Natural Resources Committee on June 3rd, 2014

[Jeff Labonté]

There have only been three that have been over a barrel.

[Joan Crockatt, Conservative, Calgary Centre, AB]

There have only been three that have been over a barrel. Really?

[Jeff Labonté]

Twenty-eight, thirty-eight, and one thousand.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Wow, I had no idea that it was that minimal. This safety regime really is being put in place for the very, very unlikely instance of a larger spill.

[Jeff Labonté]

Correct.

[Joan Crockatt, Conservative, Calgary Centre, AB]

I'm also interested in spending my remaining time on the spill-treating agents. I had an opportunity to speak on them in the House and I found that fascinating. I wonder if you could tell us a little bit about how they work and why they work.

[Jeff Labonté]

I'll do my best, but I have to admit my technical knowledge in this area is limited. I have some colleagues who could probably jump in.

[Joan Crockatt, Conservative, Calgary Centre, AB]

There are enzymes that eat up oil.

[Jeff Labonté]

The challenge when there's oil in the environment is how to clean up the oil, if you will, soak it up and absorb it. Machines and equipment do that kind of thing. Then there are challenges about how you can break up the oil and its properties so that it's more easily absorbed, consumed, vacuumed, and cleaned up. There are enzymes that break down the carbon chains and the oil, if you will, in the water. There are enzymes that separate the water from the oil to try to make it easier to get the oil to the surface and absorb it.

There are also different techniques. The research in STAs, spill-treating agents, continues around the world. Certainly Canada is contributing to that research again to help improve and develop our ability to deal with it if an event ever occurs in water. It also takes into account whether it's salt water, whether it's fresh water, or the nature of the oil spill.

[Joan Crockatt, Conservative, Calgary Centre, AB]

How do you decide what kind of spill-treating agent to use, and who decides that?

[Jeff Labonté]

It's the Minister of the Environment who would make that determination, based on evidence and research and the science from the community at large, both here in Canada and around the world. The body of evidence, of course, is unfortunately growing, because there are spills. Spill-treating agents are some of the new tools to deal with spills. Certainly there was extensive use of STAs in the gulf incident in the United States. Some of those circumstances are not present here. The water is warm and the nature of the water is different from the nature here. But there are other circumstances, for example, in Norway and the U.K., where the water is very similar to here. It's cold, and it's sea water, and it's a little bit rougher, if you will. They have examples in those jurisdictions and others where STAs are used.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Crockatt.

We go now to our final questioner of the departmental officials, Ms. Moore, for up to five minutes.

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

Mr. Labonté, you can take notes, because I have some questions for you.

You mentioned the polluter pays principle. Does that principle apply in your department as a general rule or did you decide to apply it to this specific bill?

You said that you used certain accidents to determine the level of liability. The Piper Alpha accident in the United Kingdom cost $1.2 billion. If you consider inflation, that comes to $2.83 billion. For Ixtoc 2, the cost was $3.4 billion. Those amounts exceed $1 billion.

Which accidents did you use to determine the costs of liability? Would recovery operations in the Arctic, in Canada’s far north, cost a lot more? Did you include those operations in your scenarios and your calculations?

The legislation has not been changed for 30 years. We are presently studying Bill C-22 so that we do not have to amend the legislation for a while. So why does the bill not provide for an annual indexing formula for the liability amount so that we can avoid a situation whereby another 30 years might go by without the amount being indexed and with it no longer reflecting reality? Would it be possible to include an indexing formula in the bill? If so, what would you suggest?

[Jeff Labonté]

Thank you for your questions. I think I have everything noted.

For your last question, the bill provides for the indexing of compensation levels. Additionally, the regulatory agencies have the ability to increase the level of financial liability if they determine that it is required on the basis of what has been presented to them.

Your first question was about the accidents on which we based our analysis. We reviewed the accidents that have happened in Canada and elsewhere in the world. It turns out that a comparison was quite difficult to do. Systems of jurisdiction are not the same in all cases. For example, compensation may involve people, companies, the environment, or it may even be the result of offences committed or the follow-up work required. Sometimes, there is also an oversight period following an accident. So it is difficult to compare the amounts exactly.

