Natural Resources Committee on March 31st, 2015

[The Vice-Chair, NDP, Guy Caron]

Good afternoon and welcome to the 53rd meeting of the Standing Committee on Natural Resources.

The topic on today's agenda is Bill C-46, An Act to amend the National Energy Board Act and the Canada Oil and Gas Operations Act.

In the next two hours, we will be hearing from four witnesses.

In the room we have Mr. Martin Olszynski from the faculty of law at the University of Calgary. As well, we have Mr. Ian Miron, who is a barrister and solicitor but is here to speak on behalf of Ecojustice Canada. Mr. Robert Blakely is the Canadian operating officer with Canada's Building Trade Unions.

Welcome, all of you.

By video conference from Calgary, we have Jim Donihee, acting chief executive officer for the Canadian Energy Pipeline Association.

Do you hear us well?

[Jim Donihee, Acting Chief Executive Officer, Canadian Energy Pipeline Association]

Yes, I hear you very well, sir. Thank you.

[The Vice-Chair, NDP, Guy Caron]

Thank you, Mr. Donihee.

We have two hours for this meeting.

I am going to ask you to put on your headsets. Are you hearing the interpretation clearly, Mr. Donihee?

[Jim Donihee]

I do. Thank you for that.

[The Vice-Chair, NDP, Guy Caron]

Great.

The witnesses have about seven minutes for their presentations.

Mr. Olszynski, the floor is yours.

[Martin Olszynski, University of Calgary, Faculty of Law, As an Individual]

Thank you, Mr. Chair, and members of the committee.

My name is Martin Olszynski. I'm an assistant professor at the University of Calgary, Faculty of Law. The focus of my presentation today is on what are commonly referred to as the environmental damages provisions of Bill C-46.

I began thinking and writing about environmental damages roughly 10 years ago, when the Supreme Court of Canada first opened the door for governments to sue for such damages in a case called Canadian Forest Products v. British Columbia. I have since written several articles on this topic, including with one of Canada's leading resource economists, Professor Peter Boxall.

I will begin with a brief primer explaining this concept of environmental damages. I'll then describe their role and their treatment under Bill C-46. Finally, I will make two recommendations for improvement.

Most simply, environmental damages can be understood as the financial compensation awarded for the loss or impairment of some public environmental asset and the services it provides, for example, a forest, in the case of Canadian Forest Products, or a coastal area, such as was affected following the Exxon Valdez spill or the Gulf of Mexico following the Deepwater Horizon blowout.

Environmental and resource economists divide such harms into the loss of two kinds of values: use value and non-use value. Referring to an Environment Canada publication, the Library of Parliament's legislative summary of Bill C-46 defines these two values as follows:

Use values are associated with direct use of the environment such as fishing and swimming in a lake, hiking in a forest - or commercial uses such as logging and farming. Non-use values are related to the knowledge of the continued existence of the environment...or the need to leave environmental resources to future generations.

As committee members might imagine, environmental damages assessment can be a complex and difficult task. Various scientific disciplines—ecology, toxicology, hydrology—are applied to first determine the extent of harm done, while economics and the techniques of environmental valuation in particular are then used to convert this harm into monetary terms.

Under Bill C-46 there are actually two different roles for environmental damages. They play a role in sentencing and they play a role in civil liability. As to sentencing, where an operator commits an offence under the NEB Act, the proposed section 132—and this is clause 37, page 35—directs a sentencing judge to consider the “damage or risk of damage to the environment” as a result of the offence. That is further defined under subsection 4 as “the loss of use value and non-use value”. Through this amendment, the NEB Act joins the ranks of at least 10 other federal environmental laws with similar sentencing provisions. Although light on details, this wording is both simple and comprehensive.

The other environmental damages provisions, which are decidedly more opaque, are found in the context of civil liability. Under the proposed subsection 48.12(1)—and this is clause 16, pages 6 and 7 of bill—there's a reference to three heads of damages: “(a) all actual loss or damage incurred by any person...”; “(b) the costs and expenses” of cleanup; “(c) all loss of non-use value relating to a public resource that is affected” by the spill.

