Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 21 - Evidence - December 11, 2014
OTTAWA, Thursday, December 11, 2014
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day, at 8:02 a.m., to begin its consideration of Bill C-22, An Act respecting Canada's offshore oil and gas operations, enacting the Nuclear Liability and Compensation Act, repealing the Nuclear Liability Act and making consequential amendments to other Acts.
Senator Paul J. Massicotte (Deputy Chair) in the chair.
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The Deputy Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
My name is Paul Massicotte. I represent the province of Quebec, and I am the deputy chair of the committee. The chair, Senator Richard Neufeld, regrets not being able to be at today's meeting.
I want to welcome the honourable senators, members of the public in attendance and viewers watching us across the country. I want to remind our viewers that the committee meetings are open to the public and are also webcast on sen.parl.gc.ca. You will find more information on the schedule to hear witnesses on the same website, under the heading ''Senate committees.''
I would now like to ask the other senators to introduce themselves.
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Senator Mitchell: Grant Mitchell from Alberta.
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Senator Ringuette: Good morning. I am Pierrette Ringuette from New Brunswick.
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Senator Tannas: Scott Tannas from Alberta.
Senator Seidman: Judith Seidman from Montreal, Quebec.
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Senator Boisvenu: Good morning. I am Pierre-Hugues Boisvenu from Quebec.
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Senator Patterson: Dennis Patterson from Nunavut.
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The Deputy Chair: I would also like to introduce the members of our team. We have with us our clerk, Lynn Gordon, as well as our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
Today, we are beginning our hearings on Bill C-22, the Energy Safety and Security Act, which was read for the first time in the Senate on November 18, 2014.
As you probably know, this bill was amended, and the reprinted version, which was passed by the House of Commons, was produced on November 7, 2014.
Honourable senators, the clerk sent the new version of the bill to your offices, as well as the briefing book provided by Natural Resources Canada.
At this first meeting on the bill, it is my pleasure to welcome among us certain representatives who will provide us with information and answer our questions. I want to thank these witnesses for the understanding they have shown for the committee and the schedule changes. I also want to thank them for agreeing to meet with us early this morning.
Representing Natural Resources Canada today are the following individuals: Jeff Labonté, Director General, Energy Safety and Security Branch; Niall O'Dea, Director General, Electricity Resources Branch; Samuel Millar, Senior Director, Petroleum Resources Branch; and David McCauley, Director, Uranium and Radioactive Waste Division. From Justice Canada, we have with us Jean-François Roman, Counsel, Natural Resources Canada, and Norma Beech, Counsel, Natural Resources Canada. Joining us from the Department of Aboriginal Affairs and Northern Development is Michel Chénier, Director, Natural Resources and Environment Branch. Representing Environment Canada is Laura Farquharson, Executive Director, Legislative Governance, Legislative and Regulatory Affairs, Environment Stewardship Branch.
Mr. Labonté, it is my understanding that you would like to say a few words on behalf of the group. We will then move on to questions and answers. You have the floor.
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Jeff Labonté, Director General, Energy Safety and Security Branch, Energy Sector, Natural Resources Canada: Thank you, senators and guests, for the opportunity to have Natural Resources Canada, Justice Canada, Aboriginal Affairs and Northern Development, and Environment Canada join together today in speaking to you about Bill C-22, which affects the offshore petroleum sector in Canada, as well as the nuclear sector operating and generating electricity, and research and activities around nuclear facilities. It's a pleasure to be here and we look forward to addressing your questions to the best extent possible, and if you need follow-up we'll be happy to do that.
There is a short presentation in your briefing materials. I'll walk through and touch some highlights of those aspects, but before doing so would I like to open the conversation around underlining the importance of the natural resource sectors in Canada and how these sectors fundamentally support a significant part of our GDP, jobs and employment, and they stretch across the entire country and all regions in the country. Those impacts are felt directly in the extraction and development of the resources, as well as the service industries, the supporting financial industries and the industries that help sustain those employment opportunities to grow the economy of Canada. Certainly this act deals with a number of elements the industry directly, as well as those industries that service the offshore and the nuclear industry.
Briefly, slide 2 talks about background in the offshore. It's important to underline why I have so many colleagues at the table with us today. The Minister of Aboriginal Affairs and Northern Development shares the responsibility for the offshore with the Minister of Natural Resources in that the north of 60 offshore is the responsibility of AANDC, whereas NRCan looks after the rest of the country and the overall legal framework.
My colleagues from Environment Canada are here with respect to certain aspects of the bill, and our colleagues from Justice are part of the drafting and legislative team that worked on the bill.
I'd also underline that in the Atlantic area, both in Newfoundland and Labrador and in Nova Scotia, we share responsibility under terms of shared management under two accord acts and this piece of legislation was thus developed in collaboration with the two provinces. They have similar legislation that is working its way through their respective legislatures and, in fact, the legislation in Nova Scotia has already passed and received Royal Assent.
For things to work in Atlantic Canada, both Newfoundland and Labrador and Nova Scotia, there has to be a synergy between the federal and provincial legislation, and we can talk to that specifically.
Moving to slide 3 and the highlights of the bill, it focuses on Canada's offshore and nuclear industries. We'd like to ensure that Canada continues to have a world-class offshore regime that is accountable, responsive and transparent, and works to prevent incidents from occurring. At the same time, we want to have similar capabilities in Canada's world-class nuclear compensation regime, which holds operators accountable, and we certainly want to make sure that Canada is commensurate with our international peers and look globally at how we situate ourselves.
This particular piece of legislation, along with several others that are in progress in the house and the Senate, support the agenda to develop our resources responsibly and ensure that Canada has responsible resource development and a situated regulatory framework that enables that to occur.
I would underline, as well, that the offshore piece of the legislation addresses and is consistent with recommendations made by the Commissioner of the Environment and Sustainable Development, as well as this very Senate committee which examined the issue back in 2011.
I think I'll skip over the economic context. All I will underline is that it is significant to Newfoundland and Labrador, Nova Scotia and overall to Canada.
Looking at the key features for amendments for the offshore, it focuses on looking at improving accountability by making the polluter-pays principle explicit and reinforces unlimited liability for operators when at fault or negligent. It increases absolute liability, or no-fault liability, to $1 billion from $30 million in Atlantic Canada and $40 million in the North.
It allows that operators are liable for their contractors. It allows that governments are also able to seek compensation for environmental damages, consistent with other statutes in the environmental stream in which environmental damages are something that may be pursued should they be at risk or damaged in the event of an incident.
Finally, there's an element to allow Atlantic offshore boards to become designated as responsible authorities to perform duties under the Canadian Environmental Assessment Act, 2012.
We also made sure that the bill contains prevention elements of setting a minimum amount of financial responsibility that's commensurate with the absolute, and certainly providing the regulators the ability to have administrative monetary penalties and fines to get at things long before they become an incident or long before there's an issue that's of concern.
Finally, around transparency, there are a couple of important elements in the bill that I'll underline. They clarify the authority and the use of spill-treating agents in certain circumstances. They provide regulators direct access to a deposit of $100 million per project or a pooled fund, should operators wish to see that as an alternate compliance mechanism. It allows boards to make emergency and environmental plans public and to publish them on the web. It allows cost recovery to occur under statute and provides the authority to deal with resources that might look at, at least in the North, straddling two jurisdictions when a reservoir might split between an administrative boundary.
Looking at the nuclear side, there are similar elements of the bill, so there's, if you will, a synergy with some differences. The main element is to maintain exclusive and absolute liability for operators of nuclear facilities. There are a number of large facilities and a number of smaller facilities. We can speak to that, should there be questions. This will increase absolute liability to $1 billion in several steps over a period of three years and require that operators have a minimum of $1 billion dollars in insurance or financial security.
It maintains that the government provides coverage where there's no insurance or no possibility. There are extreme cases or some limited cases in which the government will provide indemnity. It also requires that the government review the amount of liability every five years.
We also provide, in the bill, for elements of response capability and what is required under the definition of ''damages.'' It clarifies the limit of the period for bodily injury. It provides again for compensation for environmental damages, should there be an incident that affects the environment. It creates a simplified claims-handling tribunal to manage the administration of how things may occur in the unlikely event of an incident.
