Natural Resources Committee on June 3rd, 2014

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

As you all know, pursuant to the order of reference of Thursday, May 29, 2014, we are studying Bill C-22, An Act respecting Canada's offshore oil and gas operations, enacting the Nuclear Liability and Compensation Act, repealing the Nuclear Liability Act and making consequential amendments to other Acts.

In our study of this legislation, we begin with departmental officials who will be dealing with the offshore section of the act. I welcome you to our committee this morning. Thank you very much for coming on such short notice.

We have with us from the Department of Natural Resources, Jeff Labonté, director general, energy safety and security branch, energy sector; Samuel Millar, senior director, frontier lands management division, petroleum resource branch, energy sector; and Jean François Roman, legal counsel, legal services.

From the Department of Indian Affairs and Northern Development, we have Michel Chenier, director, petroleum and mineral resources management directorate, natural resources and environment branch, northern affairs.

We have three-quarters of an hour with these witnesses, and we will start immediately.

Do you have a presentation to make, sir, to start our study of this bill?

[Jeff Labonté, Director General, Energy Safety and Security Branch, Energy Sector, Department of Natural Resources]

Yes, indeed.

Thank you very much for the opportunity to be here this morning and to discuss the elements of Bill C-22.

There is a presentation that's been distributed by the clerk in French and English.

You can have it in the language of your choice.

Let me begin by appreciating the chance to come and speak to you about the bill and hopefully be able to answer the questions you may have, and to be followed by other stakeholders later today.

Today's focus of the presentation would be on the offshore components of the energy safety and security act, an act that amends the petroleum regime to enhance incident prevention response capability, liability, and compensation.

Just as background, the offshore legislation was developed by the Minister of Natural Resources in collaboration with the Minister of Aboriginal Affairs and Northern Development, the Minister of the Environment, and the Minister of Foreign Affairs.

This piece of legislation was also developed in collaboration with the provinces of Newfoundland and Labrador and Nova Scotia, both of which share management of the offshore with the Government of Canada and have mirror offshore legislation, both of which will be presenting similar bills in their legislatures in the coming months.

Here are some highlights of Bill C-22: Its focus is to strengthen the safety and security of our offshore and nuclear energy industries. It ensures that Canadians will continue to have a world-class offshore regime that is accountable and responsive, and both works to prevent incidents from occurring as well as provide for the compensation and liability in the event of an incident.

This piece of legislation builds on the government's agenda for responsible resource development by ensuring that we have an equally responsive regulatory regime to support responsible resource development.

The Commissioner of the Environment and Sustainable Development recognized the government's intentions previously when at committee and has found that these pieces of legislation are consistent with the fall report that made mention of the need to raise liability and compensation in the offshore sector among other stakeholders across the country.

From an economic point of view, the offshore petroleum sector is fairly significant, representing 28% of Newfoundland and Labrador's GDP and 3% of Nova Scotia's nominal GDP. There are about 13,000 jobs or 5.8% of total employment in Newfoundland and Labrador. There has been about $9.2 billion in royalties to Newfoundland and Labrador, and $2.4 billion in royalties to Nova Scotia over the past 15 years. That is to say that the energy sector and the offshore for Atlantic Canada is quite significant and important from an employment and revenue point of view.

Regarding key features of these particular amendments that are proposed for the offshore, there are themes within the bill.

If you look at one theme about improving the accountability of the regulatory system, there are proposed amendments in the bill to enshrine the polluter pays principle into law; to reinforce in statute the unlimited liability at fault or when negligent; to increase the absolute liability amount to $1 billion, up from $40 million in the Arctic and $30 million in the offshore and everywhere else; to establish in statute that operators are liable for contractors; and to allow governments to seek compensation for environmental damages.

In terms of enhancing prevention, the bill will provide for the requirement to set a minimum of $1 billion in financial capacity for operators of the offshore and create an ability for regulators to levy administrative and monetary penalties for infractions and regulatory incidents.