Our analysis shows that, for Canada, the amount of $1 billion is appropriate in our situation. The amount is the same as in Norway, the United Kingdom and Australia.

Do you have any other questions?

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

I would like some clarification about the accidents. If I understood you correctly, you said that a liability limit of $1 billion is appropriate for Canada but that it is not out of the question for that amount to be exceeded in certain cases. Is that what you are telling me?

[Jeff Labonté]

If I may, I will answer in English.

We haven't suggested that $1 billion is the limit of a spill in Canada. We've suggested that $1 billion in absolute liability is a reasonable limit that establishes what we think companies should demonstrate they have the ability to have and that they would be liable without fault or negligence.

Certainly there's the possibility of an incident being more than $1 billion. Companies would be completely liable for those incidents when at fault or negligent. That's an unlimited amount.

We didn't try to, if you will, establish an amount that would capture any and all possibilities. We established an amount that we believed was reasoned for the context.

I think it's important to underline the difference between $1 billion in absolute liability and unlimited liability. Companies are subject to unlimited liability. Proving fault or negligence would be, I believe, although I'm not a lawyer, fairly straightforward. If a platform in the middle of the ocean is producing oil, somebody is at fault if there's a spill. Determining who is really the question. That's something that would be pursued in the courts.

However, in the example that's been used around the world, the Gulf of Mexico incident, as the big incident in which you would expect there'd be a great problem, the company accepted responsibility before it ever being proven. The company then pursued all of its partners and all of its subcontractors in a way in which the companies organized themselves to fight about who was responsible for what percentage of the liability.

Who pays was never at question. It was British Petroleum who paid in that instance. The examples that we've seen in other jurisdictions like Canada around the world have proven the same thing. The companies have accepted the responsibility and paid for the damages, whether they were $1 million, $100 million, or, as in the incident in the Gulf of Mexico, several billion.

You also asked a question about the polluter pays principle. The principle exists in our legal system. It is important to stress the significance of the principle in terms of company liability in the wake of an accident. We included that aspect in this legislation in order to highlight the importance of the fact that companies are liable if there is an accident. So it has to be in the act.

At federal level, other legislation includes the principle. We will see whether including the principle will be accepted in order to underline its importance. But the principle exists in our system, for sure. We were establishing a context for it that is a little more visible and thereby emphasizing its importance.

[The Chair, Conservative, Leon Benoit]

Thank you.

Merci, Madame Moore.

I want to thank all members of the committee for excellent questions and very good questioning of the witnesses.

I particularly want to thank the witnesses, who are very professional, quite frankly, and for very competent, concise answers to the questions. I want to say, you do us proud in reflecting the professionalism in the public service. Thank you all very much.

We're going to suspend now for a couple of minutes as we get our witnesses online and get on with the second part of the meeting.

[The Chair, Conservative, Leon Benoit]

We resume our committee meeting with witnesses on Bill C-22.

We have three witnesses with us.

First of all, here in person from Ecojustice Canada, we have William Amos, director, Ecojustice Environmental Law Clinic at the University of Ottawa. Thank you very much for being here again. We've had you before the committee a couple of times, I believe. Welcome.

By video conference from St. John's, Newfoundland and Labrador, from the Canadian Association of Petroleum Producers, we have Paul Barnes, manager, Atlantic Canada and Arctic. Welcome to you, sir, and thank you for being with us today.

We have by video conference from Toronto, from the Canadian Environmental Law Association, Theresa McClenaghan, executive director and counsel. Welcome to you. Thank you very much for being with us today.

We'll have the presentations, for up to five minutes, from witnesses in the order that you are listed on the agenda.

We will start with Mr. Amos from Ecojustice Canada.

Go ahead, please, sir, with your presentation. Again, thank you for being with us today.

[Prof. William Amos, Director, Ecojustice Environmental Law Clinic at the University of Ottawa, Ecojustice Canada]

Thank you, Mr. Chair. Thank you to all of the members. I appreciate the opportunity again.

This is an important issue, and I'm very happy that we have legislation on the floor of the House. This is long overdue, but I'm very glad that we've reached this stage.

