch for anybody to anticipate that one could occur, especially if we're drilling in the deep water off the coast of Newfoundland or in the Beaufort.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Good. I just wanted to leave those statistics with you so that you are aware. Thanks.

Do I have more time, or am I finished, Mr. Chair?

[The Chair, Conservative, Leon Benoit]

One more question.