Moving to the sixth slide, the third element of the bill is to increase response capability and transparency. Here the bill clarifies authority for use of spill-treating agents when there's a net environmental benefit. It provides the regulators direct access to $100 million per project or a pooled fund of $250 million if the operator is unwilling or unable to respond to a spill and the regulator needs to step in.

The act will require the boards to make emergency plans, environmental and other documents public. It will also create in statute a cost recovery regime that requires industry in law to provide payment to government for the regulatory services that are provided. Currently, there's a 75% cost recovery in Newfoundland and Labrador, and 50% in Nova Scotia under voluntary agreements. This therefore puts in statute the current agreement.

The final point would be to establish the authority to manage resources that straddle two or more administrative areas in the Arctic region, particularly as we look at different opportunities and different collaborations that are happening north of 60.

In terms of next steps, the bill was introduced, as you might know, on January 30. The government and the department are currently working on regulations in the statute or in the proposed amendments that are imposed over a timeline.

Provincial versions of the bill are in development. We are working closely and collaboratively with our provincial counterparts so that mirror legislation will be introduced. We expect that to happen in the early fall in Nova Scotia's case and shortly thereafter in the cast of Newfoundland and Labrador. The entry into force of the bill will be determined with the provinces once they pass their legislation and all of the regulations are completed.

There's a small annex that identifies which of the federal acts are impacted by part 1 of the energy safety and security act and where the amendments apply.

[The Chair, Conservative, Leon Benoit]

Again, thank you very much for coming on short notice and for your overview of the legislation. It's very much appreciated.

We'll start our questioning and comments from members in the seven-minute round with Ms. Block.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I would like to welcome all of our witnesses here today.

It is my understanding that this legislation, as you've mentioned, was developed in collaboration with the ministers of Aboriginal Affairs and Northern Development, as well as of the Environment, and of Foreign Affairs, so there was a lot of work that was done across departments. There was also cooperation with the Province of Newfoundland and Labrador and the Province of Nova Scotia.

My questions will centre around how you determined, first, the $1 billion minimum for absolute liability, and then perhaps you can comment on whether you believe it is sufficient.

[Jeff Labonté]

Thank you very much for the question.

It's a very good question in the sense that, when one is establishing the limits for things such as liability, there are a number of factors to take into account. In doing so the department looked very carefully at the offshore regime in Canada and in other countries with respect to liability provisions. I think it's fair to say, starting out, that each country has its unique elements of how it manages its regulatory system in its legal context. In our case we set out to look at our peer countries, countries we would consider to have the same set of interests as Canada. We looked at the United Kingdom, Norway, the United States, Australia, and Greenland, being a number of partners that either touch closely to our own jurisdiction or are very similar.

In the case of the United States and the U.K., we looked at their models in which they use strict liability as the regime behind the liability. The amounts in both of those countries are $75 million and $250 million respectively, each of which is backed by some form of pooling of resources.

In the United States there is a large spill fund that is a levy that goes on every barrel of oil that's produced, consumed, or imported. That fund is paid and is capitalized, which essentially says that companies are responsible for $75 million, and then it's back-stopped by a fund for everything else.

In the United Kingdom, it's a pooled insurance fund that's provided for. In each of those cases they use strict liability.

In our context we had absolute liability in the original legislation, so we set out to maintain that absolute liability was a preferable form of liability. We compared that to Norway and Greenland, which both have absolute liability as well. In both of those countries they have what is termed unlimited absolute liability. In the case of Norway, the regulatory regime and the development regime is one based on which the state-owned company, Statoil, is the majority owner in most of the projects and the backing of the taxpayer or the crown in Norway is implicit in all of the project undertakings. So unlimited absolute liability is essentially back-stopped by the Government of Norway and the citizens of Norway.

Greenland and Denmark have a copy of Norway's regulatory system. In both of these cases they require that the companies provide a $1 billion assurance that they are able to deal with a spill or an incident.

In the Canadian context we felt that the establishment of $1 billion was a very favourable benchmark when compared to other countries, that it certainly was world leading and world-class among our peers.