I'm with Ecojustice, which is Canada's largest public interest environmental law organization. We've focused on this issue since July 2010. We've been studying it carefully. I've circulated an article that was published by the McGill International Journal of Sustainable Development Law and Policy. Two students here are working with Ecojustice this summer and are on the board of the journal that published the article.

We have invested significant energy into this issue, and our reactions to the bill are not off the cuff. We have provided significant input to this government on this issue. Proactively we interacted extensively with the officials who just came before you, and I would agree, Mr. Chair, that they're very professional, very knowledgeable. I know they have worked very hard on this file to help bring the government to a place where it could table strong legislation. I'd like to point out what I feel are the positive aspects and also some areas of concern.

On the positive side, obviously increasing the liability cap is a good thing. It had to happen. The absolute liability cap was ridiculously low. I know we'll get into discussions of this. It is our position that the notion of the polluter pays principle, which has been incorporated into the preamble, is a good thing. However, we don't feel that as a matter of public policy or as a matter of international or domestic law that restricting the polluter pays principle by having an absolute liability limit of $1 billion is appropriate. They're incommensurate in our opinion.

The second aspect to comment on positively is the inclusion of loss of non-use values relating to a public resource. This is an issue that we worked very hard on with Natural Resources Canada and other departments. We're very glad to see this included, because until now, under domestic law in Canada, the only way the government could seek to claim non-use environmental or ecological damages would have been through the invocation of the Supreme Court decision in Canadian Forest Products Ltd. That decision enabled non-use damages to be claimed, but there was no statutory basis for it and having a statutory footing is important, so that's a positive.

However, there are no regulation-making powers associated with non-use values, damages, and that really does ultimately restrict the government or the crown in how it can move forward to enunciate specifically what types of non-use damages will be claimable under what conditions. There's a lack of specificity in the legislation itself, which isn't necessarily problematic, but the fact that there's no regulation-making power around it doesn't enable that specificity to come into play. I think that additional aspect should be entertained.

Finally, to include another positive, the new sentencing principles added to guide courts, which include aggravating factors of causing risk of damage or damage to the environment, including loss of non-use values, is really helpful. I think that's a useful provision.

I think I've made my simple point on the absolute liability limit. That issue has been debated back and forth. I sense the $1 billion number is literally picked out of thin air. Conversations we had with the government were not dissimilar to the question of what's the right number. We said there is no right number; it should be unlimited liability.

It seems to me that at a certain point there has to be a recognition on the part of the government that, if there is going to be a functioning free market, then entities that want to engage in risky activities, for example Arctic offshore drilling, they should be able to pay the full freight.

I think it is unlikely that we could expect the crown to recover all of the damages caused, including non-use damages, if there were a worst-case scenario off any of Canada's coasts.

I'll leave my remarks at that and I appreciate the opportunity.

Thank you, Chair.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Amos from Ecojustice Canada.

From the Canadian Association of Petroleum Producers, we have Paul Barnes, the manager for Atlantic and Arctic Canada. Thank you very much for being here with us today.

Go ahead please, Mr. Barnes, with your presentation, for up to five minutes.

[Paul Barnes, Manager, Atlantic Canada and Arctic, Canadian Association of Petroleum Producers]

Thank you. Good morning, Mr. Chairman and members of the committee.

My name is Paul Barnes. I'm the manager of Atlantic Canada and Arctic, for the Canadian Association of Petroleum Producers, sometimes referred to as CAPP.

We represent Canada’s upstream oil and gas sector, basically those companies involved in the exploration, development, and production of oil and gas. We appreciate the opportunity to offer our perspectives regarding Bill C-22 today, specifically those sections of the bill related to the offshore oil and gas industry.

Safety comes first in Canada’s offshore oil and gas industry. Offshore operators assess every activity before beginning it, with safety in mind. Similarly, protecting the environment is a key consideration in everything we do. Operations are designed to mitigate potential risks to our people and the environment. To put it simply, our industry is committed to developing offshore resources safely and responsibly.

We are therefore supportive of this bill, which aims to enhance accountability for safe operations and to modernize aspects of the offshore oil and gas regulatory regime so that Canada’s offshore can maintain its world-class safety and environmental performance.

I'll begin by talking about the polluter pays principle and offshore liability.

Bill C-22, as you know, is founded on the polluter pays principle. This principle is supported by CAPP and is consistent with other federal legislation that applies to the oil and gas industry throughout the country.

