THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, February 15, 2024
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 9:15 a.m. [ET] to conduct a study on emerging issues related to the committee’s mandate.
Senator Josée Verner (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: My name is Josée Verner, I am a senator from Quebec and I am the deputy chair of the committee. This is a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
[English]
I would like to begin with a reminder. Before asking and answering questions, I would ask members in the room to please refrain from leaning in too close to the microphone or remove your earpiece when doing so. This will avoid any sound feedback that could negatively impact the committee staff in the room.
[Translation]
I’ll ask my fellow committee members to introduce themselves, starting on my right.
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
[English]
Senator Sorensen: Karen Sorensen, Alberta.
[Translation]
Senator Galvez: Rosa Galvez from Quebec.
[English]
Senator Wells: David Wells, Newfoundland and Labrador.
The Deputy Chair: I wish to welcome all of you and the viewers across the country watching our proceedings. Today, the committee continues its special study on climate change and the Canadian oil and gas industry.
We welcome Martin Olszynski, Associate Professor, Faculty of Law, University of Calgary, as an individual.
Welcome, and thank you for being with us. Five minutes are reserved for your opening remarks. The floor is yours.
Martin Olszynski, Associate Professor, Faculty of Law, University of Calgary, as an individual: Thank you and good morning, senators.
My name is Martin Olszynski, and I am an associate professor at the University of Calgary, Faculty of Law, where my research interests include environmental, natural resources, water law and policy. Most recently, this includes publications with respect to oil and gas liabilities and the division of powers with respect to the environment in the wake of the Supreme Court of Canada’s recent reference regarding the Impact Assessment Act.
The committee is studying the Canadian oil and gas industry, including its relevance to our country and economy, its record in reducing its carbon footprint, the transition plan to a more sustainable future, the industry’s positioning to respond to risks and world trends and matters of competitiveness and subsidization. I will speak to each of these this morning.
I want to preface my comments by commending the committee for undertaking this study. We desperately need an objective, comprehensive and transparent accounting of the sector’s impacts on Canada, its economy, environment and people.
It is, of course, indisputable that Canada’s economy has benefited from oil and gas activity. Corporate profits, foreign investment, employment levels — both direct and indirect — royalties and tax revenue are all commonly cited by industry leaders, pundits and pro-industry politicians, albeit with variations that I submit merit closer scrutiny from this committee.
In any event, I am here to speak to the other side of the ledger, to greenhouse gas emissions and closure liabilities in particular. By “closure liabilities” I mean the anticipated costs of abandoning, remediating and reclaiming oil and gas sites, whether that be wells, pipelines, oil sands mines or other related facilities. These are but two issues that fall on the adverse side of the ledger, but they have the benefit of being quantifiable, if somewhat imperfectly. They are also good illustrations of a pervasive theme in the context of extractive industries more generally: the privatization of profits and the socialization of costs. As I’ll explain at the end, climate policy and closure liabilities also are inextricably linked.
Regarding the sector’s carbon footprint, in 2021, oil and gas production accounted for 28% of Canada’s total greenhouse gas emissions, or 189 megatonnes. Applying the social cost of carbon, a metric used by both Canada and the current U.S. administration, to provide an estimate of the global damages associated with one tonne of carbon emitted in the form of droughts, floods, fires, etc., this amounts to $46 billion in damages in one year.
Moreover, based on the best available data, Canada’s oil sands industry remains one of the most greenhouse gas, or GHG, intensive in the world with average emissions per barrel hovering around 75 kilograms of carbon dioxide equivalents or roughly one third above the global average. This notwithstanding the fact that industry and governments have been promising meaningful emissions reductions for over 15 years.
Beginning in 2018, the current federal government has introduced or announced a series of climate policies, including a price on carbon, clean electricity regulation and, most recently, a proposed cap on greenhouse gas emissions from the oil and gas sector. This last point is a good segue into the matter of liabilities.
Alberta Premier Danielle Smith is strongly opposed to an emissions cap, having recently cited a Conference Board of Canada analysis that suggests that it would result in $130 billion in lost government revenue between 2030 and 2040. According to current official estimates, however, Alberta’s oil and gas industry has accrued nearly the same amount — $105 billion — in closure liabilities. As a reminder, these are the costs to properly clean up wells, pipelines and oil sands mines.
Alberta holds roughly $1.3 billion in security against these liabilities, or just over 1%. Worse still, these numbers are almost certainly a gross underestimate with leaked internal Alberta Energy Regulator estimates from 2018 suggesting that total liabilities are likely closer to $260 billion, and that too is a conservative estimate.
All of that assumes that these sites are, in fact, remediable, which is itself far from certain. There is concern about persistent leakage from some wells, which raises the spectre of well integrity that may put future carbon capture and storage projects at risk.