In other words, environmental damages are not actually referred to in this part of the bill; rather, their availability—at least partially—is implied by the reference in paragraph (c) to “all loss of non-use values relating to a public resource...”. Use values are not explicitly referred to, although as I will explain, some of these may be caught by paragraph (a).

There are two other relevant provisions I want to touch on just briefly. These are proposed subsections 48.12(9) and 48.13(5). The former states that only federal and provincial governments may sue for the loss of non-use values, while the latter states that the NEB is not required to consider the potential loss of non-use values when determining the financial resources that operators will be required to maintain for the purposes of absolute liability.

My first recommendation is that the third category of loss under the civil liability provisions be amended to refer simply to environmental damages. For instance, “all environmental damages resulting from the release...", and that this be coupled with an additional subsection defining environmental damages, as is the case in the sentencing provisions. Those are the simpler and more comprehensive provisions, and I suggest that the civil liability provisions be amended to reflect that simple and comprehensive structure. This would not only simplify this section, but it also seems necessary to correct what appears to be an omission in the current bill.

As the committee is probably aware, most of the wording here was brought over almost verbatim from Bill C-22 , the Energy Safety and Security Act, which amended COGOA along similar lines. That legislation already had some spill-related provisions, and specifically a definition for “actual loss or damage”. I'll just read that definition quickly. It “...includes loss of income, including future income, and, with respect to any aboriginal peoples of Canada, includes loss of hunting, fishing and gathering opportunities.”

On my reading of this bill, this definition for “actual loss or damage”, which admittedly does capture some of the use values that I was referring to before, has not been brought over. Even if it were, I submit that there would still be a gap in the legislation. I can provide some examples of that gap after my presentation, if the committee is interested.

My second recommendation is that the Governor in Council should be required within a certain timeframe, or at least authorized, to make regulations setting out a process for environmental damages assessment. Reliance on this process should result in a rebuttable presumption of validity in any action for such damages, whether in court or before the pipelines claim tribunal. First, and as noted above, environmental damages assessment is a difficult and complex exercise; regulations would bring certainty to all parties and reduce needless litigation. It is for this reason that the equivalent American legislation, CERCLA and the Oil Pollution Act, contains such provisions, and that processes have been prescribed for the purpose of what is referred to there as “natural resources damage assessment”. I submit that such regulations represent the gold standard in this context.

My second reason tracks the preventative spirit of the bill. There are now roughly 10 federal environmental laws with some kind of environmental damages provisions, and it has been 10 years since the Supreme Court opened the door for governments to sue for these, and yet I am not aware of a single case where the federal crown has actually sought to do so. Perhaps this is something that future government witnesses could shed some light on. Whatever the case, this reality greatly undermines, in my view, the deterrent effect that statutory liability regimes like Bill C-46 are intended to create.

[The Vice-Chair, NDP, Guy Caron]

Mr. Olszynski, can you start your conclusion at this point?

[Martin Olszynski]

Essentially I'm two lines away, Mr. Chair. Thank you.

My final comment there simply is that the making of such regulations, which ideally would be made applicable to all of the federal environmental damage assessment regimes that I just referred to, would go a long way, I think, in strengthening the preventative effect of this legislation.

Thank you for your time.

[The Vice-Chair, NDP, Guy Caron]

Thank you very much, Mr. Olszynski.

Our next witness is Mr. Miron from Ecojustice Canada.

[Ian Miron, Barrister and Solicitor, Ecojustice Canada]

Thank you, Mr. Chair, and thank you to all the members. I appreciate the opportunity to present today.

As you might know, I'm a lawyer here on behalf of Ecojustice, which is Canada's largest public interest environmental law organization. Ecojustice has worked extensively on pipeline issues across Canada as well as on statutory liability regimes, in the context of the energy sector more broadly. This will be the focus of my presentation today.

I think we can all agree that Bill C-46 is much needed and, quite frankly, long overdue. That being said, there are some significant shortcomings in the bill as currently drafted. I'm going to focus on three of those today.

