Royal Society echoes Pembina’s warning over oilsands liability

Blog - Jan. 5, 2011 - By Nathan Lemphers

Every once in a while, it's good to be reassured that I'm not crazy. 

A few weeks ago the highly respected and independent Royal Society of Canada released a scientific review of the current environmental and health impacts of the oilsands.

This review was meant to provide a much-needed credible perspective on the oilsands at a time when government, industry and environmental groups are losing public trust. 

Last fall I co-authored a report, Toxic Liability, which highlighted the financial risks facing Albertans from oilsands operators underestimating the costs to clean up their mines. The report described the lack of transparency and inadequacy of Alberta's current mine financial security policy.

Our conservative analysis indicated that Albertans could be on the hook for a $10 to $15 billion cleanup bill because both industry and Alberta Environment are seriously underestimating the cost of reclamation.

Interestingly, the first major finding of the Royal Society report states that "current practices for obtaining financial security for reclamation liability leave Albertans vulnerable to major financial risks."

Now and again, it's nice to have a major scientific body reinforce our analysis.

The report notes that the Energy Resources Conservation Board's current policy to manage liabilities for in-situ oilsands and conventional oil and gas operations only captures 0.4 per cent of total deemed liabilities ($40.9 million of a total $16.4 billion). Based on a Pembina Institute analysis in Toxic Liability, Alberta Environment's current policy to manage oilsands mine liability only captures four per cent of total liabilities. This is comparable to insuring only four per cent of your vehicle against collision damage, or purchasing home insurance for just the contents of your garage.

The Royal Society report echoes Pembina's concern that the province isn't banking enough insurance to pay the cost of oilsands cleanup if companies declare bankruptcy. Photo: David Dodge, Pembina Insittute. Besides being underinsured, the Royal Society report highlights the "chronic underestimation" of reclamation costs in Canada's mining industry also happens in the oilsands. For instance, "future reclamation costs involving EPLs [end pit lakes — artificial lakes that have toxic tailings covered by freshwater] are difficult to estimate, given the high level of uncertainty over the costs and viability of EPLs as remediation and reclamation tools." 

End pit lakes have never been proven to be an effective way to reclaim oilsands tailings, yet the government continues to approve mine plans that include end pit lakes — only adding to the liabilities facing Albertans.

While the Government of Alberta has identified that it's working on new financial security policies for the oilsands, the Royal Society report is skeptical of any real action to reduce the financial risks borne by Albertans.

"Similar statements have been made by the provincial government on numerous occasions since the Auditor General first raised these issues [adequacy of oilsands reclamation security] in 1999 and that, as of the time of writing, the development and implementation of a new policy in this area had yet to occur," said the report. The society goes on to chide the Government of Alberta: "Responsible government management of this issue must be demonstrated better than has been demonstrated to date."

While Alberta's Environment's response to the Royal Society report mentions a draft mine financial security program that is moving through government, this policy has been developed behind closed doors without any stakeholder input. Alberta Environment Minister Renner has turned down the Pembina Institute's request to comment on this draft policy. 

The Royal Society report also warned about the potential for oilsands operators to strategically declare bankruptcy to avoid paying reclamation costs or to declare bankruptcy as a result of external events, such as a collapse in the price of synthetic crude oil or bitumen or a major leak from a tailings lake.

Financial security policies should be in place to protect the public from ever having to pay for reclamation, but right now Albertans could be left holding the bag for oilsands cleanup costs.

The provincial government has heard our concerns of its oilsands mismanagement many times, but hopefully hearing similar input from Canada's pre-eminent scientific body will prompt swifter action. In 2011, we look forward to working with the Alberta government on developing a rigorous financial security system for the oilsands.


Nathan Lemphers

Nathan Lemphers was a senior policy analyst in the Pembina Institute's oilsands program, until 2013.


Our perspectives to your inbox.

The Pembina Institute endeavors to maintain your privacy and protect the confidentiality of any personal information that you may give us. We do not sell, share, rent or otherwise disseminate personal information. Read our full privacy policy.