As for the oil sands and their growing inventory of tailings, currently at 1.6 trillion litres, the plan appears to be to dewater these to the extent possible or deemed economical, place them at the bottom of the mined-out pits, cover them with soil, cover or cap the pits with water and hope that their various toxic constituents do not migrate to the surface above nor to the groundwater below. The risks to fish and fish habitat, Indigenous peoples in the Lower Athabasca Region and downstream communities in the Northwest Territories — all matters of federal concern — are plain.
Having recently assessed the relevant liability management regimes closely, I can say with confidence that whatever the ultimate costs, they are currently on a trajectory to fall on Albertan and Canadian taxpayers. Indeed, Canadian taxpayers have already provided $1 billion for well cleanup during COVID and hundreds of millions more in the form of interest-free loans.
I stated at the outset that these liabilities and greenhouse gas emissions are inextricably linked, and so I will conclude by explaining that relationship.
First, while most in industry privately admit that they’ve been kicking the closure can down the road for a long time, the reality of climate change and the proliferation of net zero and other climate policies in other countries means that the road may be shorter than industry and governments expected two decades ago. China’s battery electric vehicle sales were 27% of the market last year — 37% if you include hybrids — while sales of internal combustion engine vehicles are increasingly considered to have peaked in 2017, or seven years ago. In terms of industry positioning to respond to world trends and risks, then, we seem to have less time than we thought to close this $260 billion liability gap in any sort of reasonable way.
Second, that same net-zero imperative is currently sucking up most of the oxygen — and money — in the room. In this post-COVID period of relatively high oil prices, industry appears focused on rewarding shareholders in a bid to reaffirm its profitability while governments are singularly focused on subsidizing greenhouse gas abatement through things like carbon capture and storage. Remediation and reclamation efforts in the form of research and development appear to have been relegated to a distant third place or worse. In terms of a transition towards a more sustainable future, then, we are going backwards.
We desperately need an objective, transparent and evidence-based discussion about these and other issues. It is one that we cannot currently get in Alberta where our government and regulators are, at best, beset by a type of siege mentality that prevents them from being critical and forthright with Albertans about the scope and severity of these and other challenges, examples of which I can provide during the question and answer period.
Thank you for your time this morning. I look forward to answering any questions you may have.
The Deputy Chair: Thank you very much.
[Translation]
We’ll now move on to our question period.
[English]
Senator Galvez: Thank you so much, Professor Olszynski. I’m sad I didn’t meet you before and I am happy that you are brave to say the things and give the numbers that we need to know because the picture that you are describing is worrying. We knew that the money put aside for reclamation and the money put aside for restoration was very little and very minuscule compared to the liability, and so the fact that you have put numbers on it is very important. Thank you so much.
I agree with you that the liability is huge, and when it finally happens — I don’t know, maybe in 5 or 10 years because this is what I have been reading — I want to know who is going to be splashed by these liabilities because if the oil sands keep growing, it is because we are financing and facilitating the expansion. So I include in that the banks and the insurance.
Who is going to be brought to court when this happens? Actually, it is happening already around the world, so it is just a matter of time. What do you think about this?
Mr. Olszynski: In this context, it is important to separate the conventional and non-conventional production, and I have written with some co-authors about this. This past fall, we published two papers here at the School of Public Policy at the University of Calgary, which I am happy to provide the committee. One paper tackles the issue of liabilities in the conventional oil and gas context — wells, pipelines and related infrastructure — and the other one tackles liabilities in the non‑conventional sector, which is to say oil sands. It is important, when thinking about this problem, to distinguish between those two.
In terms of conventional oil and gas, most of these sites — we have over 80,000 inactive sites currently in Alberta — a lot of those will be found on private land. It seems to be, really, a question of political will and a sort of negotiation between the industry and all of those private landowners who currently have these wells on the landscape, where these wells, in their inactive state — which is to say they have not been properly abandoned, they have not been properly remediated and reclaimed — of course, they are taking up space on that private land and then there are related issues of contamination and gas leakage. Those issues will have to be dealt with in terms of a bloc between all those landowners and the industry.
The non-conventional side is different, and in this context it is important to remember that the Lower Athabasca Region is home to several First Nations including the Athabasca Chipewyan, the Mikisew Cree and the Fort McKay. In that context, my own assessment is that it is not a question — it would be hard for me to imagine for these places to remain unremediated in the long term because, at the end of the day, Indigenous peoples have constitutionally protected rights under section 35 and those rights include the right to practise, in a meaningful way, hunting, fishing and trapping on the landscape in their traditional territory.
