CALGARY
Stand by for a veritable tempest of wailing about “activist judges” from banking, oil industry and conservative quarters, now that the Supreme Court of Canada has ruled bankrupt fossil fuel companies can’t use federal bankruptcy law to walk away from their environmental responsibilities as set out in provincial laws.
If anything eases the intensity of the complaining, it will be the knowledge by all of the usual suspects of how bad that will look given that they all insist the fossil fuel industry is on the whole a good steward of the environment.
Behind the scenes, though, you can count on it that conservative politicians will be renewing their vow to pack the Supreme Court with utopian market fundamentalists if they ever again get the chance.
In its 5-2 decision this morning, the Supreme Court ruled in Orphan Well Association, et al. v. Grant Thornton Limited, et al. (better known as the Redwater case, because the bankrupt fossil fuel company in question was Redwater Energy Corp.) that Alberta regulations forcing oil companies to clean up their toxic messes come before the right of bankers and other creditors to collect money they’re owed if the company has declared bankruptcy.
This is a big deal, because if the court had upheld the rulings of the Alberta Court of Queen’s bench and the Alberta Court of Appeal, it would have opened the door to an effective strategy for fossil fuel extraction companies to walk away from the costs of cleaning up after themselves and dump billions of dollars in liabilities into the laps of provincial taxpayers.
“The Supreme Court of Canada’s decision on the Redwater case is good news for all Albertans and Canadians,” Edmonton-based Parkland Institute Research Manager Ian Hussey said in an email this morning.
“If the court had ruled the other way, taxpayers would have been unfairly saddled with the substantial environmental liabilities that result from the business activities of industrial corporations, such as oil, gas, and mining companies,” he said. “Instead, the court’s decision affirms the polluter pays principle and signals to the financiers of natural resource corporations that not accounting for environmental clean-up costs is unacceptable and that these costs cannot be downloaded on taxpayers.”
However, in a news release, the Calgary-based Pembina Institute reminded readers that while the Supreme Court has prioritized environmental cleanup over paying off debt, the decision “does not alleviate broader challenges posed by insolvent operations.”
“While the Supreme Court’s decision ensures bankrupt companies’ remaining assets first go to cleanup, those assets are often insufficient to cover full costs,” wrote Pembina analyst Jodi McNeill. “Canadian taxpayers are already paying billions to clean up former operations.
“Over the last five decades Alberta’s clean up obligations have steadily grown, and now include over 80,000 inactive oil and gas wells, facilities, and pipelines as well as 1.4 trillion litres in fluid oilsands tailings” she said. “The Government of Alberta officially estimates it will cost $57 billion Cdn to clean up these sites, though there are ongoing concerns about the accuracy of this figure. Conversely, only $1.2 billion is currently held in securities to protect the public.”
Redwater Energy Corp., a small Calgary-based company, went bankrupt in 2015. When Redwater went broke, Alberta Treasury Branches sought to recover its loans. A receiver was appointed, and it argued it should be able to sell Redwater’s best assets while passing off the rest to the industry-funded Orphan Well Association.
Under Alberta’s laws, funds from the sale of Redwater Energy’s assets were supposed to go to the environmental cleanup first, while federal bankruptcy law said creditors had first crack at them.
Interesting that Justice Sheilah Martin, now on the Supreme Court, dissented in the Court of Appeal decision, and that Harper’s SSC appointment Russel Brown was in the majority in the Redwater decision.
Thank you, Mike, for this observation, which I had missed. It does rather weakens the inevitable claims of a “liberal” judiciary, doesn’t it? DJC
I was hopeful the Supreme Court would come to a reasonable conclusion on this issue and I think they have. I think any parent with children would almost automatically say “you make a mess, you should clean it up” Of course, it doesn’t always happen this way for various reasons, but I do think there is a very big corporate responsibility here that should not be easily avoided. Yes, I suspect there may be some corporate whining about activist judges or something similar, but if so it will only show how out of touch they are with regular Albertans. I suspect most Albertans would agree that environmental clean up is very important, rather than having the costs foisted on to the taxpayer or the land owners. I suspect lenders initially may not like this decision either, but they actually have an important and useful role to play in ensuring that corporations who want to borrow are willing to be responsible in environmental clean up.