First, the absolute liability limit is inappropriately low. Second, more guidance is needed around the assessment and calculation of damages for the loss of non-use value relating to a public resource, which I'm going to refer to as “environmental damages”. Third, although the bill provides some interesting new tools for seeking compensation and reimbursement in the event of a spill, the use of most of these tools is discretionary, not mandatory.

As currently drafted, the bill can best be described as “polluter might pay”. It offers modest improvements on the current regime, but it does not fully implement the polluter pays principle, and therefore continues to expose Canadians to an unacceptable portion of the financial risks of a pipeline spill.

Moving to the absolute liability limit, it's positive that the bill incorporates the polluter pays principle into the National Energy Board Act. The bill then restricts absolute liability to $1 billion for spills from large oil pipelines.

Imposing absolute liability up to that $1 billion limit is largely an improvement over the status quo. I say “largely” because it limits what was unlimited liability under the Fisheries Act for certain spill response costs. ln the case of a major spill, $1 billion isn't enough to cover the cleanup costs, let alone compensate victims for damages and all Canadians for environmental damages. We have seen Enbridge's line 6B rupture in Michigan. The cleanup costs have topped $1.2 billion so far. There's still oil in the river there, and there's more work to be done.

ln that light, limiting absolute liability to what seems to be an arbitrary figure of $1 billion inappropriately restricts the polluter pays principle and allows polluters to shift a portion of the financial risk of a pipeline spill back onto Canadians.

Moving quickly to environmental damages, I am pleased to see that the bill includes liability for the loss of non-use value. This measure is absolutely crucial to implement effectively, because a major oil spill can never be fully cleaned up and wildlife and the environment in the vicinity of a spill will often be killed or seriously harmed before cleanup efforts can begin.

Beyond recognizing that compensation for these environmental damages is available, the bill provides no details on how they will work in practice. This lack of guidance, I submit, makes it less likely that a government will try to recover compensation. At the very least, we need a regulation-making power so that some guidance can be provided, the holes can be filled in. I urge the government to consult publicly on such guidance.

Moving to the new recovery mechanisms, the bill does provide some new tools to respond to spills and to recover damages or expenses from polluters. The use of many of these tools is left to the discretion of the NEB. Many of the tools are also contingent on the polluting company being designated by cabinet. Designation is a discretionary decision that would allow the government to, for example, take over spill response or to appoint a specialized pipeline claims tribunal to decide claims for compensation.

Staying with that pipeline claims tribunal for a few seconds, it is worth noting that any awards the tribunal makes appear to be paid directly out of taxpayer money, presumably to ensure that victims are compensated in a timely manner.

Where taxpayer funds are used to compensate victims of the spill, the NEB has the option to try to get this money back from the polluter. If the polluter doesn't have enough money to pay, then they can also try to get it back from a broader subset of the pipeline industry through various fees and levies. Again, these tools are discretionary. The NEB doesn't have to use them, and this is concerning.

In keeping with the polluter pays principle, the NEB should be required to use any and all available tools to make sure that taxpayers aren't left footing the bill for the cost of a pipeline spill. This is particularly the case given that Bill C-46, in the context of this bill's claims tribunal, contemplates non-Canadians seeking compensation before it. Obviously, exposing Canadian taxpayers to that kind of financial risk is not acceptable.

To sum up, the bill does represent a move toward a polluter might pay model, but the shortcomings of the bill still leave Canadians exposed to an unacceptable portion of the financial risks of a pipeline spill.

Those are my remarks, subject to any questions. Thank you for the opportunity to speak today.

[The Vice-Chair, NDP, Guy Caron]

Thank you very much, Mr. Miron.

We now move to Mr. Blakely, representing Canada's Building Trades Unions.

[Robert Blakely, Canadian Operating Officer, Canada's Building Trades Unions]

Mr. Chairman and members of the committee, thank you very much for the opportunity.

I suppose it's pretty obvious why I'm here. We build pipelines. We're interested in building them. But there's a lot more to the pipeline business for us than a couple of jobs putting some sticks of pipe in the ground.

