The Supreme Court of Canada is hearing a controversial case this week concerning who is responsible for cleaning up toxic industrial sites when a company goes bankrupt.
At stake is potentially billions of dollars in environmental clean-up costs. And entities ranging from governments to Canada’s big banks to oil and gas companies and farmers are all looking to ensure that they don’t end up on the hook for cleaning up toxic sites – many of them in remote rural and northern areas of the country.
The case itself focuses on a small Alberta oil company, Redwater Energy, which entered creditor protection in 2015. Only a few of the company’s assets had value, so the bank wanted to sell those wells to recover some of its debt and abandon the rest of the oil and gas sites. The question became whether Redwater’s assets should help pay its debts or be used to pay for the cleanup cost of its worthless oil and gas wells?
The case will address a fundamental public policy dilemma about what happens when a resource company bites the dust. For instance, every mine in the country has environmental regulations attached to its licence about reclaiming the site when the mine closes.
But if the company goes belly up, does the bank take over those end-of-life responsibilities? If not, is the site abandoned or do taxpayers pick up the hefty tab?
The question for the Government of Alberta and area farmers that had Redwater oil and gas wells on their land became whether Redwater’s assets should help pay its debts or be used to pay for the clean-up cost of its worthless and contaminated work sites?
The Supreme Court case addresses a fundamental public policy dilemma about what happens when a resource company fails. Every mine operation in Canada has environmental regulations attached to its licence about reclaiming the site when the mine closes. But if the company goes belly up, does the bank take over those end-of-life responsibilities? If not, is the site abandoned or do taxpayers pick up the hefty tab when the provincial government pays to clean it up? And how much cost should farmers and other landowners bare for clean-up and reclamation costs?
“We need to be able to ensure the people of Alberta, collectively, are protected,” Alberta Premier Rachel Notley told reporters earlier this week.
The Alberta Energy Regulator (AER) says there are approximately 1,800 abandoned oil and gas sites in that province alone and pegs the cost to remediate them at $8.6 billion.
If the Supreme Court sides with previous court rulings, the AER will likely respond by increasing the orphan levy imposed on well licensees. However, a portion of the expense will inevitably fall to the provincial government, and thus to taxpayers. But if the Supreme Court decides to reverse the decision, it will create hesitancy among lenders. Financial institutions will likely respond by tightening their purse strings as they begin pricing the risk into new loans made out to the industry.
This case has consequences that reach far beyond one small energy company. The Redwater case could act as precedent in other provinces. If the previous rulings are upheld, it will send a clear signal to natural resource companies’ creditors that bankrolling fossil fuel infrastructure, mining projects, and pulp and paper mills without accounting for clean-up costs is not only acceptable, but encouraged in a legal climate where the public—not the polluter—pays.
“The Redwater decision impacts Alberta’s constitutional right to manage its own resources,” said AER spokeswoman Cara Tobin, adding that “By rejecting the polluter pays principle that underlies virtually all of Alberta’s oil and gas legislation, it’s shifted liability from the polluter to innocent third parties and the public.”
The provincial governments of Ontario, which currently has about 2,400 oil and natural gas producing wells, along with British Columbia and Saskatchewan have also joined the Supreme Court Case, which will be heard in Ottawa this week. The Canadian Association of Petroleum Producers is also an intervener in the legal case.