Finally, the bill provides for Canada to ratify and join the Convention on Supplementary Compensation for Nuclear Damage, an international treaty that ensures the same protocol and standards and relationships for countries operating nuclear facilities. The convention also provides added protection to members of the convention.
In conclusion, to provide ample time for questions and comments, the government is committed to world-class liability and environmental protection for the offshore petroleum and nuclear sectors. The bill enhances incident prevention response and liability in both the nuclear and offshore petroleum sectors. It builds on the government's plan for responsible resource development to ensure that our energy resources are developed both safely and securely.
Thank you very much.
Senator Tannas: Good morning. We have a table here that was provided that talks about the current limits with respect to the nuclear sector. We are at the absolute bottom by a factor of about six times the next worst. Could you explain this? Is it because government essentially runs the nuclear industry in Canada and we didn't worry about it? How did we find ourselves this far behind? I'm glad that we're watching up, but what happened here?
Mr. Labonté: Perhaps I'll start and then I can turn to my colleagues. I guess the first thing would be that the current act was drafted in the early 1970s and came into force in 1976. This part of the bill has actually been through the house four times. It didn't make it through the process before Parliament prorogued, if I have the right terminology. It has actually been to committee twice before, so there have been several attempts to move this one along.
I think we recognize the current coverage is not adequate, and it's something that the government has tried to address on a number of occasions, and here we are to hopefully get it to the finish line.
Senator Tannas: You're saying that everybody jumped ahead of us in the last couple of years?
Mr. Labonté: I think there is a range globally in terms of how countries look at this, and it's partly structured by the industry, which operates those facilities. Perhaps my colleague can dive in on this point.
Senator Tannas: Who operates the facilities in Canada, to my earlier question?
Niall O'Dea, Director General, Electricity Resources Branch, Energy Sector, Natural Resources Canada: To address the question of who operates the facility, there are 19 operating nuclear power reactors in Canada, and those facilities are, in all cases, owned by Crown corporations. In one case, Bruce Power operates the Bruce Power facility, but it is still owned by OPG.
I think Jeff has largely covered the question of when the current liability limit was set and the attempts made to change it.
The only other point I think I would underline is that various countries have moved up their limits over time. When we move up the limit, or if we move up the limit, through this particular piece of legislation we will be in line with world-class levels of nuclear liability, in comparison with countries like the U.K., France, Spain and other European nations moving to a similar limit. It should be said that, depending on when and if this particular piece of legislation goes through, we will, in fact, be ahead of those countries in bringing up our limit to $1 billion.
Senator Tannas: The limits proposed on the offshore, would those be in any way aggregate or would they be per well site, per well head?
Mr. Labonté: They are per operator. So, if an operator has more than one site, they would have only one requirement for the $1 billion financial responsibility. However, there is only one instance where that would be the case, and it's in two different jurisdictions at present.
Senator Mitchell: Thanks very much for your presentation and for the briefing that you gave me as critic of the bill the other day. It was really excellent and I appreciated it.
Could you address the issue or the provision whereby the minister can reduce the cap? I think it's on the offshore case under certain circumstances. Tell us why that is.
Mr. Labonté: Sure. I'll start, and perhaps I can turn to my colleague and he might be able to fill in.
There is provision in the bill that provides for the Minister of Natural Resources and the provincial minister, because it's a shared management jurisdictional issue, in certain circumstances to reduce the amount of the absolute liability requirement. He or she may do so under the recommendation of the offshore board. So the independent offshore board can look at a circumstance through an application by an operator, where there is demonstrably lower risk to the particular project and make a recommendation to the minister. For the requirement to be lessened, both ministers, provincial and federal, must be in agreement.
If your next question is about an example of what might be a demonstrably lower risk, the example that is most possible, although not specific in terms of one that's been evaluated, is that in the Atlantic offshore in Nova Scotia, there are a number of gas wells in the Sable Island area. Some of those wells produce enough gas for it to be economic. Some of those gas wells are particularly small. Their risk to the environment is less than, for example, an oil project or a new project. They've been operating for several decades. The circumstances around the geology and the production are well understood, and the environmental risks are seen to be lower in some instances.
I'm not an expert, so I would say this could be an example where there may be a significant consideration of these things, but, again, we would wait to hear from the offshore board to look at that and make a determination, and that would be put forward for the minister to make a decision.
Senator Mitchell: In the U.S. case, on the same chart that Senator Tannas referred to, it looks like the cap is $1 billion to $12.2 billion. I thought it was at $10 billion. Why the difference?
Mr. Labonté: I just want to verify the chart.
Senator Mitchell: Total limit in millions of dollars. In any event there is a cap, and the U.S. cap is quite a bit higher than the Canadian cap.
Mr. Labonté: For nuclear, just to separate the two things.
Senator Mitchell: All right. I understand that distinction.
Why is it that we're phasing in the nuclear if it is government anyway?
Mr. O'Dea: The reason to phase in the nuclear is that this is government, but it's also about the capacity of the insurance markets to provide the level of insurance that is required. By providing the three-year phase-in period that runs from $650 million at entry into force to $1 billion at year three, we provide an opportunity for the insurance markets to realign to provide the level of capacity to the Canadian operators that is required to cover that risk.
Senator Mitchell: Okay. Thank you.
Senator Seidman: I'd like to ask you some questions about the response capabilities, the readiness plans and things of that nature.
You refer to response plan changes here, and it's very evident that there are many departments involved — witness all of the department people here today, three or four departments — plus there will be provincial governments. My question to you is: Who is in charge in the case of a spill or a serious situation?
Mr. Labonté: I'll take that on. I think the first order of priority and interest is that if there is a spill, the operator of the facility is the primary point of responsibility. The operator has a legal duty and is required to clean up and deal with the incident. The offshore board's responsibility as the primary government entity, if I can call it as such, is to monitor and assess whether or not and how the response is happening, that it's happening as the plan requires, and in a way that's being handled appropriately. So the primary responsibility belongs to the operator.
I'll give you an instance where that is slightly different. In the instance that there is human life at risk, there is a response capability designated to the Canadian Coast Guard. If there were lives at risk and the safety and security of human beings was at play, the operator has a responsibility, but the government capacity, through the Coast Guard, steps in and does search and rescue to manage the situation with human life. But if your instance was an oil spill, for example, the Coast Guard is not responsible for dealing with that; it's the operator.
That is the distinction between a spill clean-up scenario and a situation of human life at risk.
Senator Seidman: But you're talking about responsibility. I understand that. I'm asking, who is in charge? Who is the commander-in-chief?
You have so many different decisions to make across so many aspects involving so many different departments. We've seen this over and over again in crises with spills in the gulf, for example. Who is in charge? Who makes the decisions? The company might be responsible, but if they don't act quickly enough, if they don't deal with issues, who is in charge? Who says, ''Okay, company, you have to deal with this right now?''
Mr. Labonté: Let me walk through it. In the instance of a spill, the company is the primary responsible party. The board oversees and manages to assess the capability and response. Should the board determine that the company is not acting in a way that's appropriate, they're overwhelmed, it's beyond their ability to deal with the issue, it is pretty extreme because the company has their own resources. Companies have contracted resources certified by Transport Canada that have spill-response capabilities and they have international agreements with other parties. So it's a layering of how companies deal with their responsibility.
The regulator, the offshore board in this instance, would then oversee and determine the response that's happening.
In the event of what I think you're saying, which is that the company is not on first and not dealing with the issue in the best way that they can, it is the offshore board that is responsible and they coordinate and marshal other federal resources. I can ask Sam to speak to this.
We test this on an annual basis. We run exercises, do tabletops and learn from not-real situations on how things might happen should it ever have to happen.
Perhaps we can speak to one the examples we've run in the last year and how the coordination happens between the offshore board and the Government of Canada here in Ottawa, as well as our regional resources, whether they're in St. John's, Halifax or elsewhere.
Senator Seidman: I'd really appreciate you speaking about your readiness practices. That's always critical. Specifically, under the key features of the amendments, you mention establishing authority to manage resources that straddle two or more administrative areas. We're probably speaking about this kind of situation.
