The general rule in regard to environmental damage is the polluter pays. In accordance with that rule as applied to mining, Alberta has in place the Mine Financial Security Program (MFSP). The program is designed to collect financial security from mine owners to protect the public from the financial burden of cleaning up after their projects are concluded. Under the MFSP, oil mining companies use their reserves as collateral. They contribute to a cleanup fund based on the value of their assets. However, except for a small base payment paid up front, reclamation payments don’t begin until a mine has only 15 years of reserves remaining.
We know how that kind of thinking worked for the conventional industry. Companies were allowed to leave payment for reclaiming their well sites until after the wells were abandoned. The result is thousands of “orphan” wells, i.e. abandoned wells that no longer have a financially viable owner. An orphan well fund, financed by the industry, is proving inadequate. As a result, you and I are bearing much of the burden. Last year the federal government announced $1.7-billion to clean up orphan wells in B.C., Alberta and Saskatchewan. Alberta has announced loans to the Orphan Well Association for $335-million.
We can expect a similarly sad story in the tar sands. As reported by the Pembina Institute, tar sands operators have posted only $0.9-billion of the estimated $31-billion required to clean up the damage done to date. In other words, should for whatever reason the industry collapse, Alberta taxpayers would be on the hook for $30-billion. So far.
A company’s reclamation payments are based on the ratio of a mine’s assets to the liability of cleaning it up. It must make additional payments if the ratio is less than three to one. This means that if the price of oil drops too low—like last year when it temporarily dropped into the negative—the payments will increase to bring the ratio back to three to one.
This of course is as it should be. If it looks like a company may be financially challenged, it is that much more important for the public to be protected. The UCP government is of a different opinion. It suggests that “the math doesn’t work” with last year’s low oil prices, so to ease the burden on the companies it will allow them to base their payments on the revenue they earned from each barrel of oil they produced rather than directly tying their value to the price of oil.
Should companies fail, or should the entire industry fail, as the world increasingly moves away from fossils fuels, the cost of reclamation will fall upon Albertans. And, just as with the conventional industry, Alberta will beg for help from the feds. All Canadians will pay.
The cost will be high. The Alberta Energy Regulator estimates the ultimate cost to rehabilitate the land disturbed by tar sands production as $130-billion, far higher than the estimated liabilities made public by government and industry officials. To date, only 0.1 percent has been reclaimed. A very big bill is coming due.