Scott Vaughan, Canada’s outgoing Commissioner of the Environment and Sustainable Development, has used his final report to Parliament to call attention to policies that limit the financial exposure of potential polluters.
In a report dated Fall 2012 but tabled in Parliament only this week, Mr. Vaughan addresses the liability limits enjoyed by the nuclear industry, the off-shore oil and gas industry, and those who ship oil by tanker.
The Commissioner points out that such limits, often set decades ago, bear little relation to the potential costs of an accident. For example, offshore oil and gas operations are protected by liability limits of up to $40 million – an amount that would be grossly insufficient to cover the costs of an accident such as the Deepwater Horizon oil spill, which has cost more than US $40 billion. The operators of Canada’s nuclear power plants enjoy a liability limit of $75 million – a figure that is dwarfed by the estimated costs of Japan’s Fukushima Daiichi accident, which range from US $15 billion to US $200 billion.
The Commissioner also notes that Canada’s limits are far lower than those in other countries. Offshore oil and gas liability limits are set at US $75 million in the United States and US $250 million in the United Kingdom. Liability for oil drilling accidents is unlimited in both Norway and Greenland. Likewise, nuclear operators’ liability for accidents is far higher in other countries. In Japan, liability is unlimited, and operators are required to carry $1.5 billion in insurance.
Limits on liability protect potential polluters at the expense of the environment and taxpayers. They are bad for the environment because they reduce incentives to improve safety practices, making accidents more likely. They are bad for taxpayers because, should an accident occur, they provide inadequate compensation for damages, leaving taxpayers (or uncompensated victims) holding the bag. In short, as the Commissioner explains, “Canadians are exposed to environmental risks and the financial implications that go with them.”
Mr. Vaughan recommends that Natural Resources Canada and Transport Canada review current liability regimes and propose higher limits as necessary. He reports that the departments agree with his recommendations.
But why stop at updating liability limits? Why not abolish such limits altogether, and require industries to obtain insurance commensurate with the risks their operations pose? A regime of unlimited liability backed by adequate financial assurances would produce invaluable information regarding the costs and risks of industrial activities, and help weed out those that carry inordinate risks.
Given the capital already invested on the promise of limited liability, it would not be feasible to eliminate all protections immediately. But the federal government should start phasing in higher liability caps and produce a firm schedule for their complete elimination. In the mean time, it should not in any way limit the financial exposure of players engaged in still unprotected activities, such as hydraulic fracturing for shale gas.
For more information on liability limits, see Encouraging Pollution: The Perils of Liability Limits, written for Environment Probe by University of Toronto law students Dyna Tuytel and Patrick Dyke.