Samuel Millar, Senior Director, Petroleum Resources Branch, Energy Sector, Natural Resources Canada: One of the key recommendations and insights coming out of the Commissioner of the Environment incident we were involved in supporting in 2012 was around emergency response and the general coordination and responsibilities in this area.
As Jeff mentioned, we have simulations on an annual basis, bringing together all of the different parties that have a responsibility in this area, including the operators, by the way. We also involve industry in those simulations.
Through those exercises it's very clear that, as Jeff said, the operator is responsible in the first instance to respond and to clean up in the event of a spill under the supervision of the board.
One of the things we've done very actively over the past couple of years is working with the three offshore regulators — the National Energy Board, the Canada-Nova Scotia Offshore Petroleum Board and the Canada-Newfoundland and Labrador Offshore Petroleum Board —to build up their relationships with federal departments and agencies so that they have the ability to draw on organizations such as Environment Canada, the Department of Fisheries and Oceans, and the Coast Guard, to pull in those resources from those federal entities to support and supplement their role of overseeing the operators and responding to an incident.
That's something that has really taken form and supplements the kinds of capacities that you see in the legislation.
One thing that we should mention at this point is around the $100 million deposit or $250 million fund, which would be monies available on demand to the responsible regulator should there be a spill, should they need to intervene more directly, such as in the instance where an operator is not actively responding to the spill in a timely manner. That's another response mechanism embedded within the legislation, which we feel will enhance the overall ability to respond effectively to a worst-case scenario.
Senator Ringuette: I look at the data in regard to the operator insurance portion and so forth that you've provided us. I'm surprised France is not in there. France is a major operator in the nuclear world, so why is it not part of this data that you have?
Mr. O'Dea: It's there.
Senator Ringuette: I didn't see it. So, in France the nuclear industry is a Crown corporation. What you're saying here is that through the international agreements France is okay with the liability insurance it has?
Mr. O'Dea: I'm happy to address that question.
Each country establishes liability limits for nuclear operators within its own jurisdiction. In this instance, there is a global move towards an international standard of $1 billion in absolute —
Senator Ringuette: There is an international agreement in regard to this issue, or is there not?
Mr. O'Dea: There is not an international agreement that specifically prescribes a level of insurance coverage, but there are international best practices that emanate from the NEA and the IAEA that countries are moving to adopt. In this construct, this is where France, the U.K., Spain and other European countries are moving towards that $1 billion limit in the same sense that we are.
Senator Ringuette: I'm from New Brunswick and we have Point Lepreau operated by NB Power, which is a Crown corporation.
This $1 billion insurance requirement, it would be the same thing for Hydro One and the province of Ontario. It's the same situation. And in Quebec, I think the nuclear facility is being closed down, if I'm correct.
Mr. O'Dea: That's correct.
Senator Ringuette: Okay, my coffee level is not too bad then.
So, in the case of a Crown corporation, you're looking at all the taxpayers of that given province, essentially, that will have to provide this $1 billion in liability. What would be the cost of that? Certainly you have a notion of what the market cost of $1 billion in insurance would be for a nuclear facility. What would be the cost of that?
Mr. O'Dea: I'm happy to speak to that. Our understanding, from consulting with the nuclear insurers, is that moving from this current $75 million limit to the $1 billion limit at the end of three years following entry into force will raise the cost of premiums to the operators of nuclear installations from about five to eight times.
Just to give you it in exact terms, currently nuclear operators pay between $800,000 and $1.2 million annually for their insurance coverage. We would be looking at that rising to between $6 million and $10 million annually for that $1 billion in insurance coverage.
We've also looked at how that works through to the ratepayer, understanding that these are Crown corporations that need to carry this insurance. Based on a 1,000-kilowatt-hour average household, the pass through of cost to the consumer on an annual basis is expected to be in the range of $2 annually.
Senator Ringuette: So, there's no international agreement that provides for the requirement of this legislation. You're asking the citizens of New Brunswick to go from an insurance premium of $1.2 million to $10 million, and it's okay. All of a sudden the citizens of New Brunswick will have to pay $9 million more a year to a private entity. Citizens of New Brunswick are responsible citizens, as is the government of New Brunswick, whatever political party it would be. They would do any kind of cleanup necessary.
Now, if you look at the additional $9 million in cost, let's say over 10 years, okay? It's $90 million. There's scale and scope and the issue of reasonability in regard to the nuclear industry.
I find that this is grossly exaggerated to impose that kind of additional cost on citizens from New Brunswick who would do the cleanup anyway. This is a lot of money for a small province like New Brunswick. You're saying it's an average cost of an additional $2 per annually. I don't think that would be the issue in New Brunswick, that's for sure.
All of your legislation relies on the responsibility and the operator having to provide this insurance policy. I've looked into the tender call through MERX for the new operator contract to manage Chalk River, and nowhere in that tender call is there a need to provide $1 billion in insurance.
Gentlemen, from my perspective, there are many reasons why this bill should really go through a very rigorous review. I'm not sure that the Government of New Brunswick or the Government of Ontario would agree to such an additional cost on a yearly basis as would be required through this legislation.
The Deputy Chair: Mr. Labonté, I think the question Senator Ringuette is posing is that the cost seems to be significant, let's say for New Brunswick. Is her opinion accurate? Second, the Chalk River facility, the tender document does not include a liability requirement. Do you have any knowledge of that, and do you want to comment and clarify those two issues?
Mr. Labonté: There's a lot, I think, in your comments. Perhaps we start high and go lower, and I'll lean on my colleagues to deal with some of the specifics. I appreciate the clarification comments as well, Mr. Chair.
First, the bill has been thoroughly examined. I should let you know as an assurance, we have been through the house with the bill. This part of the bill has actually been examined twice by the house committee. It has been consulted broadly within the community of insurers, operators, our provincial colleagues, other players and even internationally.
I recognize there are costs in the bill, should the particular operators choose to exercise their requirement through insurance. The bill also provides that there may be financial guarantees made by the provincial government, for example, which means the insurance costs could be lowered so that it doesn't necessarily all have to happen through insurance. In fact, the bill provides for, I think, only half being met by insurance and that the other half has to be through assets, other fiscal securities and even other guarantees from the provincial government.
The operator in New Brunswick, Ontario or Quebec, wherever they might be, may choose to exercise what they pull together to make the $1 billion requirement in a way that's most cost effective. So, insurance is one aspect. It's not necessarily the only aspect, but I understand your point. Anything that goes into the cost structure of having ratepayers pay more is something the government needs to be sensitive too, as would all Canadians.
That said, I think the data shows that we are definitely at the bottom of the scale internationally. The question then becomes where we situate ourselves and how we structure the financial requirements around that.
On the call for bids related to AECL, there will be a requirement for the operator of that particular facility to have insurance.
The law here provides for setting in regulation a series of classes of nuclear facilities. The requirement for AECL will not be the $1 billion requirement. Those are generally for nuclear reactors that produce electricity. There's a schema that will reduce the amount. My colleagues will be able to speak to that more definitively. It is a requirement, but it won't be at the $1 billion level. That is probably the quickest answer to the question.
Mr. O'Dea: Perhaps I can add a few points to offer further reassurance. One, it's important to note that this component of the legislation was discussed in significant detail with the provinces that have nuclear power plants operating, New Brunswick included, and is supported by them.
In terms of the level of insurance required, when I had cited the number of $6 million to $10 million for the new liability limits, that's based on a multi-reactor design. Plants in Ontario have between four, six and eight nuclear power reactors on a given site. The Point Lepreau reactor is a single reactor, so its insurance costs would actually be lower than that in accordance with that one reactor it has on site.
The final point I would make is that I noted each country sets its own liability regimes based on international best practices. However, for us to exceed to the convention on supplementary compensation for nuclear damage, this international best practice of $1 billion is something that we need to inscribe into our national legislation in order to allow us to accede to that particular convention, which provides us additional coverage in the Canadian context, and clarity on the rules of coverage if a nuclear accident has transboundary or transport implications.
