On February 5, 2013, the Report of the Commissioner of the Environment and Sustainable Development, prepared on behalf of the Auditor General of Canada, was released to the public. While the report considered a number of topics, those of primary interest to the marine industry are: (1) The management of the environmental risks and impacts associated with offshore oil and gas activities in the Atlantic; (2) Financial assurances for environmental risks in the offshore oil and gas and marine transportation sectors; and (3) The establishment and management of marine protected areas.
The release of the report coincides with Transport Canada's announcement, made a day earlier, that it shall commission a comprehensive risk assessment study on the readiness to respond to oil and chemical spills from vessels and handling facilities in Canadian waters.
The government's reaction to the report and this Transport Canada announcement lead us to believe that Canada is about to accelerate the review of its global marine environment protection and indemnity regimes,1 and this could have an impact on the way business is conducted in the future.
Atlantic offshore oil and gas activities
Offshore oil and gas activities in the Atlantic are regulated by the Canada-Newfoundland and Labrador Offshore Petroleum Board and the Canada-Nova Scotia Offshore Petroleum Board (Boards), being joint federal-provincial boards. Although offshore operators are obliged to respond in the event of a pollution incident, if the operator cannot or will not respond, then the Boards may lead the response. This led the auditors to consider whether the Boards, along with other federal departments, are appropriately managing the environmental risks and impacts associated with offshore oil and gas activities.
The auditors expressed a concern that in light of the response plans and mechanisms for coordination currently in place, in the event of a major oil spill the federal entities that may contribute to a response effort are not adequately prepared. Consequently, a number of the report's recommendations focused on preparation for such an eventuality. The Boards, and the federal departments involved in the audit, agreed with the auditors' recommendations.
Financial assurances for environmental risks
As matters currently stand, the report estimates that environmental financial assurances produced by owners, operators or licence holders, namely letters of credit, trust funds, guarantees and insurance provided by the operator or responsible entity, held by federal entities total approximately $11.6 billion. Integral to the notion of protecting the public finances, and which affects the scope of financial assurance, is the extent to which the liability of owners or operators is limited by law.
Offshore Oil and Gas Sector
The audit considered the current limits of liability,2 noting that the current limits have been in place for 24 years, and, when compared with other jurisdictions such as the United States, Norway and Greenland, are considered "low." The auditors further determined that Natural Resources Canada (NRC) is currently reviewing the liability regime applicable to Canada's offshore oil and gas activities, including the limits of absolute liability. In light of the foregoing, the report's recommendation is that NRC should complete its review and "recommend the revision of these limits, as necessary, to reflect the nature and significance of the potential risks." NRC agreed with the report's recommendation and undertook to complete its review as a matter of priority.
Maritime Transportation Sector
The auditors considered the current system whereby Canada manages its exposure to the financial impacts of marine spills and damage through a "four-tiered system...to a maximum of $1.3 billion per incident" comprising a combination of shipowner insurance, a domestic fund, international conventions and protocols.3 The auditors noted that Transport Canada (TC) was active in monitoring and participating in the maritime liability and compensation system; however, with respect to spill response capacities there were no formal processes for ensuring the risks would be reassessed on an ongoing basis. The auditors were concerned that the projected volume of traffic and the increased tonnage of the vessels trading in Canadian waters represent a significant increase from the previous levels that were utilized to determine the current oil spill response capacity. Furthermore, in the course of the audit, TC acknowledged that there is a risk, in the event of a ship-source oil pollution incident, that current maritime liability limits and compensation regimes may not be sufficient.
As a result of the audit, the report recommends that TC should carry out a comprehensive review of the maritime transportation liability and compensation system, which should take into consideration the limited response capacities and the projected increase in vessel size. TC agreed with the recommendation, and will conduct a comprehensive review of the liability and compensation regime, including a risk assessment, to be completed by the fall of 2013.
To that end, TC announced on February 4, 2013, that, in collaboration with the Canadian Coast Guard and Environment Canada, it is commissioning a pan-Canadian risk assessment study on readiness to respond to marine pollution spills in Canadian waters. The study will analyze and evaluate the risk of oil or chemical spills occurring in Canadian waters as a result of incidents involving ships or oil handling facilities and will focus on different types of incidents including collisions, fire, explosions, structural failure and loading/off-loading operations.