It seems plain to me that at some point these facilities, these mines and their associated tailings, all of this will need to be remediated, and the question becomes who is going to pay for it. There are two options here.
One is — I suppose, in a sense, three. The first is industry, and it is worth pointing out that that was part of the original bargain. The original bargain was to develop these oil sands reserves to benefit and profit from them, and pay some level of royalties but also to clean them up at the end. We are not currently on track in accomplishing that policy objective in honouring that original bargain.
When we have effective liability management regimes, we would perhaps have money set aside by banks. For instance, if you have a company that has to secure a letter of credit — in other provinces in Canada where the mining liability regimes are more rigorous, companies have to secure a much greater amount. In the case of Quebec, I think it’s the full amount of the future liabilities that has to be secured by a letter of credit at a bank.
In that instance, if the company is unable to, the bank has to essentially provide the funds offered or secured by that letter of credit directly to government to do that work. That is essentially what we have been recommending for a long time here.
But if that is not the case, if the industry has not set aside those funds and there is no bank that has set aside those funds through the provision of a letter of credit, then it will fall on the taxpayer and on the government. This is where there is perhaps some ambiguity. In some instances, there is nothing that says that the government has to clean up a contaminated site. Our laws, generally speaking, in every province have provisions and laws for dealing with contaminated sites, but they seldom demand cleaning up. Here, the imperative, and the protection of section 35 rights in particular, will eventually force that cleaning. The question will be who pays for it at that point, and I think it will be the taxpayer, whether it is Alberta or Canadians more broadly.
Senator Galvez: For people who work on these remediations and follow the extraction industry, it is well-known that companies will leave some minimal operation activities to not be forced to remediate. This is well-known, for example, with pipelines, where they leave a little bit of oil dripping in the pipelines so they don’t have to extract and clean. They are doing the same with mines. This is the case in the Northwest Territories where there are still two people operating a huge thing because that way they avoid having to do the remediation. Is this also happening in the oil sands and in the wells?
Mr. Olszynski: There appears to be a slight variation on that. When we’re dealing with the mines, of course, some of them are quite mature in their operation and have been operating since before the turn of this century, but others came online between 2005 and 2010. Arguably, some of them still have very long operating lives assuming that oil demand and the market doesn’t change as a result of climate policies. Some of them are expected to operate into the second half of this century.
But some of them have peaked in terms of their operating horizon and they are moving closer to closure. What is interesting here is that the Auditor General in Alberta observed and raised a concern that when a mine is approaching the end of its life, which under the liability management regime here in Alberta is the last 10 years of the operating life when they have to start putting money aside or start to do the reclamation. If they purchase another mine or expand, then they are able to use that expansion to essentially delay the clock. That is something that the Auditor General has picked up on and has suggested that it’s an inappropriate use of those timing rules to further delay remediation and reclamation by purchasing another mine facility or expanding the mine in some way.
A lot comes down to why we are leaving these sites unremediated for such a long time. Why can’t we engage in progressive remediation and reclamation to cap, for instance. In 2010, when the Royal Society of Canada did a report on the oil sands, there was some discussion back then of what they called “disturbance caps,” which is to say that there should only be a certain amount of disturbance allowed at a given time and if you want to do more, you need to remediate and reclaim. To give you some context for that, there are currently over 100,000 hectares of land disturbed in the oil sands. Remediation and reclamation, in terms of certified, restored, reclaimed lands, there is 105 hectares. Not even a fraction of a per cent has been certified. Industry will respond to that and say that there are about 5,000 or 6,000 hectares in the process of being remediated and reclaimed, but most of that is focusing on, I submit, the easier sites — terrestrial reclamation, not really dealing with aquatic and wetland type.
To your question, yes, there appears to be — and it is documented by the Auditor General — an attempt to essentially keep punting the remediation and reclamation of some mines by acquiring and expanding the operations and using that to further delay that restoration and reclamation.
Senator Galvez: Thank you.
[Translation]
Senator Miville-Dechêne: Mr. Olszynski, I’d like to continue in French on this line of questioning. Can you hear the interpretation?
Mr. Olszynski: I’ll understand your question posed in French, but I’ll answer it in English.
[English]
Senator Miville-Dechêne: Please do. That is absolutely your privilege.
[Translation]
So, here’s my question in French. I must confess I’m rather surprised by the absolutely enormous figures for the cost of cleanup. I want to make sure I understand this clearly.
I understand that there are laws in Quebec that require mines, for example, to set aside a dedicated, bank-held reserve fund for cleanup. In Alberta, is there anything in provincial legislation that requires the same?
My recollection is that at one point the federal government had granted money to companies, but in the end, that money hadn’t necessarily been used for cleanup. What is the state of legislation in the provinces regarding the remediation of polluted sites?
