Oil and gas companies can afford the billions it will take to clean up their messes and it’s up to governments to force them to do so, a new analysis has found.
Right now, it would cost an estimated $123 billion to clean up the environmental liabilities created by oil and gas companies in Canada, according to a new analysis by the Parkland Institute — a non-partisan research centre located at the University of Alberta — and commissioned by Environmental Defence. If the industry maintains current production levels, that number could hit nearly $224 billion by 2040.
The estimated cost of environmental liabilities laid out in the report includes cleanup or reclamation of oilsands mines, abandoned or orphaned oil and gas wells, and tailings ponds. The issue of leaky tailings ponds made national and international headlines earlier this year when it came to light that Imperial Oil failed to notify downstream communities for nine months about seepage and leaks from its Kearl oilsands site.
Pipelines and facilities such as refineries, tank farms and more are not included in this report's estimates due to a lack of data, however, all of these will eventually need to be decommissioned and will be an added cleanup cost, the report explained.
The Parkland Institute modelled three different scenarios and contrasted them with projected oil and gas industry profits, illustrating that companies have the means to pay for cleanup.
“Oil and gas companies are not voluntarily going to pay their bills; they must be forced to do so by governments and that's at every level,” said Julia Levin, national climate program manager with Environmental Defence. “In this world of declining demand for Canadian oil and gas … it is incumbent on provincial governments to start collecting the money ahead of time.”
There's an enormous risk the public will have to bear the cost of these environmental liabilities, which would be unacceptable, said Levin, pointing out that the current $123 billion of liabilities amounts to roughly $3,000 per Canadian.
The Canada Energy Regulator recently produced its first forecast that takes into account domestic and global climate goals. In a scenario where Canada and the rest of the world are able to keep global warming at or below 1.5 C, the regulator predicts oil production in 2050 will be 76 per cent lower than 2022 levels and natural gas production will be 68 per cent lower.
“We can't wait for 10 years from now to start charging these companies their cleanup costs because 10 years from now, production will have fallen,” said Levin. “Now is when these companies are still making massive, massive, massive profits. And they must be forced to use the profits, to use the revenues, to clean up their mess now.”
Canadian law states polluters must bear the cost of cleaning up their mess, but time and again, the cost of cleaning up abandoned oil wells has fallen on the public purse.
In 2020, the Alberta government received $1 billion of $1.7 billion in federal funding to clean up abandoned and inactive oil and gas wells. In 2021, a Parkland Institute report found that much of the $1 billion in taxpayer money was given to large companies not at risk of insolvency and used to carry out work the companies should have already been doing.
Some governments have liabilities funds, but as of 2022, Saskatchewan only held about two and a half per cent of the funds required, and Alberta holds less than one per cent for the traditional oil and gas sector and about three per cent for the tarsands, Parkland Institute’s new analysis points out.
To stimulate discussion, the analysis explores three scenarios. In the first scenario, Canada's oil and gas production stops by the end of 2023. While not “politically realistic,” this scenario is the only one in which Canada can stay within its “fair share” of the global carbon budget, taking into account historical emissions and the ability to transition off fossil fuels.
The second is based on current production levels continuing for six years and then immediately stopping. In this model, nearly 37 per cent of estimated oil and gas industry profits would be required to clean up the sector’s environmental liabilities. In this scenario, liabilities sit at $148 billion and the sector’s profits after six years are estimated at nearly $405 billion.
The third and final scenario is described as “business as usual” and has production remain at current levels all the way until 2040 and then abruptly stop. In this scenario, more than 18 per cent of the total profits (an estimated $1.2 trillion) must go to environmental cleanup, costing nearly $224 billion.
In reality, there would be a more gradual end to oil and gas production, not a hard stop at the end of a certain year, noted the report’s author, Megan Egler, a contract researcher with the Parkland Institute and PhD graduate fellow at the Gund Institute for Environment at the University of Vermont. Her analysis uses a carbon budget for each scenario to look at exactly how much oil and gas is being taken out of the ground in Canada.
To estimate profits from the oil and gas sector as a whole, Egler took the profitability per barrel of oil produced from the four largest oil producers in Canada (Suncor Energy, Canadian Natural Resources Limited, Imperial Oil and Cenovus), plus Tourmaline, Canada’s largest gas producer. Egler did this for 2019 and 2021, omitting 2020 because of the abnormal oil prices that occurred during the COVID-19 pandemic.
“What we're trying to do is take a snapshot of 'OK, where's the industry right now?' And then kind of use that as a jumping off point to say, 'OK, if we continue as is and Canada wants to continue saying that they're keeping with their climate commitments, what would that look like?”' said Egler.
Regardless of oil prices being volatile and subject to geopolitical turmoil, companies are still obligated by law to clean up so that the financial burden doesn’t fall to taxpayers. Despite what the law says, the report points out a track record of companies delaying the cleanup of inactive infrastructure and or declaring bankruptcy and leaving the public on the hook.