Senator Ringuette: Thank you for your answer. Chair, I want to make an official request that every provincial owner and operator of a nuclear facility be invited in front of this committee.
The Deputy Chair: Well noted.
Senator Patterson: By the way, I think the bill is welcome overall.
I was interested in the sections adding the use of oil spill-treating agents for oil and gas. Could you elaborate whether those agents are already used for treating oil spills? Could you explain how they work, please?
Mr. Labonté: Okay. I'll start with that and, if necessary, draw on my colleagues. That's the benefit of having a team.
Currently, spill-treating agents are not permissible for use in Canada. The bill provides that there can be the use of spill-treating agents when there's a proven net environmental benefit. That's the test in the legislation. There's a series of steps put in place in the legislation that make sure the context around the net environmental benefit and the responsibilities are in their appropriate place.
If I could explain, the bill provides that the Minister of the Environment, based on science and research and their findings, establishes in regulation a list of spill-treating agents that may be permissible for use in Canada when there's a net environmental benefit. So the Minister of the Environment would have to designate what potential agents could be used.
The next consideration would be that an operator operating a facility can consider the use of a spill-treating agent in their planning, and would have to demonstrate and develop a plan on how and when they would use the spill-treating agent, and whether there was a net environmental benefit to demonstrate what circumstances would be present. They make application to the offshore board, which is independent of the government, to provide for whether or not they believe that the spill-treating agent's use would be appropriate in the circumstances presented. The board would have to approve that plan. The plan would then be ready to go in the instance of an incident.
It then requires that should there be an incident and the company wishes to use the spill-treating agent, the offshore board's conservation officer must verify and then approve the use of the agent as per the plan. They would have to validate that the circumstances were present as predicted or forecasted, and that there would be belief there was a net environmental benefit.
Those are the series of steps and the context around how the bill would provide for spill-treating agents to be used.
Senator Patterson: May I ask one more?
The Deputy Chair: Yes, please go ahead.
Senator Patterson: I hope that can be done in a short time, but that's not really my supplementary question unless you want to comment on it.
I wanted to ask about whether consideration was given in the drafting of this legislation to allow the burning of oil. Do other countries allow this? If they do, why not Canada?
Mr. Labonté: Perhaps I'll ask my colleagues to comment.
Michel Chénier, Director, Natural Resources and Environment Branch, Aboriginal Affairs and Northern Development Canada: Thank you, senator, for your question. In the context of the northern operations, burning has been experimented in the last decades, in the 1980s, to be specific.
The potential burning of accumulated oil following a spill is an option that may exist. It could be put forward as part of a management plan, and it is part of the tool kit that's available to address potential spills. That said, it is a particular technique and a process that would undergo regulatory review and would be then included in the proponent's management plans associated to a particular activity.
Senator Patterson: So, it's not prohibited? It's allowed under a controlled or regulated process under this legislation?
Mr. Chénier: That's right. There's no particular prohibition. That said, each management plan is subject to its own review, and there would be a demonstration that it could be done appropriately and would be the most appropriate means of dealing with a particular situation at hand.
Senator Patterson: Thank you.
Senator MacDonald: Good morning, everybody. I'm going to change tack here a little bit. I want to speak about Canada-Nova Scotia offshore agreement, some of the provisions and the changes made there.
Under Bill C-22, Parts V and VI of the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act are going to be repealed. I'm wondering if you can tell us why this is so.
Mr. Labonté: Can I just check and validate?
The Deputy Chair: I'm surprised you don't know the whole binder by heart. I'm disappointed.
Mr. Labonté: Perhaps if you give us a second, we'll verify that particular section and then get back to you on that particular point. If that's okay, we'll keep going.
Senator MacDonald: Yes, let me just keep going.
Mr. Labonté: Sure.
Senator MacDonald: This was a big issue in Nova Scotia a few years ago, the implementation of the act, so that's why I find it so interesting.
The fiscal equalization offset payment regime is being changed. It's not going to be any longer than necessary. I'm curious why it is no longer necessary. Could you explain that?
Mr. Labonté: The quick answer is that it expired and the arrangements have changed so the elements that were contained in the act are, if you will, out of date, and so the arrangements for fiscal equalization with Nova Scotia were re-established a number of years ago. There's a dangling thread here in the act that existed from 25 years ago, which is being eliminated.
Mr. Millar: Just to supplement, at the time when the Atlantic accords were signed with the provinces of Newfoundland and Labrador and Nova Scotia, the federal equalization formula was such that increases in royalties to provincial governments, which are in effect the consequence of the accord acts for production. The federal government collects the royalties and then transfers the two provincial governments. Those resulted in a reduction, essentially $1 for $1, in the federal transfers for equalization to those two provinces.
When the accord acts were first devised, of course, that was a scenario the federal and provincial governments wished to avoid, which was why in those accord acts there was an equalization offset to protect against the transfers of the royalties from the production of offshore petroleum.
This is really a responsibility of the Minister of Finance, so I can't be precise about the details, but in recent years the federal equalization formula has changed across the board such that now royalties from natural resources, including from offshore oil production, are treated differently than they were in the 1980s.
At this time, therefore, transfers for royalties from offshore petroleum production do not result in a one-for-one reduction in federal equalization. Consequently, the offset productions, in addition to the fact that the agreements were time limited, are no longer necessary to the same extent that they once were.
Senator MacDonald: The development fund that existed on the accord, that's no longer needed. Can you explain why?
Mr. Millar: Yes, the development fund was set up initially to invest in the industry and to, in a sense, kick-start the industry in those two offshore areas. The federal commitment under those requirements was fully acquitted, and that's the main reason why those obligations to report on activities against the development fund are being repealed from the legislation.
Senator MacDonald: The Crown share adjustment, that was a big issue back in about 2007-08 here in Ottawa. I remember the history of this, back in the 1980s when the accord was first drawn up. There was a provision for a one- time payout for the Crown's share. Part of the provision, of course, was that Nova Scotia would relinquish its claim to the offshore.
In that regard, because I've never really fully understood this, could you describe the differences between the existing and proposed method of determining the per capita fiscal capacity of Nova Scotia and the national average per capita fiscal capacity? What's the new method being proposed? This has always been a big, publicly confusing thing in Nova Scotia.
Mr. Millar: This legislative project does not directly change the Crown share calculation. That issue really, from the perspective of the federal and provincial governments, is well articulated in the regulations.
We implement the regulations on an annual basis in terms of calculating the Crown share payment to the province. That process has been working very smoothly over the last number of years in terms of calculating the payment, seeking the provincial endorsement of that and making that transfer on a regular basis.
Senator MacDonald: That one-time Crown share payment, it was a one-time payout?
Mr. Labonté: It's not one time; it's an annual payment.
Senator MacDonald: Yes, but the one-time agreement and the annual payment, is there an end point to it?
Mr. Labonté: I don't believe there's an end point, although it is tied partly to the amount produced and to the amount of activity going on in Nova Scotia.
Senator MacDonald: Thank you, chair.
The Deputy Chair: Thank you. Before we proceed to the second round, I thought, if you don't mind, this is our first session with this bill.
[Traduction]
To make this meeting more educational —
[Français]
— maybe more informative. I'll make a couple of comments, and just confirm for me whether my understanding is accurate.
This bill basically increases — I think we often talk about insurance — two things. It amends the contractual laws relative to liability limits from, often, $75 million to $1 billion, and it also requires a financial comfort relative to the capacity of offshore operators and nuclear operators to pay up to $1 billion. Is that accurate?
Mr. Labonté: That's correct.
The Deputy Chair: Okay. It does many things, but then it goes on to say that for the offshore extractive industry, the oil and gas industry, it basically says, irrespective of your responsibility, you are first responsible to absorb up to $1 billion of damages incurred from your operation, irrespective of whether you're the cause of it or not. Then it also says to those people, meanwhile, if the damages exceed $1 billion, you will pay whatever it costs; is that correct?
Mr. Labonté: That's correct.
The Deputy Chair: Relative to the nuclear industry, it says you will be held liable irrespective of your responsibility up to $1 billion, but it maximizes that liability at $1 billion, even if the damages are $5 billion to $10 billion; is that also accurate?