Marine protected areas
As a signatory to the United Nations Convention on Biological Diversity, Canada agreed to an international target of conserving 10 percent of marine areas by 2020 through networks of marine protected areas (MPAs) and other conservation measures. Fisheries and Oceans Canada, Parks Canada and Environment Canada are the three federal authorities with specific, complementary mandates to establish and manage MPAs in Canada's oceans and Great Lakes.
The MPAs created by Parks Canada do not allow for extraction of or exploration for non-renewable resources, such as oil and gas. MPAs established by Fisheries and Oceans Canada, on the other hand, can allow for both non-renewable and renewable resource extraction.
The report notes that little progress has been made towards establishing a national network of MPAs, which, to date, cover an estimated 1 percent of Canada's marine environment,4 and considers this an issue that will need to be addressed. The report also acknowledges the complexity of the issue and the importance of consulting with all stakeholders. While Fisheries and Oceans Canada and Parks Canada appear committed to accelerating the pace of establishing a network of MPAs, it remains to be seen how they will do so.
Reaction from government
In the House of Commons, the prime minister confirmed the government's intention to enhance environmental protection measures to cope with the growth in resource development that the country is experiencing, while the minister of environment in a statement confirmed that the process to develop regulatory and legislative actions to provide the necessary protections, including addressing the financial assurances required of industry to ensure availability of sufficient funds in case of an environmental catastrophe, had already begun.
How quickly, however, the government proceeds remains to be seen, as the issues are complex, particularly on questions of preparedness and response. It is worth noting that already several federal agencies or departments have initiated or are about to initiate a series of reviews of the overall response capability and preparedness in respect of marine pollution arising from activities falling in their respective jurisdiction. Industry should take note and seize the opportunity of participating in these reviews to offer its experience and solutions.
1 In May 2010, the National Energy Board initiated its Arctic Offshore Drilling Review of the safety and environmental requirements for offshore drilling in Canada's Arctic environment. A report was released on December 15, 2011.
2 For the Arctic offshore area the limit is $40 million. Atlantic offshore operations are subject to a $30 million limit. Liability up to these limits is absolute, meaning fault is not required. In the event that a party responsible for a discharge is at fault, then that party's liability is unlimited.
3 The Civil Liability Convention, 1992, the International Oil Spill Compensation Fund Convention, 1992, the 1996 Protocol to Amend the International Oil Spill Compensation Fund Convention and Part VI of the Marine Liability Convention. Canada is also a party to the Bunkers Convention.
4 Australia has reported that it has protected about 10 percent of its marine environment and is proposing to expand its MPAs to cover 38 percent of its waters.
Norton Rose Group
Norton Rose Group is a leading international legal practice. We offer a full business law service to many of the world's pre-eminent financial institutions and corporations from offices in Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.
Knowing how our clients' businesses work and understanding what drives their industries is fundamental to us. Our lawyers share industry knowledge and sector expertise across borders, enabling us to support our clients anywhere in the world. We are strong in financial institutions; energy; infrastructure, mining and commodities; transport; technology and innovation; and pharmaceuticals and life sciences.
We have more than 2900 lawyers operating from 43 offices in Abu Dhabi, Almaty, Amsterdam, Athens, Bahrain, Bangkok, Beijing, Bogotá, Brisbane, Brussels, Calgary, Canberra, Cape Town, Caracas, Casablanca, Dubai, Durban, Frankfurt, Hamburg, Hong Kong, Johannesburg, London, Melbourne, Milan, Montréal, Moscow, Munich, Ottawa, Paris, Perth, Piraeus, Prague, Québec, Rome, Shanghai, Singapore, Sydney, Tokyo, Toronto and Warsaw; and from associate offices in Dar es Salaam, Ho Chi Minh City and Jakarta.
Norton Rose Group comprises Norton Rose LLP, Norton Rose Australia, Norton Rose Canada LLP, Norton Rose South Africa (incorporated as Deneys Reitz Inc), and their respective affiliates.
On January 1, 2012, Macleod Dixon joined Norton Rose Group adding strength and depth in Canada, Latin America and around the world. For more information please visit nortonrose.com.
Norton Rose will join forces with Fulbright & Jaworski L.L.P on June 1, 2013, creating Norton Rose Fulbright a global legal practice with significant depth of expertise across the USA, Europe, Asia, Australia, Canada, Africa, the Middle East, Latin America and Central Asia.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.