At the same time the Canadian legislation requires that a deposit be registered with the regulator, whether that's the National Energy Board or the Atlantic Canada boards. That is a unique feature in that the regulator has access directly to a deposit that does not require the approval of the company. In our instance we provided that to be $100 million, or $250 million in pooled funding.

Our feeling was that we had a very stable regime with absolute liability, a deposit requirement, and a fiscal assurance requirement. When we benchmarked and looked at all the examples we had, we established what we felt was a fairly robust and quite significant amount. That put us well within our peers to remain competitive but, by the same token, to provide for assurance that companies have the wherewithal to deal with an oil spill incident, should one ever occur.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I wonder, then, will these proposed requirements imposed on the operators create burdens that might result in less development?

[Jeff Labonté]

That's a good question as well.

When the government establishes its regulatory regime, I think it's always careful to ensure that it's protecting the environment, to ensure that safety is of primary interest, but at the same time recognizes that there's an economic aspect and an economic development component that has to be managed as well. Certainly, all of the energy players offshore are global players and, generally speaking, that requires us to be reasoned with our need to protect and preserve the environment and enable development to occur and to insist on safety as being primary.

In doing so, we feel that the amount we've established is reasoned and companies will be able to manage it. I think you'll be speaking with companies later on. They're probably best able to answer the question directly. Certainly, our consultation and discussion with them established that the majority of the companies are large. All of them behave today as if unlimited absolute liability exists for anything they're responsible for. They have unlimited liability when at fault or negligent in any case, so the sense that we had provided for a substantial amount was to demonstrate that they were ready and able, but by the same token, recognize that it would be something they had to manage and there will be costs associated with doing so.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you.

Can you quickly describe for us the pooled fund and how that would work?

[Jeff Labonté]

Sure.

The legislation provides for the requirement of a $100 million deposit per project. There are four in Newfoundland and Labrador and there are two in Nova Scotia. There will be other projects that get under way as they move, potentially, to exploratory stages.

In each instance the primary operator needs to register a deposit. We've provided a potential option for industry to provide efficiency for management of its capital and for resources by suggesting that we would accept and regulators would accept in the legislation a pooled fund of at least $250 million. If two or three companies pooled their resources and registered the same $250 million fund with the regulator, it'll be accepted as the deposit. In doing so, it comes with certain conditions that the fund be replenished if ever used, that it's directly accessible by the regulator, that it is segregated and real, and that it's not used as an exclusionary tool.

We've provided a way, and in some instances there are companies who operate in more than one part of the country, in Nova Scotia, in Newfoundland and Labrador, and potentially up in the Arctic. We've accepted that one deposit would accept across the jurisdictions; whereas if it's a deposit, it's per project per jurisdiction. We've tried to create a flexible instrument, but by the same token preserve the requirement and the policy need to have a deposit.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Block, Parliamentary Secretary to the Minister of Natural Resources.

We go now to the official opposition. Mr. Cullen, welcome to our committee and today's meeting. Go ahead for up to seven minutes.

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

Thank you very much, Chair.

Thank you to our witnesses.

Mr. Labonté, I have some quick questions on consultation. You mentioned the Atlantic provinces were consulted, I assume in the drafting of this legislation.

[Jeff Labonté]

Yes.

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

Was that two of the Atlantic provinces?

Let me put the question more specifically. Were all the Atlantic provinces consulted in the drafting of this legislation?

[Jeff Labonté]

No.

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

Who was?

[Jeff Labonté]

Newfoundland and Labrador, Nova Scotia and Quebec.

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

Quebec.

[Jeff Labonté]

Yes.

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

Was British Columbia included?

[Jeff Labonté]

No.

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

How come?

[Jeff Labonté]

There's a moratorium on offshore development in British Columbia.

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

There's certainly proposals to move oil off the west coast of British Columbia. Is it not something that would be—

[Jeff Labonté]

Not applicable under this legislation.

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

How come?