A pipeline is an infrastructure link. It's a utility in effect, which links the upstream, the downstream, and the eventual place in which the extracted material is processed. For us, it means linking thousands of high-paid, high-skilled jobs in, say, Fort McMurray, with thousands of high-paid, high-skilled jobs in Quebec City, if energy east goes through, or in Saint John. We're really interested in this bill.

A failure to build pipelines has a net restraining effect on the industries that depend on it. If you don't have a pipeline, you can't stack up natural gas or oil or something else, in the hopes that somebody will find a way to get it to market. Pipelines are, and remain, the safest means of transporting hydrocarbons.

I don't want you to take my remarks to be a suggestion to just build them because that would be great for us. The truth is, we live here. The railroads that occasionally takes oil through the centre of most towns in the west—I'm from the Prairies—go through the centre of our communities. These are our jobs, but we're not prepared to sell out the environment for the sake of a couple of paycheques.

When I looked at the bill, I looked at it like you would look at a collective agreement. When you vote on a collective agreement, you vote on a number of things that are in there. There are some things I really like; there are some things I'm okay with, and there are other things that I thought maybe could be clarified a bit. At the end of the day, and on balance, what is being proposed here is at least a reasonable compromise that may well serve us in the long-term future.

Do some of the provisions require some clarity? I'm a lawyer, so I love to read this sort of stuff. I don't see an enormous issue of principle between the parties. I think the issues here are about deconflicting, enhancing, and otherwise looking at this body of amendments and trying to move it forward.

I have some suggestions. First of all, there are a number of provisions that require the National Energy Board, should it so choose, to do some things. One is to always use the best technology available. We agree. You should use the best technology to build the stuff, but the National Energy Board shouldn't specify what that technology is.

Furthermore, we agree and would support the National Energy Board being resourced appropriately to get the right people to do the right things at the right time.

With regard to the provisions that would allow the National Energy Board essentially to take command and control of an incident, I looked at that and thought about it for a while. In one of my other lives I was a naval officer. It is difficult to imagine sometimes, when you're sitting at a desk in an office a long ways away from the guy who's standing there with water coming down in a number of places, how much more difficult it is to make the right decision for the people who are on the scene.

To some degree, the pipeline operators may be in a better position to make decisions than the National Energy Board. Having said that, there should be a provision for the National Energy Board to be able to step in if people are not appropriately dealing with issues.

On the issue of absolute liability, the $1 billion, I don't see in there the removal of the common-law right to sue beyond the absolute limit based on fault or whatever else.

We're supportive of the polluter pays principle, and perhaps some of the discretionary things that are within the bill are appropriate in the circumstances. Sometimes we need to rely on people like the National Energy Board to make reasonable and rationed decisions, and we need to give them some discretion to do that. A suit of clothes that fits you perfectly before you gain 10 pounds needs to be let out occasionally. Maybe the National Energy Board can be the tailor for that.

Those are my remarks. I'll answer questions you may have.

[The Vice-Chair, NDP, Guy Caron]

Thank you very much, Mr. Blakely.

We'll finish with Mr. Jim Donihee from the Canadian Energy Pipeline Association for seven minutes.

Mr. Donihee.

[Jim Donihee]

Mr. Chair, thank you for providing me with this opportunity to share some remarks with you.

Mr. Chairman and members of the committee, thank you very much.

My name is Jim Donihee. I'm the chief operating officer and the acting chief executive officer for the Canadian Energy Pipeline Association. I thank you for the opportunity to present some remarks.

First I'll give you some background. CEPA operates 115,000 kilometres of transmission pipelines across Canada, much of which falls under the jurisdiction of the National Energy Board. Our members transport approximately 97% of all of the daily natural gas and onshore crude oil that is produced, and we have been bringing it to markets very safely for some 60 years. For example, in 2014 our members collectively transported over five trillion cubic feet of natural gas, and 1.2 billion barrels of liquid petroleum products. This represents approximately 23% of Canada's mercantile trade, and it makes an extremely significant contribution to the social fabric of our nation.

