Federal government halves proposed emergency fund for pipeline spills

The federal government is reducing the size of a proposed emergency fund pipeline operators would be required to have on hand to deal with short-term costs of incidents such as spills.

Natural Resources Canada says the fund proposed under its new Pipeline Safety Act would bring down the minimum amount of "readily available" money to at least five per cent of a company's liability from the 10 per cent originally proposed when consultations on the act began more than a year ago.

If adopted, regulations would require a large company with capacity to transport at least 250,000 barrels of oil per day to demonstrate it can cover cleanup bills of $1 billion. The "readily available" fund requirement at five per cent would thus be $50 million, versus $100 million at 10 per cent.

No such fund was required under previous pipeline rules.

The federal department said the reduction, which was published as part of draft regulations last Saturday in the Canada Gazette, would be sufficient based on the costs of previous pipeline spills.

It cited the two largest spills in Canada between 2007 and 2014 that cost $137 million and $42 million, respectively, to clean up.

Environmentalists' concerns

But Daniel Cayley-Daoust, an energy and climate campaigner for the Council of Canadians, says the department should also consider damage from spills outside Canada, pointing out that Calgary-based Enbridge has estimated US$1.2 billion in cleanup costs from its 2010 pipeline oil spill into the Kalamazoo River in Michigan.

"We need to take a look at all of the data out there and make sure we have a complete picture," he said.

Program manager Patrick DeRochie of Environmental Defence said in an email the reduction is a "weakening" of financial safeguards for pipeline spill response and "raises questions about the oil industry's power in Ottawa."

A spokesperson for Natural Resources Canada said it's not the case that financial safeguards are being weakened because the proposed fund would be in addition to current requirements pipeline companies face.

"This is not a reduction in the size of financial requirements," Danica Vaillancourt said in an email. "In fact, these regulations would impose new financial requirements to ensure pipeline companies are financially prepared to cover the costs related to an incident."

Industry response

Chris Bloomer, president and chief executive of the Canadian Energy Pipeline Association, said the new pipeline act's requirement for proof of a company's financial strength is supported by industry.

"The updated percentage more accurately reflects the ready cash required to initiate response, and in no way reduces the ultimate liability of operating companies," he said in an email.

Spokesmen for TransCanada and Enbridge said the large pipeline companies have more than enough financial strength to satisfy the proposed regulations at either percentage.

The proposed regulations would require smaller oil pipeline companies to cover an absolute liability of either $200 million or $300 million, depending on the size of their pipeline network.

The absolute liability limit is the sum for which the pipeline company is responsible regardless of the cause of the incident. It's designed to ensure cleanup proceeds as quickly as possible without delays caused by wrangling over who will pay for what.

The regulations are in a 30-day discussion period. They are expected to be finalized and implemented early next year.