A new report from the non-profit organization Environmental Defence reveals that despite making ample profits, Canada’s oil and gas companies are shirking at least $123 billion in environmental clean up costs.
Moreover, the report states that various levels of government have been unable or unwilling to force those companies to pay their fair share for cleaning up the damage they have caused.
Titled “Past Due: Tallying the Costs of Oil and Gas Cleanup in Canada,” the report finds that oil and gas sector profits are high enough that the companies could cover the costs of environmental remediation. If oil and gas production in Canada were to cease by 2029, fossil fuel producers would need to divert 37 per cent of their annual profits towards remediating their environmental liabilities.
Under a “status quo” model — in which oil and gas companies maintain current production levels until 2040 — they would need to divert 19 per cent of annual profits to cover the costs.
The $123 billion figure represents the costs of cleaning up oil and gas wells, oil sands mines and tailings ponds. Due to a lack of available data, other environmental liabilities, such as those caused by pipelines and production facilities, were not included in the report’s estimates. If those costs were included, the total liabilities would likely be much higher.
A 2018 news report indicated that the Alberta Energy Regulator (AER) had estimated in an internal presentation that the total clean up costs in that province alone could be up to $260 billion. The AER later described that figure as a “worst case scenario” before issuing an apology and floating an estimate of $58.7 billion instead.
Environmental Defence estimates that total cleanup costs could exceed $224 billion if fossil fuel production ends in 2040.
According to at least one analysis, the world’s fossil fuel companies are estimated to have made US$3 billion per day in profit over the last 50 years.
“We commissioned this report because we were interested in the question of mounting environmental liabilities in the face of decreasing oil and gas production,” said Julia Levin, associate director of national climate at Environmental Defence.
“We know that demand for Canada's oil and gas will start to fall this decade, and we also know the production must be phased out to avoid catastrophic climate change. We wanted to see whether current levels of profit could cover current and future environmental liabilities.”
Levin also explained that the report offers estimates concerning how much oil and gas production is left in Western Canada under various “fair share” scenarios for the world carbon budget. However, she warned that most analyses have determined that Canada has already exceeded its share.
As part of the report, Environmental Defence commissioned the Parkland Institute to explore three key questions, including: how much more oil and gas production is possible within climate-safe temperature limits?; what are the current and future costs of cleaning up the damages left behind by fossil fuel companies?; and how much profit will oil and gas companies generate?
“In light of Canada’s climate commitments, we wanted to find out the balance between how much Canada’s oil and gas industry has left to profit compared to the growing cost to clean up its mess,” said the Parkland Institute’s Megan Egler, who contributed research to the report. “There is a real lack of transparency around environmental liabilities in the industry, but all three scenarios we modelled tell us that companies need to be putting a lot more money toward cleanup.”
Adding to this problem is the fact that Environment and Climate Change Canada (ECCC) does not track the environmental liabilities of Canada’s major oil and gas companies.
Levin confirmed that the federal government lacks this capability, but also indicated that the provinces have not been forthcoming with the information either. She noted that while the Alberta Energy Regulator tracks these costs, there is very little transparency.
“For example, the researcher could not even find credible cost estimates for cleaning up oil refineries and pipelines,” said Levin.
Kaitlin Power, press secretary to ECCC Minister Steven Guilbeault, told The Maple that because the provinces and territories are responsible for natural resources, they would be in the best position to answer questions about the environmental liabilities of fossil fuel companies.
Power added that the federal government has put in place regulations on matters it can control, such as emissions, and is phasing out what the ministry deems to be inefficient subsidies for fossil fuel producers. She added that the government “is shifting the Canadian economy, but this switch can’t happen overnight.”
The promise to end “inefficient” subsidies dates back to 2009 and was reiterated in 2022. An assessment framework and guidelines to end the subsidies were issued by the federal government earlier this month. The arrangement appears to include loopholes and the continuation of other subsidies for industry-favoured decarbonization technologies, such as widely discredited carbon capture, sequestration and utilization (CCUS) schemes.
While there are mechanisms and methods in place that are designed to support a “polluter pays” principle, Levin argued that this simply isn’t happening in practice.
An example is Alberta’s Mine Financial Securities Program (AMFSP), which is the principle method by which the province collects funds for cleaning up mines when they reach the end of their productive life. Levin noted that the fund has been criticized by environmentalists and economists for years because it routinely underestimates the costs of cleanups.
The problem isn’t just a matter of oil and gas companies shirking their responsibilities, but of provincial governments failing to enforce existing rules and regulations.
A 2020 report from the International Institute for Sustainable Development indicated that Alberta’s fossil fuel sector owed $20 million in compensation to landowners and $173 million in unpaid municipal taxes.
In January 2022, the Parliamentary Budget Officer estimated that the total cumulative cost of orphan well clean ups nationwide was $361 million in 2020, a number that could rise to $1.1 billion by 2025.
Concerning Alberta’s rudderless orphan wells fund, Levin said “profitable companies are supposed to pay enough money into this program each year to cover all the orphan wells, and this isn't happening.”
Worse, while the federal government is looking to end its “inefficient” subsidies, the government of Alberta is pushing ahead with a new program to subsidize clean-up efforts.
“Using taxpayer funding for the cleanup of environmental liabilities is unnecessary and would be an inefficient subsidy to oil and gas corporations,” said Levin. “It’s also an irresponsible use of public dollars.”
Back in March, CBC News reported that the government of Alberta had not used $130 million in federal government funding earmarked for oil and gas well cleanup.
While matters pertaining to natural resources are doggedly protected areas of provincial jurisdiction, Levin said the federal government isn’t without options. “The federal government can tie sources of funding, for example, for climate action, to the implementation and enforcement of the collection of cleanup funds,” she explained.
However, in 2020, the federal government set aside $1.7 billion to subsidize the oil and gas sector’s environmental cleanup bill, which Levin described as “an incredibly inefficient subsidy that largely benefitted the largest, wealthiest oil and gas companies.”
Alienor Rougeot, Environmental Defence’s climate and energy program manager, echoed that statement, explaining that “oil and gas companies have a few years of profitable production left before they will need to phase out.”
She added: “governments must take immediate action to ensure oil and gas company profits go towards cleaning up the industry’s massive environmental liabilities, instead of enriching shareholders.”
Taylor C. Noakes is an independent journalist and public historian from Montreal.
Now, let's turn to the members' corner...
The fact that Canada's oil and gas producers are still dodging their clean-up responsibilities won't come as a surprise to anyone who follows this issue. Here's what else you need to know.