While our longstanding operational safety record of 99.9995% between 2002 and 2013 is truly exceptional, at the same time we recognize that it is not sufficient; it's not good enough. Our CEOs have publicly committed to zero incidents on pipelines, and we're very actively working to get there.

Bill C-46 as proposed certainly complements our industry's strong belief in the polluter pays principle, excellence in emergency response, pipeline safety, and environmental protection. For that reason, and to reassure Canadians that our industry is fully dedicated to a safe and socially responsible energy pipeline transmission industry, CEPA supports the proposed regulation.

Our members are focused first and foremost on pipeline safety and the prevention of all incidents throughout the entire life cycle of pipelines. This continuous focus on safety saw us invest over $1.4 billion in 2013 alone, in order to ensure the safety of these pipelines. We're working aggressively through our program entitled CEPA integrity first, a management systems approach that is addressing critical priorities in pipeline operations, commencing with pipeline integrity and control room management. The integrity first program, patterned after the responsible care initiative of the chemical industry, will drive significant performance throughout our industry based on our sincere desire to exceed regulatory compliance.

This year as well, CEPA will take a big step forward by committing to conducting a safety culture survey of its entire membership in order to ensure that we focus on the human dynamic that is also so absolutely critical to excellence in performance.

We are actively participating in the development of standards, and these standards, constructed largely by the Canadian Standards Association, apply to our operations throughout the design, construction, operation, and eventual retirement of the pipelines that we have the privilege of stewarding.

The best available technology is absolutely key to the way our industry functions. Through initiatives such as the Canadian Pipeline Technology Collaborative, which is a new initiative being formed, we seek to leverage new technologies through academic institutions and in collaboration with many government partners.

I think it's important to take a look at the commitments that our industry has made in recent times. First, for example, is the mutual emergency assistance agreement, the MEAA, that was first exercised in 2014 and that clearly recognizes in this day and age that any incident of a pipeline company is everybody's incident. This MEAA will seek to harness, and does harness, the resources of all of our members in order to respond in the most effective and immediate manner to any incident that might emerge.

Along with the MEAA, CEPA's members have adopted an incident command system common to all. It reflects interoperability and enhances interoperability among all of our members.

Transparency is absolutely key to earning and sustaining the trust of Canadians. To that end we've undertaken the formulation of a task force that is addressing the common template that will make available to all Canadians every bit of information that we can in order to earn their trust, while withholding only such information that is critical to privacy considerations and the security of critical infrastructure. That information is always made available to all emergency responders.

We've heard the comments by Mr. Blakely about the NEB and we believe strongly that the oversight that we receive from a competent regulator is vital to Canada's national interests. We are well served by having a strong regulator that is capable of providing timely, science-based, and fact-based consideration of our projects.

With that in mind, especially in consideration of the new powers and authorities that the NEB will be adopting through this bill, we believe that it's incredibly important for the NEB to receive the levels of funding and the flexibility of using those funds that are necessary to ensure that it can attract and retain expertise critical to being able to fulfill its mandate.

Our member companies have an exceptional track record with a very low frequency of incidents. They believe strongly in the polluter pays principle and have always ensured appropriate restoration of the environment without any financial consequence borne by the public, including considerations for loss of use. CEPA members are dedicated to the commitment of this obligation through preparedness and response. They will ensure that they fulfill their obligations as reflected in this bill.

Notwithstanding CEPA's strict adherence to the polluter pays principle, and our strong response capabilities, we are supportive of the proposed legislation that sets out liability and compensation requirements for companies operating crude oil pipelines.

As I seek to conclude, Mr. Chair, I would offer the following recommendations for this very positive step forward.

Regulatory requirements that originate from the bill should be risk-based and respond to the proven safety record that the transmission pipeline industry has demonstrated.

The federal government should continue to explore opportunities to support multi-sectoral initiatives, such as the CPTC, which will identify, develop, and implement advanced science and technology. The Canadian Standards Association remains an extremely effective body for the development of standards. We collaborate routinely and press the envelope forward to develop these standards.