[English]
Mr. Olszynski: It’s important to distinguish between conventional oil and gas and non-conventional or oil sands resources. We have liability regimes for both of them. We have a liability management framework for oil and gas, wells, pipelines and facilities, and in the context of oil sands, we have the Mine Financial Security Program, or MFSP. That has a basis in law. It was essentially created by a regulation under our Environmental Protection and Enhancement Act.
What is critical to understand for both conventional oil and gas liability and non-conventional oil and gas liability is that the systems are fundamentally broken. These regimes do not work. The Alberta Energy Regulator knows that they do not work but refuses to fix them. We have tried — the Auditor General, academics and various groups — to press the urgency of this problem on successive Alberta governments, but there is currently a total refusal to date to make the reforms that are necessary in order for these systems to function.
Senator Miville-Dechêne: Is it because there is no enforcement or is it the regime as designed that doesn’t work?
Mr. Olszynski: It is the regime itself that is essentially designed to not work. I can give you some basic idea about that. In relation to the conventional oil and gas — wells, pipelines, and related facilities — there are two critical things missing that the government and the regulator refuse to acknowledge.
One is a timeline or a deadline on closure activity. In Alberta, pipelines, oil and gas wells and other facilities can remain what we call inactive for an indefinite period of time. There is no clock that starts that says that if your well has been inactive for 5 or 10 years, you have to clean it up. That is a huge problem that has led to the proliferation of inactive wells. It is in the vicinity of 80,000 to 90,000 inactive wells in the province. That is the starting position.
The second big problem in the conventional context of oil and gas wells and facilities is this refusal in almost all instances to require any kind of posting of security. The regulator has, over time, come up with various convoluted formulas looking essentially at assets to liabilities in what we call an asset to liability approach. It has been known to be broken for over a decade, and three or four years ago, the province announced it was finally going to do something about it, but it has not done the things to finally address this problem.
On the non-conventional side — the oil sands side — it is essentially the same problem. The province has adopted and clings to what they call an asset-to-liability approach. Companies are allowed to use their reserves, both proved and probable — which is to say, the oil in the ground as collateral — against their liabilities in order to avoid posting security or anything else like that.
Here is the problem with that approach, and we saw it happen during COVID: What that approach presumes is that when everything is fine, everything is fine and no one has to post security. But when oil prices are in decline and profitability goes down, the system presumes that that is when the government will ask for more money from those exact companies that are actually undergoing financial distress so it would actually exacerbate their financial distress to ask for that security at that time.
In fact, the then-minister of environment, Jason Nixon, said in a press release that the math of the MFSP doesn’t work when oil prices are low. But the point is that if it doesn’t work when prices are low, then it doesn’t work at all because we don’t have that security set aside when times are good and we cannot expect to draw that money from companies when they are experiencing their own financial hardship. That’s what happened. During the COVID-19 pandemic, when prices went into sub-zero territory, the MFSP would have then required from the oil sands companies billions of dollars in additional security. You might guess what happened: The regulator changed the formula and didn’t require that payment because the industry said, “How can we possibly pay you right now? We are in negative oil price territory.”
Senator Miville-Dechêne: I obviously realize that natural resources are in the jurisdiction of the province, but because it is an environmental question, should there be an overriding federal system to intervene in that particular domain?
Mr. Olszynski: This is the point I made. I was trying to be deliberate in my speaking notes to make it plain here that especially when we’re talking about the oil sands, 1.6 trillion litres of tailings and something like 35 pit lakes on the landscape, which will be hydrologically connected to the Lower Athabasca Region, which means that it involves federal jurisdiction over fisheries, fish and fish habitat, and involves federal jurisdiction in relation to Indigenous peoples and lands reserved for them. It involves transboundary or interprovincial river pollution that surely, at this point, with this level of mismanagement, I think the federal government has to take a much more keen interest in the remediation and reclamation planning.
I think, to date, the approach has been to say that the federal government, insofar as these issues are concerned, gets involved outside the fence line and allows the province and the operators to do whatever they want within their lease sites, if you will. What’s very clear is that these are essentially — from an environmental perspective and from a health and safety perspective — ticking time bombs that will have clear and direct adverse effects on areas of federal jurisdiction. I think it is probably time for those subject matter departments to start playing a more active role, a more collaborative or cooperative role with the province in terms of remediation and reclamation planning.
To your point, the other area that is relevant here, which is squarely federal, is bankruptcy and insolvency law. I don’t know if some of the senators are familiar with the Redwater case back in 2018. There was, at that time, a very vigorous discussion about the relationship between bankruptcy and insolvency law and what it allows companies to do, and, in particular, how it allows companies in some instances to enter into bankruptcy and avoid paying their various liabilities.
