Pollution Pocketbook #2: Determining when polluters should pay — “there’s no free lunch”

12 Aug Pollution Pocketbook #2: Determining when polluters should pay — “there’s no free lunch”

Pollution Pocketbook #2: Polluter Pays Principle –
Determining when polluters should pay — “there’s no free lunch”

Pollution pocketbook is a short blog series regarding how our laws and policies incorporate the polluter pays principle. See also Pollution Pocketbook #1.

How the polluter pays principle (PPP) is applied to oil and gas development in Alberta stands as a great example of the issues faced in realizing an effective PPP regime. Of late, the media has brought attention to the issue to orphaned, suspended and unreclaimed oil and gas well sites (for more information see the AER website).  A key policy concern with oil and gas reclamation and remediation is the timing of when the polluter pays to address environmental harm.

Ideally we should pay for our pollution so early that we are in the realm of pollution prevention rather than paying for the pollution we emit.   Spending on pollution abatement equipment to meet mandated emission standards avoids the various difficulties of a polluter pays system (i.e. the monitoring of pollution and the financial ability to pay, monitoring environmental effects, and the administration and enforcement of polluter payments). Pollution prevention is also often cheaper than paying to clean up our pollution and avoids other costs to the economy caused by pollution (which may not be picked up through a PPP regime).

A timely and effective polluter pays approach drives pollution prevention as well as the cost of emissions incents investment in emission avoidance.  A PPP operates best (in theory) at the time of pollution, but rarely does this occur.

Applying PPP promptly is beneficial as it can:

• Minimize costs to the polluter as increases in future remediation costs are avoided (both in terms of inflation and in terms of increased likelihood of more complex remediation);

• Minimize the risk to the public purse; if we don’t require immediate payment for pollution, an effective PPP approach will ensure there is financial security posted by the polluter to avoid the risk of general government revenue being used to address environmental harms;

If a polluter goes out of business due to insolvency other creditors may have priority over environmentally related claims pursued by government. According to the Parliamentary Budget Office in spring of 2015, the public liability related to Federal Contaminated Sites Inventory was $4.9 billion. $1.8 billion of this relates to five sites, three of which were formerly privately run mining operations.   (Remediation costs  – Colomac Mine – $91,867,521 to 2015, appears near completion – the company was reportedly required to post $1.5 million in financial security) , Faro Mine $200,669,106.62 to 2015 for ongoing  remediation, ~$30 million for care and maintenance, and Giant Mine $255,634,308.66 to 2015 for ongoing remediation, ~$15 million for care and maintenance)

Insufficient financial security to cover costs of remediation and insufficient monitoring and enforcement regarding releases can mean significant costs to taxpayers as well as significant delays in putting land back into use.

The issue of payment for remediating environmental damage was dealt with in the case of Nortel Networks Corporation (Re) (leave to SCC denied) which confirmed that remediation orders may be subjected to creditor priority (i.e. stayed) where the obligation “is in substance monetary and is in substance a provable claim” (at para 32).  This results in the environment being treated as any other creditor and may result in the costs of environmental harm being transferred (at least in part) to government .

• Minimize the risk to creditors; the earlier pollution is paid for the less likely there will be an impact on creditors if they are superceded by an environmental order in the case of insolvency (see discussion of Nortel).

• Minimize risks to executives and directors where environmental laws provide for pursuing orders against directors and officers of a company.

While prompt payment for remediating environmental harm mitigates financial risks there are economic and practical barriers to realizing a timely PPP system:

• Creditors are more willing to invest in ventures where a return will be realized prior to regulatory liability accruing to the operator. Similarly, a polluter may have the ability to pay later rather than earlier (having profited from the polluting activity).

• Remediation of contamination while operations are ongoing is typically impractical as it would require suspending many activities essential to production.

• “Pay as you emit” systems are rare and when used may incent jurisdiction shopping (where it is feasible) or may create a competitive disadvantage. This is a typical argument against new or different environmental regulations, although examples of the economic impact resulting from environmental regulation are not always evident.

• Environmental harms may not be immediately knowable. Managing cumulative effects and the need to identify all the relevant polluters and their relative environmental impact (both in isolation and cumulatively) challenges a polluter pays system.  A precautionary polluter pays system would target emissions regardless of provable harm and avoid questions of causation.

Several of these concerns (both positive and negative) apply to Alberta’s conventional and unconventional oil and gas industry.  The ELC (along with Ecojustice) has recommended pursuing a timely abandonment and reclamation approach (while maintaining suspended wells when justified) (See the ELC’s Reclaiming Tomorrow Today ).

Similarly, the timing and nature of reclamation of the oilsands is an ongoing concern, with significant uncertainty around how much tailings pollution will be addressed through a robust polluter pays approach (not to mention regulatory gaps in payment for air emissions resulting from operations).  The posting of financial security for reclamation and remediation of open pit mines is deferred, relying instead on the value of resources in place creating a level of financial risk.

Our laws typically focus on the assessed environmental risk associated with an activity (as well as ability to pay and related economic consequences) in determining when a polluter should pay.  We ask for financial security for activities that are likely to be higher cost or which have higher risk.  Other than that we typically rely on chasing polluters to pay for clean up.

Efficiency and certainty in applying a polluter pays systems is best served (assuming pollution prevention is not an option) by requiring:

1. sufficient financial security upfront, or
2. requiring payment for permitted emission at the time of pollution, and
3. having sufficient administrative capacity to monitor and promptly enforce against “accidental” or illegal emissions.

Failing to integrate this seemingly obvious approach to get polluter’s to pay risks a “dine and dash” by those who have sidled up to the resource buffet.

For more on this topic, see Micheal Hebert’s “Nortel Networks: Untidy Intersection of Environmental and Insolvency Laws or Head on Collision? and Diane Saxe’s “Perverse Abitibi test produces perverse results in Nortel, Northstar appeals”

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