Mr. Labonté: That's correct.
The Deputy Chair: What it also says is, meanwhile, you have to give the Government of Canada comfort that you have the ability to pay those sums.
Mr. Labonté: Correct.
The Deputy Chair: So you have a $1 billion requirement for financial assurance. Half of that can be by way of insurance, the other half has to be by corporate covenant or some type of corporate guarantee somehow. Is that accurate?
Mr. Labonté: That's correct.
The Deputy Chair: Now, the simple question is, why 50 per cent? Where did that come from?
Mr. O'Dea: I can turn to my colleague David McCauley for the specifics. My understanding is it's a relatively arbitrary distinction.
David McCauley, Director, Uranium and Radioactive Waste Division, Energy Sector, Natural Resources Canada: That's correct. There was a recognition that we wanted to phase in and give alternatives to the operators in terms of their financial security for the reasons that Senator Ringuette indicated. Consequently, we wanted to only allow a certain percentage of the financial security to be provided through an alternative financial scheme.
The Deputy Chair: If the insurance company is Lloyd's of London, why not 100 per cent there? Their guarantee is pretty good.
Mr. McCauley: The idea was that, in recognition that there are premiums that are associated with the private insurance, operators argued in other sectors they had cheaper avenues for financial security.
The Deputy Chair: But let them choose. Why would you impose?
Mr. McCauley: No, we are allowing them to choose up to 50 per cent.
The Deputy Chair: But why not 100 per cent? If it's easier for them to do so, rather than use their financial resources, why wouldn't you permit Lloyd's of London to insure 100 per cent of the $1 billion?
Mr. McCauley: I guess there's recognition that it's important for Canada to maintain an insurance-pooling system to provide coverage for all operators, including those operators that may not have access to alternative financial security.
The Deputy Chair: Let's go to Senator Ringuette's example. The way you responded to her was to say, yes, but the province does not need to provide insurance. They can assume that liability directly and not incur any insurance fees. In other words, I'm not so sure the residents of that province will have increased utility costs. I guess that's your answer.
Currently that utility has a liability limit of $75 million and that will increase to $1 billion. While your answer is technically accurate, if there is an accident the citizens of that province will incur significant greater damage than they would under this one. So they may not be insured, but they are assuming personally, if you wish, that province, that risk; is that accurate?
Mr. Labonté: That's accurate.
The Deputy Chair: Okay.
Mr. Labonté: Irrespective of the choice of the operator or the province, or Crown that's responsible and the instrument they choose, the liability exists, is what I think you're saying.
The Deputy Chair: The other issue is absolute liability, which I understand. I think I know the answer, but let me ask the obvious question. The operator is responsible irrespective of who is responsible.
In contractual law, as you know, it's very clear: you're responsible for damages you incur. But if you're not responsible for the damages incurred, because of some backhoe, whatever, or somebody made a mistake, where does that come from? It probably comes internationally, where I suppose the argument would be that it's pretty hard for them not to be responsible, given it's offshore or nuclear and they have the expertise. Second, to protect the public, you don't want to wait years for the courts to determine who is responsible for the damages. Is that why we have this concept of absolute liability?
Mr. Labonté: It's correct. My Justice colleagues will give it better justice than I, but the quick answer is by the very fact that the industrial facility exists, it creates a risk. The operator of that facility, thus, accepts the risk associated with it and the liability, which is deemed absolute liability.
In your example of the backhoe operator, if a backhoe operator damaged the facility or a boat bumped into it, if you will, it is the owner of the facility who is responsible. They can choose, after the fact, to pursue the owner of the boat or the backhoe operator to recover their damages that they incurred, but they will be 100 per cent absolutely liable for that amount up to the $1 billion.
The Deputy Chair: Why a max on nuclear?
Mr. Labonté: That's a good question. The nuclear industry is fairly small globally in terms of comparators to other things. ''Small'' from a number of players and number of installations, if you will, compared to oil and gas, for example. So there is a finite, if you will, market for insurance and a finite world of understanding how the liability works.
In the instance globally, you generally find Crown ownership/government intervention at some point in the nuclear world. The U.S. might be the outlier on that particular front. If we put the context together, it's generally consistent internationally that there is a limit, if you will, to the liability in the nuclear industry.
The Deputy Chair: I appreciate that. I can understand that, but all that means, though, you say it's a Crown. Irrespective if it's a Crown or not, that means somebody who will suffer damages, possibly exceeding $1 billion, will not get paid. It could be individuals suffering health issues. It could be neighbours suffering property damage. That really means that if you look at the allocation of responsibility, somebody at the end of the line may not get paid because of that imposed liability limit. Is that accurate?
Mr. Labonté: That outcome could happen. I think the bill provides for protection against that in one way. If there is an incident that is expected to exceed the $1 billion, the bill requires the Minister of Natural Resources to return to the house to specify the expected cost of the incident and for it to be debated in Parliament. It is the circumstance of an individual, a company, a group of people who might be impacted by a particular incident would be debated in Parliament.
The Deputy Chair: Does he choose to do so, or is it automatic?
Mr. Labonté: It's automatic.
The Deputy Chair: I have a couple of information questions again. You said the operator will suffer the damages, but he has a right to seek damages, however it occurs. How does that process work? I think I know the answer, but if you go through the courts it will take years. So those suffering damages will not get paid. Those suits will take years, but I gather we have an exception in this case to allocate and resolve those issues more quickly. Could you describe that for the public?
Mr. Labonté: That's what the absolute liability does. For example, if ExxonMobil has an incident that was $500 million, heaven forbid, they would pay out the $500 million worth of damages to all the parties that would be due compensation.
Generally, the company would create the means by establishing what that would be and, if necessary, the courts could be drawn upon to deal with the incident. After the fact, after they're paid the $500 million, they're free to pursue whoever might be responsible through the courts and, if that takes a decade, two years, five years, 10 years, so be it. But the $500 million is paid out by ExxonMobil.
The Deputy Chair: Paragraph 2.1.11.6 in the legislative summary of Bill C-22 makes it very clear. You have no due diligence argument. You're responsible, period.
Mr. Labonté: You're responsible, period. It's a responsibility for any third party who might have something.
The Deputy Chair: On the equalization payments, Senator MacDonald asked a question. As you know, the equalization is a very difficult agreement; some resource revenues are included and some are excluded. Electricity is treated differently, but the bottom line is you make amendments to that agreement. Does that mean those revenues are included or excluded in the calculation?
Mr. Labonté: To make to clear, there is nothing in the bill that would affect equalization payments to any province. The amendments in here are removing out-of-date provisions from the mid-1980s that no longer apply.
The Deputy Chair: The bill also talks about reciprocating countries, reciprocating agreements. Can you describe what that pertains to?
Mr. Labonté: Reciprocating?
The Deputy Chair: Within countries.
Mr. Labonté: Is that on the nuclear side?
The Deputy Chair: Yes, it's on the nuclear side.
Mr. Labonté: That would be under the supplemental compensation. So Canada would accede to a treaty which has a number of member countries and it's agreed that should there be an incident of a very significant nature, a country who is a member of the agreement may ask all the other members to provide additional resources to deal with the incident. It provides for Canada to seek up to $400 million or $500 million of additional compensation above and beyond our billion dollars. It also requires that if another country calls on us to contribute due to the nature of an incident in their country, then we need to contribute.
The Deputy Chair: That was the information session.
[Traduction]
Senator Boisvenu: I have a bit of an issue with the translation of the bill's title. Unlike the English version, the French title does not include the notion of ''offshore.'' Does this apply to all types of exploitation in Canada, both offshore, at sea, and inland?
Jean-François Roman, Counsel, Natural Resources Canada, Legal Services, Justice Canada: What title are you referring to?
Senator Boisvenu: The title of Bill C-22. In French, the title is ''Loi concernant les opérations pétrolières au Canada''. Does this mean that, if the exploitation is taking place in Quebec, in French, the legislation applies to inland oil, and if it is in English Canada, it applies to offshore drilling? I think the title lacks clarity.