So I think that it is probably well overdue at this point for there to be a concerted discussion about how federal bankruptcy and insolvency law might help avoid these kinds of liabilities falling on the public.
Senator Miville-Dechêne: Thank you.
Senator Wells: Thank you, witness, for joining us today. I appreciate your insight. Are you familiar with the regulatory regime in the Newfoundland offshore?
Mr. Olszynski: Not terribly familiar, I’ll say at the outset, but please go ahead and I’ll see if I can follow along.
Senator Wells: I’m really familiar with it having been at the head of it. This is to Senator Miville-Dechêne’s question: In the Newfoundland offshore, there is a condition of licence, so you have to post a bond or some measure of security that’s not based on production or available reserves. You have to post a bond that is attachable if there is any remediation spill or anything like that, which there hasn’t been.
So that’s a condition of licence. No one can get a licence unless they post that security, and that might be a good thing for the Alberta environmental regulator to consider.
I’m not in favour at all of the federal government stepping into a jurisdiction that is not theirs in any venue. The regulator is empowered to do this and should do that. If they don’t do it, I don’t think it is the place of the federal government to step in.
The other day we had a committee meeting, and the question I had was regarding — and you touched on it a little bit in your opening statement — the cost to Canadians of the various aspects of capping emissions, capping production and a lot of the programs that are in place that you may be familiar with that encourage Canadians to produce and use less petroleum. I asked the cost, and the number they gave was based on a Royal Bank of Canada, or RBC, report of $4 trillion. I checked the RBC report: It is actually $2 trillion. There is not a great deal of comfort in the lower number. In your opening statement, you talked about the cost of not having this intervention in the oil and gas industry. Could you go a little bit into the cost to Canadians if we do nothing or the cost to Canadians if we continue on the track that we’re on, including — and you mentioned it — social cost? I know there are benefits to employment and royalties for First Nations. I know that’s one of the foundations of the companies that operate in the West. Could you comment on that, please?
Mr. Olszynski: Sure, and I will preface that I don’t have all the numbers handy at this moment, and it is probably my fault in part because I came in talking about numbers, so I don’t blame you for asking me about those. Some of the things I managed to look at when preparing this morning: Last year, Canada spent $1 billion on fire suppression. We had a record fire year, and we are potentially looking at another record fire year this year.
A couple of years before that, there were whole towns that were burnt in British Columbia, and that was followed by an atmospheric river, which wiped out huge section of the Trans‑Canada Highway. We are now staring in Alberta at a drought for this season. Half of the province is under water advisories. It is not hard to take these incidents that we know have been exacerbated. Some of that will happen: We have always had drought and forest fires. But we know the science of climate change is such that these things are being turbocharged and are wreaking additional havoc on our various sectors of agriculture, forestry and so on, and also requiring adaptation to our roads and our built environment. I don’t have the concrete numbers before you; I am happy to provide those. I do plan on submitting a brief to the committee afterward.
What I would say is that I think that whenever this analysis is being done — and I know, for instance, that our Parliamentary Budget Officer, or PBO, seems to take a keen interest in these issues — we know that acting on climate costs money. There is no doubt about it. There is no such thing as a free lunch so reducing emissions is important. So it will cost money.
The attempt, goal and focus has been to try to do that in the most economically efficient way possible, recognizing that doing nothing is going to be more costly. There are analyses that talk about what would happen. The PBO did one as well. All else being equal, the costs of us acting to reduce our emissions are less on the economy than the cost of a 2 degrees Celsius, or more, increase in temperatures. That analysis has been done. I don’t have it at my fingertips.
Generally speaking, the consensus seems to be that that sort of unmitigated climate change is going to be more costly for Canadians than taking steps now. Of course, not all steps are the same. The carbon price is the most economically efficient, according to the experts. We’re looking at supplementary measures. There’s a good, rigorous debate about the merits of those. That answers your question as best as I can.
I want to acknowledge this isn’t a problem that Canada can solve on its own. In this context, it is worth pointing out that Canada is actually a big player on the scene, if we look at global emissions — 40% of all global emissions come from countries that have fewer emissions than Canada. If we hope to persuade those jurisdictions to take meaningful action on reducing their emissions, then we have to do the same.
Senator Wells: Would you be one of the experts advising on the benefits of the carbon tax as the most efficient way to tackle climate change?
Mr. Olszynski: No, I would respectfully not consider myself that expert. If you folks are coming out this way, for instance, Andrew Leach, Blake Shaffer, Trevor Tombe; we have a number of economists here in Alberta who can speak to those issues.