We absolutely respect the role of the NEB and believe it to be vital to the good functioning of a highly responsible industry on behalf of Canadians. We believe that the NEB requires the funding that it needs and the flexibility of employing that funding to meet the obligations that you will offer to it through the approval of this bill.

With that, Mr. Chair, I'd like to conclude my comments and thank you for the opportunity to present some comments to you. The Canadian energy pipeline industry is an industry that has a proven, long-standing track record and one that Canadians should be proud of. We look forward to making a continued contribution to the success of our nation for many years to come.

Thank you.

[The Vice-Chair, NDP, Guy Caron]

Thank you very much, Mr. Donihee.

We now move to questions from committee members. We will start with a seven-minute round.

We start with Mrs. Perkins, followed by Ms. Duncan and Mr. Regan.

Mrs. Perkins, the floor is yours.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you very much, Mr. Chair.

I'd first like to thank all of you for making your presentations today. It's always very interesting for us to hear all the different points of view.

Also, particularly to Mr. Donihee, regarding the report that you've generated, I think we need to congratulate the industry on the success rate we've had. You have been very diligent. A 99.9% approval rating in terms of no spills has been quite remarkable.

I suppose the first question then needs to be about when things of this nature do happen. Mr. Donihee, how do people who are affected by an incident currently seek compensation? What process do you have in place and what's your part in that?

[Jim Donihee]

The question is for me?

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

How do you guys get involved in a spill?

[Jim Donihee]

Most directly at the moment, you would see that the National Energy Board plays a very strong role in supervising and monitoring the command and control system, the incident command system, that the companies would bring to bear. As I mentioned in my remarks, companies have responded very effectively over time, and, quite honestly, their chequebooks come out and they look to respond immediately to the immediate concerns of directly impacted individuals. They'll honour them with hotels. They'll look after all their immediate costs, and as I indicated, they'll certainly look after loss of use and the reparation of any damages that have been experienced by them as well.

We see the proposed legislation as providing a much more deliberate mechanism through which those who are affected would be able to engage with the NEB or, ultimately, a tribunal to ensure that their needs have been addressed.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

You gave us a number of recommendations at the end of your presentation, the first of which was that “Regulatory requirements that originate from the bill should be risk-based and respond to the proven safety record that the transmission pipeline industry has demonstrated.”

Would you like to elaborate for us on what you actually mean by the words “risk-based?”

[Jim Donihee]

As we see it, much of the discussion could potentially evolve into a conversation focused on consequence alone, rather than on the likelihood of any of these occurrences. In no way would we wish to dismiss the necessary considerations for financial liability and any costs that would come from those. I think it is also important to recognize all the provisions I discussed in terms of the increases in technology, the incredibly strong track record, the strength and reputation of these companies, and their very sincere desire to make sure they do the right thing in the event that any incident ever occurs. Thus, likelihood as well as consequence are key when considering the kinds of monies that must be set aside in order to ensure immediate response, so that we don't strand the resources, so to speak, when the likelihood of any occurrence is extremely remote.

In no way does that consideration diminish the commitment of these companies to ensure that they respond entirely adequately to all costs and all obligations they would incur.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

Thank you very much.

Mr. Blakely, you've had an interesting life in the navy and now in the pipeline—

[Robert Blakely]

I started as a pipefitter.

[Pat Perkins, Conservative, Whitby—Oshawa, ON]

You started as a pipefitter—how awesome. It's all come full circle then.

I would like to explore some of the comments you made with respect to the NEB's role in all of this. You're saying that perhaps the wording in the document is a little bit too prescriptive. Do I have that correct?

[Robert Blakely]

Let me take a pace back from that. The NEB needs to be resourced and it needs to be able to deal with issues when it needs to deal with them. If the NEB is required to perform a mandatory function, it should be resourced and equipped to do that. If it has some discretion, the discretion should be clearly articulated and the reason for the discretion needs to be somewhat articulated.

If you have a tribunal that has no discretion, or if its entire discretion is “give me the baby or cut the baby in half”, it's a bad tribunal. It needs to have the ability to make creative and facilitative decisions.