“Any public funding for covering the cost of cleanup is an incredibly inefficient fossil fuel subsidy given that oil and gas companies can absolutely cover these costs by themselves,” said Levin.
Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer
Comments
Of course, there is a fourth scenario....where oil and gas production dwindles, but in the end, no one cleans up the messes.........a much reduced and seduced population just learns to live with all the poisons the Anthropocene has produced.....accepting ill health and shorter life spans as God's plan.
I suspect that's the scenario preferred by today's TBA crowd......and the Oil lobbyists who've convinced them there's infinite riches still waiting for all of us........in the Tar Sands and the Frack On industries.
Julia Levin, national climate program manager with Environmental Defence: “Oil and gas companies are not voluntarily going to pay their bills; they must be forced to do so by governments and that's at every level. In this world of declining demand for Canadian oil and gas … it is incumbent on provincial governments to start collecting the money ahead of time.”
Canadian Association of Petroleum Producers (CAPP): “Taxpayers are not voluntarily going to pay our bills; they must be forced to do so by governments and that's at every level. In this world of declining demand for Canadian oil and gas … it is incumbent on provincial governments to start collecting the money ahead of time.”
Lobbyist-Premier Danielle Smith: "Oil and gas companies are not voluntarily going to pay their bills; they must be bribed to do so by governments and that's at every level. In this world of declining demand for Canadian oil and gas … it is incumbent on provincial governments to start paying out the money ahead of time.”
"The Canada Energy Regulator recently produced its first forecast that takes into account domestic and global climate goals."
The projections by CER, IEA, Parkland Institute, etc., are not forecasts or predictions.
Analysts make projections based on various possible scenarios. Projections based on scenarios are not forecasts. No scenario is inevitable. Which path we choose is up to us.
Industry lobby groups, Big Oil CEOs, and oil-soaked politicians constantly misrepresent IEA projections as "predictions" and "forecasts". Typically, fossil-fuel boosters refer only to the status-quo, business-as-usual, or base-case scenario (which leads to climate disaster) and fail to mention the others.
If it's wrong for industry to do it, climate media should avoid this error also.
E.g., "CAPP argues that forecasts from the International Energy Agency (IEA) show demand for oil and gas will continue for decades and that the industry could help drive Canada's economic recovery from COVID-19."
IEA: "Understanding WEO Scenarios
"The World Energy Outlook (WEO) makes use of a scenario approach to examine future energy trends relying on the WEM. It explores various scenarios, each of which is built on a different set of underlying assumptions about how the energy system might evolve. These scenarios are not predictions – the IEA does not have, and has never had, a single view about what the long-term future might hold. Instead, what the scenarios seek to do is to enable readers to compare different possible versions of the future and the levers and actions that produce them, with the aim of stimulating insights about the future of global energy.
IEA: "There is no single story about the future of global energy and no long-term IEA forecast for the energy sector. The WEO uses a scenario-based approach to highlight the key choices, consequences and contingencies that lie ahead, and to illustrate how the course of the energy system might be affected by changing some of the key variables, chief among them the energy policies adopted by governments around the world."
"…Governments have the capacity and the responsibility to take decisive actions to accelerate clean energy transitions and put the world on a path to reaching our climate goals, including net-zero emissions."
I don't actually trust the companies to do the job; you can arm-twist all you want but ultimately it would be better if government just taxes the crap out of them and uses the money to do the cleanup. Then at least there would be a decent chance it would be done properly.
One way to do this would be to legislate that sufficient cash reserves be in place to pay for the cleanup well in advance, rather than the obvious dodge that we all know is coming: large dividends now, then selling declining assets to third-party shell companies, then closing up shop and walking away whistling happily, with the public left with the bills.
An alternative would be separate and *substantial* taxes on oil and gas revenues, as well as on the sale of O&G companies or their assets.
It seems to me that the only way to get the Oil/Gas sector to clean up their environmental messes is to put their entire executive officers and board members under sanction: clean up or be prosecuted for systemic fraud, bribery, criminal conspiracy, misuse of public funds and any other charges that can legitimately be laid. Naturally they'll fight like hell with battalions of lawyers and the creepy collusion of elected officials.
I hope to hell governments have the documentation to support these charges and if not, their regulators had better scurry around and collect it, finally doing the job they have shirked for generations!
https://www.desmog.com/2023/07/03/climate-washing-lawsuits-increase-big…
https://www.france24.com/en/live-news/20230712-why-american-communities…
Since it's always all about money....
Re: "the current $123 billion of liabilities amounts to roughly $3,000 per Canadian."
Perhaps the amount should be calculated according to the Alberta population figures, given that the lion's share of this is Alberta's responsibility. As they like to tell all and sundry, except when federal billions are being handed out to the companies, largely to the benefit of their executives, and the rest to shareholders.
We need a corporate situation where CEOs and directors, who make all the decisions, are held liable for decisions that are contrary to law. And we need a mechanism by which amounts for cleanup or guarantees are held out of reach of the corporations themselves. And if they don't pony up, expropriate.
It's high time past pussy-footing around the monsters.