Senator Wells: Professor, you mentioned Canada’s place in the world with respect to climate change and the damage that has happened through fire, drought and other natural disasters. You mentioned the atmospheric river, which originated in the Pacific.
You will know that Canada’s emissions are 1.5% of global emissions. Carbon dioxide in the atmosphere, they don’t really consider political borders. You’ve also touched on other countries being more significant emitters than Canada, I’m thinking the top three emitters of China, India and the U.S., probably well over 50% and maybe closer to 60%.
With Canada’s 1.5%, which admittedly is a very low number, what can Canada do without a global effort being involved in this task?
Mr. Olszynski: That’s a good way of framing it. At 1.5% or 1.6%, we are a top 10 emitter, right at the bottom of that list. There are roughly nine other jurisdictions. The EU is considered together — or many EU countries — in that arithmetic.
In terms of those who are punching above us in terms of their emissions, I can say that if we did absolutely nothing — if we don’t make any effort to reduce our emissions — then we have no business and will have no place to try to persuade those larger emitters to do their own work.
This is interesting because, in the public debate — and I agree, it is hard sometimes — we like to point out the hypocrisy of, for instance, individuals or politicians who speak about climate change but then go jet-setting around the world or something like that. That seems to really bother a certain constituency, I’ll suggest.
But it’s the same logic in international negotiations and in international climate change. You have no moral power or otherwise to persuade other people to reduce their emissions if you aren’t also taking those steps yourself. That applies in terms of those who emit more than us; it also, with more force, applies to those who emit less than us.
As I mentioned, close to 200 countries in the world have lower emissions than we do. If we say we don’t have to do anything because we’re only 1.5%, it might follow that they all say we don’t have to do anything. Cumulatively, collectively, that accounts for about 40% of all global emissions. Then we can’t win the game, even with the big players. That’s an important point.
There’s another lens and perspective being brought to bear on this, one that our current federal government champions I suppose, which is this is not just about costs but about opportunities. There are profits to be made. There are jobs to be had in the transition to a low-carbon economy.
It’s not just about challenges, overcoming those challenges and mitigating those effects, but really it is about embracing a shift and change towards a different kind of economy and seizing the opportunities that might come with that.
Senator Sorensen: Thank you to our witness. Welcome to our committee from a fellow Albertan. Nice to see you.
My question will be repetitive, but I’ll ask it and maybe there’s another direction or more you’d like to say about it. You’ve been vocal about the fact that the Alberta Energy Regulator will not disclose financial information on licences or even the general state of the oil and gas industry. You have publicly called on Alberta to hold an open public inquiry into how the province ensures oil sands producers can pay to clean up themselves. How is that going? Can you expand on that further?
Mr. Olszynski: It’s not going well. In my opening remarks to this committee, I said we desperately need this conversation.
There are two things that come to mind immediately. One is we are recently at the tail end of an inquiry into the renewable sector in Alberta. A public inquiry was called. A moratorium was imposed on renewable energy permitting in the province of Alberta for six months. One of the purported reasons that this inquiry and moratorium were required was concern for the reclamation liabilities of the renewable sector. The double standard is staggering. It is staggering.
We say, in that same context, let’s have that public inquiry. I’m not even asking for a moratorium on oil and gas development. Let’s have that public inquiry so we can understand what’s going on more fully so that the government can be more transparent with Albertans about the scope and severity of the problem.
On that point, I want to relate a recent incident that happened here. There is pressure building, as you may know, in the province about this issue. It is in the news on a semi-regular basis. In January, the Alberta Energy Regulator published its first ever liability management performance report. This was supposed to be an effort to be forthright and transparent with Albertans, but they relied on numbers they know are wrong.
They suggested that total liabilities in the conventional oil and gas sector are around $33 billion. When it was pointed out to them that these numbers are off, the regulator was prepared to suggest and said to the media that we don’t know if they’re an overestimate or underestimate except we know from internal records from 2018 that were obtained by my co‑authors using freedom of information processes that Alberta Energy Regulator internal estimates suggest those numbers are a 263% underestimation, so rather than being $33 billion, they are closer to $88 billion or $90 billion. The regulator knew that, has those documents and still suggested — when those documents weren’t out in the open — that the $33 billion, who is to say? Is it an overestimate or underestimate?
We talk here pretty openly about this notion of regulatory capture. In the papers I’ll provide to the committee, this is a term that’s used sometimes in lay terms, but it also has a specific academic meaning essentially when the public interest has been supplanted by the regulated industry’s interest. That’s one way to explain what’s going on here.
I admit I am recently thinking more. That is what I said in my remarks. I wonder if it’s not just a siege mentality that is pervasive in the Alberta government right now, including in the bureaucracy, less nefarious and, in a sense, more understandable. We are going through a period of transition, so it is not surprising that those who are tethered to and have a strong association with one form of industry would seek to protect it.