The Deputy Chair: This suggests that Quebec —
Senator Boisvenu: It also suggests that this concerns the transport of oil by pipeline, ship or rail.
Mr. Roman: Regarding the transport of oil by pipeline, Bill C-46, which was introduced on Monday, makes changes to the pipeline liability regime, as set out in part 1 of the bill. I am referring more to the short title than the long one. The amendments to the Canada Oil and Gas Operations Act apply to offshore activities, especially off the coasts of Northwest Territories, Nunavut and Yukon. Part of the legislation also applies to lands. The amendments ensure the liability regime that applies to activities in the territories is not affected. That is why a distinction is made in the English title where the liability threshold is increased, but only in terms of offshore liability.
Senator Boisvenu: Explain to me why the French title does not include a translation of the term ''offshore.''
The Deputy Chair: It is not really clear. The English title is very clear. Most people reading the title don't have a technical response in terms of inland jurisdiction.
Senator Boisvenu: I will leave you with those thoughts.
The Deputy Chair: We will proceed accordingly.
[Français]
Senator Seidman: There are a couple of things I would like to clear up and both have been approached. One was a question from me, which I don't think we finished answering, and the other was by Senator Patterson.
If I could go back to the readiness practice, Mr. Labonté made reference to us discussing exactly what occurred in a readiness practice, and I don't think I really heard that. I was going to get an example of a readiness practice and how it actually plays out on the ground, perhaps with particular reference to a spill. Second, I'd like to elaborate a little more on Senator Patterson's question about the additional provisions now providing for spill-treating agents.
Could you bring those two pieces together, tell me about a practice you had and exactly how that happened on the ground, with particular reference using a practice around a spill-treating agent that would have to be used?
Mr. Labonté: The first thing would be drawing a distinction between a tabletop exercise, as they're referred to, in which there is a simulation where all the actors and players are advised and pulled together on April 12, for example. There will be a simulation exercise. No one knows what the exercise will be, except that there will be an exercise.
We will hire a facilitator and a group of experts, and they will inject a scenario: They will report to the board that there's been an incident in project White Rose in which there was a crash into the platform and there is a fire. That is all that's put into the injection, and what will happen is the board will immediately issue an alert. They'll contact Ottawa, explain what's going on and that they're investigating. It will simulate through a day.
An hour later, the facilitator would provide an update. It's known that two people lost their lives, the fire is out, but it's unknown whether there's been a spill. It happens over time as if time occurs, so new information is provided. All the actors are now acting as if there is a real scenario and everyone is beginning to marshal what they would do, how they would deal with it, what steps they would take, what communications would happen and who would authorize what to happen when. These are tabletop exercises.
There are also more live exercises where people will physically move resources and move beyond the tabletop conference room scenario in which there would be a scenario developed with the day chosen, things would exercise. They would actually marshal resources to move from A to B to simulate what would be going on. They can be as significant as moving people to hospitals and dealing with how things would happen. We haven't held one of those here.
That's generally the way that they work. I could ask my colleague to walk through, in even more detail, how we do one of those. We've held one recently.
Senator Seidman: No, I think that's extremely helpful. I appreciate that very much, and that does answer my question.
I would like to go back to the use of spill-treating agents, because there are new sections added in this bill around that. I'm not sure if I remember correctly your response to my colleague, but are chemical dispersants exempt from absolute liability? Does the bill make chemical dispersants exempt from absolute liability?
Mr. Labonté: There are elements of the bill that exempt any response from being exempt from absolute liability.
To put the scenario into play, if company A owns a platform and had an incident, company A is liable to $1 billion and, if at fault, unlimited. If they're unable to respond in the way that is expected and the board takes over, which is in the law, they would contract resources to deal with the incident and they end up causing harm or damage in doing the response, it is still company A who owns the platform who is responsible. If I hired you to help clean up, because the owner of the platform was unable, you would be exempt, if you will.
Senator Seidman: Okay.
Mr. Labonté: Similarly, if we asked a party to do the same thing using spill-treating agents, the same would apply. So the company who owns the platform would not be exempt if they used the spill-treating agent. If I had a third party responding because we took over, because your scenario talks about response beyond the company, they would be exempt. That's the differentiation.
Senator Seidman: That is very helpful. There isn't a lot of scientific research and evidence about chemical dispersants, it seems. At least that's the general understanding, as I've read it, and especially its impact when used in Arctic waters.
I think there is some provision in this bill maybe around regulations about the science behind chemical dispersants. That might still have to be dealt with, but how exactly is that going to happen? If it's not clear as to how the chemical dispersants will react in Arctic waters, how will you provide for a fast science to ensure you're not creating more damage in using chemical dispersants that won't do well in Arctic waters?
Mr. Labonté: There is a bunch in that that I will try to address and then will lean on my colleagues. Environment Canada is here because they actually own this part of the bill, if you will, and the responsibility behind it.
By design, the bill was built such that Environment Canada would hold authority over the spill-treating agent aspect. It separated the environment and energy ministers' responsibility so there would be no appearance of the energy minister being enthusiastic about something that may not be — that's an important policy distinction.
To your question about the Arctic, the body of research and science on spill-treating agents is clear that they can provide a net environmental benefit, but it's clear that circumstances need to be present. With every growing example that exists globally and the research community continues to research, we learn more and new evidence appears.
In Canada's case, in the Arctic, one the largest offshore operations in the world is in the northern part of Norway, offshore Norway and Northern U.K., where you find similar cold water and salt water experiences. They also have research and the same aspects of spill-treating agents being part of the tool kit. It's not an unknown, although it's not completely 100 per cent known. That's, I think, an important element.
I'll turn to my Environment colleague here, but I'll make reference to your point as well. There is a provision in here that allows research to occur that would protect some of the research from some of the provisions on spill-treating agents, recognizing that we can't completely understand how they fully operate without doing the research. To do that kind of research we actually have to spill oil in the water. It's not a particularly popular undertaking, so there is a very limited scope and set of criteria in which, if we're going to do those things — and we do them, that being Canada generally, and researchers around the world — then we have to take precautions. The law has to provide for it such that we don't harm those trying to advance the science and at the same time not tie things into knots.
Perhaps Laura can jump in here.
Laura Farquharson, Executive Director, Legislative Governance, Legislative and Regulatory Affairs, Environmental Stewardship Branch, Environment Canada: There are a number of measures in this bill to try to make sure that spill- treating agents are used. The net environmental benefit is the test that underlies all of this.
The first is the regulation creating the list of spill-treating agents. As Jeff said, that's the Minister of the Environment's responsibility. There would be a rigorous process to determine which spill-treating agents would be acceptable for use in Canada, and that would take advantage of what research already exists, as well as possibly conducting research within Environment Canada on the spill-treating agents using internationally recognized test standards and being in contact with and gathering data from other international bodies, such as the Environmental Protection Agency in the United States and other similar agencies.
As well, before that list is finalized, there would be a chance for consultation. That's the sort of first step in making sure we are identifying the right agents.
Then, in terms of the actual response situation, at the time of a spill the major test is the net environmental benefit. At that time you are addressing the roles of the various departments.
Environment Canada has a 24/7 hotline where either operators or the board can contact Environment Canada for scientific and technical advice about things as wide-ranging as about weather situations, weather conditions, to what the behaviour of the oil might be, the trajectory and the environmental priorities that might exist. They can gather together what's called a science table of all the relevant expertise from across government to provide input into that response.
Together that's what we can do to make sure we're using them responsibly.
Senator Seidman: Thank you very much. That helps.
Senator Ringuette: I want to go back to the nuclear issue. In case of an incident under this new legislation, who would be the entity that would establish who can ask for compensation and how much that compensation will be?
Mr. Labonté: I'll turn to my colleagues to speak to that. The bill provides for a tribunal that could be established in the event of an incident.
Senator Ringuette: Is that ''could'' or ''must''?
Mr. Labonté: I think it depends on the severity of the incident. If the incident is of a large nature then it is to be established, but I'll turn to my colleagues.
Mr. O'Dea: In the first instance, operators are responsible for the handling of claims with respect to damages from a nuclear incident. Those claims-handling services would be provided by their insurers. Our intent is to have a system where there would be common claims-handling undertaken by the insurers to ensure that there's prompt assessment of insurance claims that are made and prompt issuance of compensation on that basis.