One of the most significant changes resulting from this bill is an increase in offshore liability limits. It's important to differentiate between absolute or no-fault liability versus liability for incidents where fault or negligence by industry is proven.

In any case where fault or negligence is proven, the industry has unlimited liability, meaning that we are fully responsible for the costs of cleaning up the incident. This has always been the case in Canada, and this bill does not suggest any change to at-fault liability.

The increase in liability, however, that we are talking about or referring to is in absolute liability, meaning the amount companies will be required to pay, even if they are not at fault for an incident. The amount companies must provide to government so they can get unfettered access to use it, if needed, in the event of an incident has also increased.

It should be noted that industry works diligently to prevent incidents from occurring, so it is our hope that we never find ourselves in a position where liability for an incident comes into play. At the same time, we understand and accept the rationale for increasing the absolute liability limits. Likewise, we understand that this bill also brings new requirements for companies to demonstrate that they have at least $1 billion in financial capacity to undertake work in the offshore. Again, we accept the rationale for these changes.

We do wish to have further dialogue with governments and regulators as regulations and guidelines related to financial responsibility are further developed, as industry would like to see some flexibility in some of the financial instruments that are available in the financial market today, such as insurance and parental guarantees, which would be acceptable in order to demonstrate financial capability or capacity.

I will now comment on dispersants.

As I mentioned, offshore operations are designed with a prevention-first philosophy. While our primary focus is on preventing incidents like spills from occurring, it is also important that we be prepared to effectively respond in the unlikely event of a spill.

We are encouraged that the federal government, through the bill, is taking the steps necessary to enable the use of spill-treating agents in Canadian waters in the event of a spill. Industry has been advocating for the acceptance of dispersants as a viable spill countermeasure in Canada for several years. Several recent reports and reviews have also recommended that Canada facilitate dispersant usage where there is a net environmental benefit, including a recent report by the Commissioner of the Environment and Sustainable Development from the Office of the Auditor General of Canada.

Dispersants are a common spill countermeasure in other offshore jurisdictions. In fact, over 75 countries around the world identify dispersants as a first- or second-response option. These proposed changes in the bill bring Canada in line with other countries and current global practice.

The key to effective spill response is having access to a variety of tools that can be used in a particular spill scenario. Dispersants provide another tool in the tool box to spill responders, thereby improving our capacity to respond effectively to a spill and minimizing environmental impacts.

I also want to point out that this bill supports the concept of the offshore petroleum boards in Newfoundland and Labrador and in Nova Scotia as the best-placed regulators for the offshore industry in Atlantic Canada.

Industry has always advocated for a single-window regulatory approach for the offshore, meaning a regulatory structure that has industry engaging with one primary regulator. This approach ensures cohesiveness and clarity in the regulatory model, and is in line with the original intent of the Atlantic accord acts.

Bill C-22 provides additional authority to the boards in the areas of environment, and health and safety, and makes the offshore petroleum boards lead regulatory authorities under the Canadian Environmental Assessment Act. In our view, the boards are the best-placed regulators for conducting offshore environmental assessments, so we are pleased to see this authority being granted to the boards. It also brings them in line with the National Energy Board, which was granted this authority many years ago.

The bill also provides additional authority to the boards to release environmental reports and other documents to the public. Generally, we are supportive of efforts to improve transparency. In fact, in CAPP's own annual “Responsible Canadian Energy” report, we voluntarily published performance data related to environmental safety. However, further dialogue is required as the bill does not define specifically what documents will be released, and some information could be commercially sensitive. We look forward to having some further dialogue with governments and the boards as they develop regulations and further information about the release of these documents.

To conclude, I want to reiterate CAPP's support for Bill C-22. The bill demonstrates government's commitments to ensure public safety and environmental protection, and is in line with industry's own commitment to develop resources safely and responsibly.

Thank you for the opportunity to present to you today, and I look forward to questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Barnes, from CAPP.

Our final witness at the committee today is Theresa McClenaghan, who is the executive director and counsel of the Canadian Environmental Law Association. Thank you very much for being with us today. Go ahead for up to five minutes, please.