The consequences are really problematic. When we think about siege mentality, I observe this notion of conformity and rejection of alternative perspectives and opposing views, but the consequences can be quite severe. We’re seeing them in the context of this looming financial and environmental disaster. We’ve come to this point where we have probably $260 billion in liabilities and maybe $1.3 billion set aside. For further context, our current debt in Alberta is $80 billion, so this will quadruple that debt in due course.
The other example is the Kearl Lake oil sands spill. I don’t know if this committee has heard much about that. In the other house, that committee was quite interested in that issue. For nine months, First Nations weren’t told that there was groundwater seepage and were only told when there was a second incident.
There are other examples. Seismic activity can be triggered by oil and gas activity. Initially, the regulator said, “No, it was a natural event.” It took an independent voice to say, “No, I think it was the oil and gas activity.” Then the regulator backtracked and acknowledged that, yes, in fact, that was triggered.
If it happens one time, you say, “Okay. That’s fine,” but two times, three times, then we start to get concerned. We are at a place where it’s not just the economics. We are at a place where this is starting to become a hazard to Albertans.
Senator Sorensen: Thank you very much.
Senator Galvez: Thank you so much to our witness for this interesting conversation and for revealing these important issues which, as you said, have dire consequences for all Canadians if we have to backstop all these liabilities.
We are hearing from you about these toxic substances and the role of the federal government. I understand the federal level has issues with pollution, environment, greenhouse gases and also the Indigenous peoples. Let me share with you something I heard in my professional circles.
Through all the years of exploitation and extraction of oil and gas, they started by using four barrels of water to produce one barrel of oil. I asked this question to the Parliamentary Budget Officer and the environment auditor because if you multiply that number of barrels of water by the amount of oil that has been produced, you will see a humongous amount of water has been used to produce this oil. If you compare that amount of water used with the tailing ponds, a lot of water is missing. That water, according to some of my colleagues, has seeped into the groundwater. That’s how it found its way to the Athabasca River and also to the Mackenzie River basin watershed.
But now, after 40 years of extraction, I’m also hearing from my colleagues in science, forestry and geology that groundwater levels have been affected dramatically. Levels are coming down and down, so the trees must go very deep in the soil to find humidity. That is one of the factors that explains why forest fire temperatures being at rank 5. That’s also why there are dormant wildfires even during the winter. They are still active in the ground, and they come up in the spring.
You talked about the impacted hectares, and we can see them from the satellite. But what about the underground and the limits and the transboundary? Is it reaching B.C.? Is it reaching the Prairie provinces? Have you looked into that?
Mr. Olszynski: Yes. Thank you, senator. A lot of that stuff is beyond my expertise. Anecdotally, to know much about what is happening in the groundwater is quite difficult. One example is in the context of the Kearl spills last year and the testimony from Imperial at that time. I remember one of the questions was, “Can you tell us, in this groundwater plume, how much seepage has occurred?” The answer I was given repeatedly is that it’s actually very difficult to know. It may not be impossible, but it’s incredibly difficult to estimate the volume of seepage that occurred in that instance. I find that remarkable.
Prior to joining the University of Calgary in 2013 as a professor, I spent six years as a lawyer at the Department of Fisheries and Oceans, or DFO. I was working in some of these spaces and advising on some of these files. I’ve spent most of the last 10 years looking at these various regulatory regimes and trying to determine whether they’re working or not. The results are not good.
I would encourage the committee to get experts who are able to speak more clearly to this issue. One of my impressions is that it’s as though we went ahead without really understanding, without taking the time to establish the baselines and without ensuring that we have indicators to monitor these things. We just barrelled ahead. So, now, to try to say what is going on is very difficult because we didn’t have that baseline information. We didn’t have a clear sense of what was, in fact, going on.
We’re told all the time that the groundwater and the surface water in the Lower Athabasca Region are connected. For instance, I would not be surprised to hear that what you’re suggesting is occurring. We know there are relationships between surface water and groundwater. If groundwater is being drawn into these pits when they are being dewatered and dug, that water has to come from somewhere so it will leave another place.
Some of that data exists. Most of it is submitted to the Alberta Energy Regulator. I don’t know how much of that data is requested by Environment Canada or DFO.
To the earlier point of one of the senators, I appreciate there are things here that are provincial, but it is important to point out that these are not — and I’m going to back to the Supreme Court’s recent Impact Assessment Act reference and maybe I’ll speak now finally as a lawyer. This is a shared space. There will be overlap. The Supreme Court was very clear. Although the Impact Assessment Act itself exceeded federal jurisdiction in some ways, the court was very clear that there is no enclave of exclusive provincial jurisdiction. The same project or the same fact scenario may have a provincial aspect and is regulated as a matter of natural resources, for instance, but it may also have a federal aspect. Here, those federal aspects very clearly involve fish and fish habitat, Indigenous peoples and transboundary or interprovincial river pollution.