As my colleague pointed to, in instances where it is deemed that the scale of the incident is such that a more efficient claims-handling protocol would be required to handle the scale of claims that would come in, if it is in the public interest the minister may recommend to the Governor-in-Council that a tribunal be established in order to handle claims. On that basis, the claims-handling would then be taken by the federal government and managed accordingly.
I'll turn to my colleague Mr. McCauley for any additional detail he would like to provide on that particular point.
Mr. McCauley: I really don't have much to add. I think you've covered it quite clearly. The only element is that in the event that the claimant was unsatisfied with the way that the operators and the insurers were dealing with the claim, they would always have recourse to the courts until such time as the government would establish a tribunal.
Senator Ringuette: So there's no benchmark in regard to the establishment of a tribunal. People would have to go to courts against Lloyd's of London, probably, which is one of the entities that could be an insurer. I don't understand. I find that there should be a benchmark, or there should be a tribunal in any case of an incident in regard to offshore and nuclear.
You're creating a grey zone where there shouldn't be a grey zone. Legislation is made to put the issues at rest and make sure that every entity or every stakeholder knows where they stand.
I think that either we have a tribunal or we don't, because the other consequences of that, not only is it not clear, it will also affect the premium that is going to be asked of these owner-operators.
The Deputy Chair: Could you clarify the question she's asking? Given the response you gave, it gives us the impression that one must use the core process, which is usually several years to get a result. Is that the case?
Mr. Labonté: Under the act, the insurance policy, should the operators choose to have insurance, must be approved by the minister. The insurance policy provides that the operator and the insurance provider must have a claims- handling process, one that provides for every citizen who might be impacted and every business to be impacted in a timely way that wouldn't require years' worth of court proceedings. The court is the option, should they feel they're unsatisfied with the result that they might get from a claims-handling process by the insurers.
There's the recourse to the court option, which always exists should it be the case. If the incident is significant enough that it warrants the government's consideration of creating a tribunal, which is a quasi-judicial body, then the government would establish a quasi-judicial body and, again, claimants would be provided for and would be handled in a way that's efficient and would be just.
The Chair: Explain this: The claims process that you're referring to, to answer the question, it gives the impression that the operator could say, ''Of course, our accounts payable department will look after this.'' I'm sure that's not the right answer. Could you describe a bit more what you mean by that?
Mr. Labonté: Sure. The insurance policy provides that if there is an incident that the insurance company and the operator set up a process by which people would say ''I've been harmed. Here's the situation: my home is no longer livable.'' It's difficult without describing an incident to kind of walk through so let me explain one.
Imagine, heaven forbid, there was a release at a particular facility. That release required evacuation of an area and there would be then follow-up sampling to ensure the area was managed appropriately.
If you were impacted by that, the policy would require that you would be able to submit a claim to the operator and their insurance. They would evaluate the claim and provide compensation to you should it be appropriate. If you weren't satisfied with that, you may choose to go to the court system to say, no, you disagree with the assessment and you should be provided further compensation of this nature for these reasons.
It's in every interest of the operators to ensure that they behave appropriately and that they respond to claims. I think we're talking about something here in which it's difficult to be very clear because the scenario and examples are very difficult to envisage. However, the law provides here for the first part, as well as recourse to the court, and then a more substantive part in the event that there is a much more significant incident in which a tribunal would do so.
Senator Ringuette: Chair, I guess we've come to the issue of the word ''significant.'' Significant for one person can be x number of dollars, but significant for another person could be x plus y. Please clarify ''significant'' in the legislation — what do you mean by ''significant''? Again, I'm saying, that will have an impact on the process, that will have an impact also on the time that a tribunal will handle the issue, and that will have an impact also on the premiums that the owner-operators will have to pay.
It's one thing to say ''significant,'' but there has to be a trigger, and you have to define ''significant'' not only within this legislation, but for all the stakeholders. What is ''significant''? What does it mean? Define it. That's one issue.
I want to go to the issue of nuclear waste. We have a federal entity that receives funds from all the nuclear facilities in Canada in order to manage nuclear waste. It's a federal entity. I can't remember the name, but I think it's the nuclear waste commission.
Will that commission be required to have liability insurance of $1 billion dollars for nuclear waste handling? I guess that additional cost will be spread out from them to all the operators, so that's an additional cost to all these operators and it's mandatory. Then there's also the issue of the transportation from and to sites of this nuclear waste.
I can't remember if it's this commission that is responsible for the transportation of on-site operation to a site of waste. Where will the responsibility lie in regard to the transportation?
The Deputy Chair: The question is obvious. She's worried about that link. Who is responsible for that? Could you respond to her questions?
Mr. Labonté: I think the first question is around the word ''significant.'' It's not defined in the act because it's very difficult to predetermine what would be significant. As you point out, significant to one may not be significant to another. I think there's a broad understanding that we need to appreciate what the circumstances are and the circumstances are not necessarily the same, nor do they have the same aspect. The law provides for it to be covered and it provides safety mechanisms to cover it in a broader way. It's the way that it's laid out.
The second question was around waste management. There is an act that requires the operators to create the structured managed waste in the longer term. It's not a federal organization. It's been an organization that's created by —
Senator Ringuette: It's a federal commission, is it not?
Mr. O'Dea: No. The Nuclear Waste Management Organization was established pursuant to the Nuclear Waste Act, but it is operator established. It's required to be established by statute, but it's required of the operators to establish it, so it is actually a creature of the operators.
It is undertaking a very long-term process to identify a long-term facility for the storage of nuclear fuel waste. They're working towards a 2035 commissioning date for that facility. It should be said that that facility will bear an insurance cost that will accord with the risks that are related to the handling of nuclear liability.
Senator Ringuette: Within this legislation? Because they are a nuclear operator.
Mr. O'Dea: Yes, that's right. Under the terms of this legislation, the insurance that that facility would need to bear would be set out.
Mr. Labonté: If I could add to that, just for a second. Maybe it's important to point out that the legislation provides the liability requirements of nuclear facilities. There is a range of different facilities we have in Canada — from a reactor, which is the most significant facility, to long-term research reactors in several universities that really focus on slow reactions, to waste management handling facilities, and to fuel preparation facilities. So there's a range of facilities.
After the act receives Royal Assent, we will put in regulation classes of facilities with the amount of liability requirement. Facilities that don't have as significant or as much handling of nuclear material and activities will have lower levels of liability established in regulation.
The Deputy Chair: If I can assure Senator Ringuette that the Canadian Nuclear Waste Commission will actually be a witness in front of us, so we can ask further questions.
That was her second question. What's the answer to her third question?
Mr. O'Dea: Regarding transportation, the liability for transportation of goods is the responsibility of the sender. So the nuclear operator that is sending waste or other fuel materials to another facility for either storage or use is liable, and that liability is covered within the insurance that they bear for the operation of their facility.
Senator Tannas: Thank you. I just wanted to return and make sure that we're clear about the concerns of Senator Ringuette, specifically around New Brunswick, as an example, of an owner, taxpayers and everybody all tangled up together in the generation of power and the use of that power.
I understand — and correct me if I'm wrong — that the operator may choose up to half of their absolute liability through the purchase of insurance, but they could choose to have no insurance and have 100 per cent through a satisfactory provincial guarantee. Is that right, first of all?
Mr. O'Dea: No, sorry. It's actually the other way around.
Senator Tannas: So they can only have —
Mr. O'Dea: That's right, a minimum of 50 per cent through insurance, and the balance through other instruments, including assets, provincial loan guarantees, letters of credit.
Senator Tannas: Okay. And why was it important to, in this case, effectively force provinces to purchase insurance?
Mr. O'Dea: Fair enough. I'll ask Mr. McCauley to speak to this in a little bit more detail, but the basic underlying principle is that, as we know, Canada has very few nuclear power reactors. It's in the interests of the nuclear power — and nuclear operators as a whole, whether they be power operators or operating other types of facilities, such as Mr. Labonté mentioned — that there be insurance available, and that requires a certain pooling of risk among the existing operators.