[Theresa McClenaghan, Executive Director and Counsel, Canadian Environmental Law Association]

Thank you very much, Mr. Chairman.

Thank you to the committee for inviting CELA to speak to you today about Bill C-22, the energy safety and security act.

CELA is a 44-year-old national ENGO, and when we're looking at conventional sources of energy, the areas we're focusing on are usually around things like liability, safety, emergency planning, and environmental health.

Today I'm going to focus on the liability aspects of the bill. You are focused on offshore oil and gas in your study today and on nuclear energy on Thursday, as I understand it.

First I want to look at the bill as a whole, because there's a significant contrast between the approaches in the two sectors of the bill. The areas I'll address are the polluter pays principle, which we've been hearing about this morning, absolute liability, liability for negligence beyond absolute liability, and supplier and contractor liability.

First of all, with respect to the polluter pays principle, CELA too supports this principle and is very pleased to see it included in several oil and gas statutes as part of their purpose statement, so that it will now be part of the purpose of all of those regulatory statutes.

However, the polluter pays principle is not included in Bill C-22 on the nuclear side of the bill. We would submit that it is poor policy that a bill that espouses the polluter pays principle does so only in respect of one type of energy source in the bill, oil and gas, and not in respect of nuclear.

With respect to absolute liability, both sides of the bill, oil and gas and nuclear, require minimum insurance or other demonstration to show that an absolute liability amount could be paid in the event of an incident. We agree with that, although we also agree that $1 billion is not enough in either sector.

The difference is that in the case of oil and gas, licence holders or their suppliers and contractors may be liable beyond the absolute liability in the case of negligence, as you heard described. That may sound obvious, but on the other side of the bill, negligence and liability beyond the absolute liability are not provided for on the nuclear side. On that side, the billion dollars or whatever the phased in amount is, would be the absolute maximum that an operator would ever have to pay for an incident even if it drastically exceeded the liability of the incident.

In the case of the negligence side of the bill with regard to the oil and gas sector, the damages would have to be proven. We recognize there are issues with proof, but nevertheless the fact that claims can be brought for proven damages in cases of negligence even beyond absolute liability is entirely appropriate in our view. We would submit that this should be done as well on the nuclear side of the bill.

A section analogous to clause 19 of part 1, which amends the act by changing section 26 of the Canada Oil and Gas Operations Act, should also be included in the nuclear side of the bill.

The other big difference is with respect to supplier and contractor liability. Both aspects of the bill channel supplier and contractor liability to the operator or the licence holder for that absolute liability portion, but only on the oil and gas side is liability ever possible against suppliers and contractors in their negligence. On the nuclear side, that's never possible. The nuclear suppliers to that entire supply chain never have to consider the consequences of the decisions they are making around risk, and on the nuclear side as well as the oil and gas side, decisions are made every day around risk.

The other thing I want to focus on today has to do with the proposed amendments to the bill. In addition to the amendment I suggested, which would insert a section analogous to section 26 of the Oil and Gas Operations Act into the nuclear side, I would also say, with regard to the nuclear side, that in clause 120, proposed section 9 and all of the subsections there that have the words “and no person other than an operator” should all be struck out. Then proposed section 24 should be amended to increase the absolute liability amount similarly on the oil and gas side.

Then a provision like clause 19 of part 1 of Bill C-22, which provides for additional liability beyond the absolute liability in the case of negligence, as I already said, should be included.

To conclude, because I know time is short and you have questions, with respect to this bill, we agree that the amount for the absolute liability portion of the bill is insufficient. We agree that there should be an amount for absolute liability in both sectors. We also agree that there should be liability for negligence beyond the absolute liability. Our submission is that this should apply in both sectors as well.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. McClenaghan, from the Canadian Environmental Law Association.

We will start our seven-minute round of questioning with Mr. Trost. Then we will go to Mr. Cullen and then to Mr. Regan.

Go ahead, please, Mr. Trost, for up to seven minutes.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you to all the witnesses for excellent presentations.

Mr. Barnes, if someone came up to you on the street and said that this legislation is something they had heard about in the news and were to ask you what, practically, is going to change.... Are your member companies going to change their operations, and if so, why, and if not, why not?

To the average person on the street, what are the practical implications of this legislation?