There is a role here for the federal government. I would urge this committee and I urge the federal government to take up that role to ensure they are not essentially waiting for a growing threat to materialize before they do anything about it.
Senator Galvez: I want to move to the issue of the siege mentality or, as you call it, the regulatory capture. It’s becoming evident that there are many situations of conflict of interest. When one has a premier who used to be a lobbyist for oil and gas, of course, one is not surprised that some things are happening with respect to overlooking or bypassing some regulatory problems. The same thing extends to the executives, the boards and other people who are at the decision-making table.
Have you looked into the issues with respect to the Lobbying Act, conflicts of interest or other transparency laws that need to be reviewed? I know at the federal level that the Lobbying Act needs modernization. It hasn’t been touched for a long time. But because of these issues, whose superseding interests are prevailing in boards when it comes to the pollution caused by oil and gas?
Mr. Olszynski: Again, we’re definitely at the limits of my own what I’ll call “expertise.”
What I can say is that my experience is that at the federal level there are concerns, essentially, that these accountability mechanisms are weak, and they are equally weak here in Alberta. I think our Conflict of Interest Act, in particular, has been interpreted in a very restrictive manner over time, so it is quite difficult to get anything done on that front.
Myself, my co-authors and collaborators use freedom of information processes in the province. Those are also broken. I think Alberta is probably the worst, actually, in terms of provincial governments in relation to compliance with freedom of information processes.
As one example, I was seeking records from Alberta Environment and Protected Areas in relation to this issue of seepage, and I was told that there were no records. When I asked for similar records from the Alberta Energy Regulator, part of the package I got from them included consultation and emails with Alberta Environment and Protected Areas. Clearly, there was something going on there.
My colleague, in relation to the papers I discussed on oil and gas liability that we published in the fall, talks about essentially a brokerage that he has to constantly negotiate. At one point, he was able to ask for a box in order to get the material inside there, and it turned out that there were all kinds of things that were relevant to our analysis. That system is, unfortunately, broken.
On the lobbying front, I did recently have the opportunity to look in the lobby register and we learned that the Canadian Association of Petroleum Producers, in the context of the looming drought, has been lobbying for various reforms to the Water Act, as you pointed out. The oil and gas industry in Alberta generally uses between 10% and 15% of all water allocated through the licensing system. Fort McMurray and the Lower Athabasca Region are part of that drought advisory, and they are lobbying, apparently, for interbasin transfers, which is also a very radical thing.
We know at this point that there is a very close relationship. In one of our papers, we provided 100 pages of records that show that essentially — it seems naive to discuss conflicts of interest because there is essentially a bilateral relationship between the industry and the regulator. Behind closed doors, they meet regularly and they regularly, in tandem, decide, for instance, how much the industry is going to pay on liabilities every year and how much closure work they will have to do.
At one point, there was going to be an escalating schedule of work, and then suddenly that schedule disappears, and they’re paying less this year than they were supposed to already. We know that essentially happens because the staff of the Alberta Energy Regulator meets with the industry and together they decide. The public is not invited, there’s no public scrutiny and the only way we know about it is because we file these freedom of information processes.
To your point, we’re so far beyond what we might refer to as conventional conflicts of interests and all those kinds of things. We are essentially talking about a bilateral relationship where I think it’s interesting that the chief executive officer of the Alberta Energy Regulator at one time said that it’s a regulator for industry. It’s not a regulator of industry but for the industry, and I think that’s telling. I think that explains a lot of it.
Senator Galvez: Thank you.
[Translation]
Senator Miville-Dechêne: You mentioned articles on this issue of remediation and reserve that were published last fall. Do you have a comprehensible article to send us? You mentioned forwarding a brief. It would be really interesting for us to have some documentation.
Mr. Olszynski: Certainly.
[English]
There are two papers published by the University of Calgary School of Public Policy. I will provide the links to those papers. They are peer reviewed and then some. I will say that we worked very hard on them, and I will provide those. Undoubtedly, they will be technical in some respects, but we tried our best to make them comprehensible, essentially, for lay people.
I have my remarks prepared that I might send in written form for the committee to have, and I can provide some hyperlinks in that context to substantiate a bit of what I was saying in those various contexts. That’s what I was thinking.
The Deputy Chair: Thank you. Your contributions will be taken into consideration by senators.
I thank senators and our witness for your participation today.
(The committee adjourned.)