This is good news for citizens, taxpayers of Alberta and land owners.
Excellent news. Now, if they can force these companies to set aside money for cleanup BEFORE they make the mess.
Contrary to the pessimistic predictions of in the comments to yesterday’s column, this outcome is very good news. Yes, the costs of unfinished cleanup may often or always exceed the value that can be recovered, but this decision will send a strong message to creditors and lenders that it will be in their interest to insist that these costs are adequately provided for in future. Industry needs to adopt a pay-as-you-plan.
I suppose the question now becomes how this ruling will impact the banks and other institutional lenders such as pension funds in their support for particularly dirty energy projects. Giving environmental clean up what seems to be a “super priority” diminishes the assets and increases the risks for secured creditors. Will that not send the financiers scrambling to re-evaluate the position of their investments, existing and future? Usually the greater the risk the higher the premiums (interest) and collateral demanded by lenders. They’ll have to worry not only about the value of the financed resources today but also what could happen if those assets become stranded. How strong are the margins on high-carbon fossil energy that they can absorb that hit?
While I do not expect this reaction to be immediate, for the reasons outlined in my second paragraph, I expect to hear the accusation that such policies deliberately undermine the fossil fuel industry on this grounds in the CPC/UPC bill of indictment against the Trudeau Government. DJC
re Pembina Institute comment: ‘now include over 80,000 inactive oil and gas wells, facilities, and pipelines’
This environmental organization may be unduly conservative and understating the problem.
In this Western Producer report from 2010 the reported figure is 140,000:
excerpt: Between 1946 and 2008, 360,000 wells were drilled in the province and today there are about 140,000 abandoned facilities.
Today about 185,000 wells are active and 60,000 are rated as inactive and have not yet been abandoned. More than 10,000 have been inactive for more than 10 years.’
https://www.producer.com/2010/11/abandoned-oil-gas-wells-pose-hidden-danger-in-alberta/
This ruling and all the hoopla around it is the ‘smoke’ in the ‘smoke and mirrors’ campaign natural resource extraction corporations run on citizens. This ruling does not solve the problem, only identifies it.
I agree that we will now begin to see a crocodile tears campaign about how it’s just too expensive to become a petro-millionaire. boo-hoo! We have already seen the Energy minister come out to say that this ruling alone protects Albertans; nothing of the sort could be further from the truth. It is now up to gov’t regulators to enforce what few regulatory mechanisms they have for environmental compliance. But most importantly, it will be the regulatory authority who determines if the corporate polluter has cleaned up enough or has paid enough to be let off the hook for further environmental clean-up costs. At present, there is no standard of what constitutes acceptable clean up.
So if the gov’t can actually come up with standards that are meaningful and actually enforce them the questions still remains of how to ensure the work actually gets done. The solution is fairly simple (nothing is actually ‘simple’ in the natural resource extraction business) and proven. It’s called concurrency. If the company wants to move on to its next project, be it a well, a pipeline, a mine or a timber permit, then it has to demonstrate that it has performed all the legally required actions, including clean-up on its last project. Or at least substantially so.
This belief that “clean-up” is an activity that is years, decades or even centuries off into the future is like most beliefs, pure road-apples. If the proponent is serious about the clean-up and shut-down procedures then they would be preparing for that while men and equipment are already there onsite for profitable, productive purposes, while access is available and while serious, qualified people are on the payroll to manage and oversee these activities.
It means that clean-up costs are not some guess or estimate or accounting fantasy. It means that projects are accurately priced and costed on an on-going basis, concurrent with operations. It means that operations are not as profitable.
And all that means that the owners, us, the citizens, are not robbed by yet another band of thieving and lying corporate shareholders.
Larger companies often sell off their old wells to smaller operators who pump them for a few years (paying executive salaries and dividends) and then go bankrupt, leaning nothing for cleanup.
I certainly agree this is a good decision for Albertan’s. What is needed now is legislated timelines for remediation. If as Alberta’s we are going to market our oil as being more environmentally responsible than other jurisdictions this is a necessary next step.