For that reason, having that minimum 50 per cent threshold was deemed necessary in order to preserve the pool of risk available among operators of the insurance that they would seek coverage for, such that there would be an operating and functional insurance market in Canada.
Senator Tannas: So this was essentially to establish that market, which doesn't exist today, within Canada?
Mr. Labonté: It does exist.
Senator Tannas: But in a tiny way.
Mr. Labonté: But it's in a tiny way, yes.
Senator Tannas: Also, I presume that would have been done in your elaborate consultations as something that was desirable for the operators, including New Brunswick. As opposed to having 100 per cent of their liability, which, while the limits are $75 million, we all know that if there was a $100-million or a $200-million disaster in New Brunswick, it would be New Brunswick that would be stepping up to pay for it. They wouldn't leave their citizens in the lurch.
The idea of this insurance, then, is to essentially, as you say, spread the risk, in the case of New Brunswick, among other operators, in addition to having their own ability to say, ''We will self-insure for the balance.''
Mr. Labonté: That's essentially it, and recognizing that beyond the power operators, there are other classes of facilities that also need to tap that insurance market.
Senator Tannas: Right. Sorry; I know I asked this. I'll ask it again: Could you tell us, specifically in the case of New Brunswick, were they consulted? Are they in support of this? Can you give us specifics around that?
Mr. McCauley: We have conducted a number of consultations on this bill, and New Brunswick has always been included, both the New Brunswick provincial government, as well as New Brunswick Power, and they are supportive of the bill and the measures that we've included in it, particularly in regard to insurance.
Senator Patterson: Administrative monetary penalties — I think they are called AMPs — are new sections under the act respecting oil and gas. Could you please describe the violations that you anticipate will be dealt with by using AMPs and who will be making decisions about whether to proceed with a prosecution? Finally, will a procedures manual be developed and made public?
Mr. Labonté: Sorry; just a clarification on the last part. Procedures?
Senator Patterson: Will a manual be developed, or an explanation of the process for this new approach?
Mr. Labonté: For making decisions about AMPs and applying them to a particular —
Senator Patterson: Yes, how it will work.
Mr. Labonté: I'll turn to my colleague, who might be able to answer that.
Mr. Millar: This is an area that will be spelled out in regulation. There's work under way to establish the kinds of infractions that would be subject to a penalty as is set out in the act. Those regulations will establish specific penalties, monetary amounts, and the kinds of infractions that would be associated with those. That's the kind of procedure manual I think you're probably asking about.
Those regulations will be subject to a full public review and consultation process through the gazetting. At present, we're not really in a position to answer your first question around what specific infractions. It will be the three offshore regulators that will be responsible for those citations, and this is a fairly common regulatory mechanism that is present in other regulatory contexts in Canada at present.
We'll be looking very closely at those models — of course, should the bill receive Royal Assent — in developing the regulation to implement that section of the bill.
Senator Patterson: I wanted to ask about consultation with the oil and gas industry in the drafting of Bill C-22. How did that go? What were their views?
Mr. Labonté: That's maybe a broad one. We did consult with the oil and gas industry in Atlantic Canada and in Western Canada, who have operations contemplated for the North and other parts of the country. We also consulted with the provinces, the regulatory boards and stakeholders in the environmental community.
Generally, the offshore oil and gas industry was pleased with the bill, but have concerns about elements of the bill in terms of its implementation. AMPs would be an example of that. Another would be the transition period for how we manage assessing the financial responsibility.
I'm not certain that they are entirely thrilled with the deposit amount that we've established, requiring them to provide $100 million to the regulator for the offshore for each project. Then, they have some interest that some things in the bill move forward fairly quickly, such as designating the offshore boards as responsible authorities.
So I think they are comfortable with the bill and don't have a particular issue around certain things, such as absolute liability, since they believe they are liable in the first instance and believe the circumstances of their not being liable don't really exist and behave that way as they exist today. But I certainly think their views would be balanced on the bill, would be the best way to put it. I understand they may be coming to talk to you, so they'll probably give you their first-hand view.
Senator Patterson: I appreciate your perspective. Thank you.
[Traduction]
The Deputy Chair: I would like to ask a technical question that calls for a simple answer, if possible. Earlier, in response to a question about the $1 billion maximum, you gave the impression that the maximum claim, in the case of an accident on several sites, would be $1 billion. I understand that the $1 billion insurance is required per operator, but I don't think the maximum claim for nuclear incidents is limited to $1 billion. Is that right? In other words, if there are two or three accidents, I think the absolute liability is $1 billion per project and not per operator. Am I wrong?
Mr. O'Dea: In the case of nuclear facilities, the $1 billion liability is retained for each facility. If damage occurs to a number of facilities, which is improbable, $1 billion applies to every one of them.
The Deputy Chair: And what about oil, in the case of offshore activities?
Mr. Labonté: The amount is per incident.
The Deputy Chair: As for the six-to-eight-time increase of insurance costs, does the hypothetical insurance cover 50 per cent of $1 billion or 100 per cent of that amount?
Mr. O'Dea: It covers100 per cent.
The Deputy Chair: If the province insures its risk at 100 per cent, the increase is six to eight times the existing premium. Is that right?
Mr. O'Dea: Yes, that's right.
The Deputy Chair: The legislation excludes potential claims by fishers near a drill site, and that could have an impact on future commercial fisheries. Why exclude this damage that is very real for fishers?
Mr. Labonté: That is because the Department of Fisheries and Oceans Act protects commercial fishers' activities with unlimited liability. So the act protects fishers when it comes to that type of coverage.
The Deputy Chair: I don't understand. Fishers do not have the right to claim their damages, despite the fact that they have unlimited liability. They do not have the right to claim future damages?
Mr. Labonté: Yes, fishers can claim future damages based on unlimited liability. There is no limit.
The Deputy Chair: Changes are planned to the transfer of powers in the Northwest Territories. What is that all about? Can you briefly explain what that entails?
Mr. Chénier: The transfer of certain responsibilities in the Northwest Territories has been in effect since April 1, 2014. Some of the legislative provisions were necessary to implement that transfer. Those provisions were included in the legislation.
The Deputy Chair: Why? How are they relevant?
Mr. Chénier: The legislation applies in regions under federal jurisdiction, so, before the transfer, the Northwest Territories came under the jurisdiction of the federal government and under the two pieces of legislation being amended. That was an opportunity for us to address these technical issues that required changes.
The Deputy Chair: Senator Ringuette has one last question.
Senator Ringuette: We have to take things into consideration —
[Français]
If my memory is right, we have 27 nuclear reactors in Canada and we're going from an insurance liability cost of $100,000 to maybe $1 million per reactor, to probably $10 million. So we're going from a $27 million cost to a $153 million cost, and 98 per cent of these entities, these operators, are Crown corporations. There's one now that has been transferred from the federal government to SNC-Lavalin, and there is a probable new operator for Chalk River and even though that cost will still be borne, it's still a Crown corporation.
All of this is to create an insurance market that will cost Canadians $153 million a year more than it's costing now for one privately owned entity in regards to the nuclear industry. That's the market you are creating right now.
The small question is that, in my book, it's unacceptable from the Canadian taxpayers' perspective.
[Traduction]
The Deputy Chair: Was that your quick question?
[Français]
Senator Ringuette: And there's no trigger point with regard to what is significant or not. I'm sorry, but dealing in abstract is one thing, but legislation is more than that.
The Deputy Chair: I think the very small question was: This sounds unreasonably expensive for the Canadian taxpayer. Is that opinion accurate?
Mr. Labonté: I don't believe it's an accurate statement, but the senator has expressed her views. I would say —
The Deputy Chair: You have 20 seconds to change her mind.
Mr. Labonté: Twenty seconds would be the residents of the provinces that have the facilities, who benefit from those facilities, are sharing in the risk and the cost through the insurance scheme, versus all the taxpayers of Canada. It's about who has the risk and who's sharing in the risk and the benefit. I think it's a difficult question.
The Deputy Chair: That's a good answer.
The meeting is adjourned. Thank you very much.
(The committee adjourned.)