By Ian Miron, staff lawyer

At this very moment, Canada’s liability regime is woefully inadequate when it comes to making sure that polluters pay in the event of a pipeline rupture or oil spill. That means that Canadian taxpayers like you would shoulder an inappropriate degree of the risk in the event of a serious pipeline accident, like Enbridge’s Kalamazoo River spill in Michigan.

According to recent estimates, Enbridge has spent $1.2 billion trying to clean up that inland spill — the largest in United States history. By comparison, Canada’s strictest liability law would have only made Enbridge automatically liable for a paltry $40 million, while providing the company with an opportunity to wriggle off the hook for any further costs.

Now consider that a number of controversial new pipeline projects have been proposed in Canada, each bigger than the last. Between Enbridge’s Northern Gateway (525,000 barrels per day), Kinder Morgan’s Trans Mountain expansion (890,000 barrels per day) and TransCanada’s Energy East (1.1 million barrels per day), thousands of Canadians may find pipeline infrastructure — locking us into a fossil-fuel economy for another generation — snaking right through their backyards.

Each project comes with an array of heavy environmental risks, including significant upstream and downstream greenhouse gas emissions. But for many Canadians, the very real threat of a major oil spill is a tangible and pressing concern, which is why it is absolutely imperative that Canada bring in a stricter, more comprehensive liability regime.

The good news is there is some progress to report. Earlier this month, the federal government introduced Bill C-46 in the House of Commons. If passed into law, Bill C-46 would completely overhaul the statutory liability regime for federally-regulated pipelines in Canada.

Here’s a quick look at a few encouraging developments and shortcomings of the bill:

The Good

  • Polluters will be absolutely liable for harm caused by a pipeline spill.

This means that the company operating a pipeline will be liable in the event of a spill even if it hasn’t been negligent and hasn’t broken any laws. Bill C-46 will also require a company to have enough financial resources to cover, in full, the absolute liability limit. That limit will be $1 billion for oil pipeline companies whose pipelines have the capacity to move at least 250,000 barrels per day. The limit for gas and other pipeline companies (as well as smaller oil pipeline companies) may be set out in a future regulation. It is also worth noting that Cabinet has the power to increase, but not to decrease the absolute liability limit for major oil pipeline companies.

  • Polluters will be liable for environmental damages.

The bill makes polluters responsible for losses of “non-use value” of public resources, or environmental damages, even if those damages don’t affect the environment’s commercial (or “use”) value. Recognition of so-called “environmental damages” is rare in Canadian statutes, although it is well-developed in U.S. oil spill legislation. Polluters will also be liable for any actual losses or damages suffered by individuals and for any clean-up costs incurred by the government.

  • New tools to recoup clean-up costs from polluters.

Bill C-46 creates several new tools that, if implemented, will enhance the National Energy Board’s ability to recoup clean-up costs from a polluter, including some that appear to allow the Board to recover more than the absolute liability limit. The bill also gives the Board the power, in certain circumstances, to recover costs associated with a spill from the pipeline industry at large, not just from the polluter. Cabinet will also have the ability to establish a special tribunal to hear and decide claims for compensation. Interestingly, any compensation awarded by the tribunal would be paid directly out of government revenue. This should make it easier for those affected by a spill to obtain compensation, but could leave taxpayers on the hook for this compensation if other tools aren’t used to recover money from the polluter.

The Bad

  • It’s too discretionary.

Many of the new tools are discretionary, meaning that either the National Energy Board or politicians (i.e., Cabinet) get to decide whether or not they will be implemented. It is conceivable that some tools might not be implemented for political or other reasons, weakening the protection and peace of mind this bill is intended to offer Canadians. While Bill C-46 has the potential to make some important improvements to Canada’s pipeline liability regime, it’s too early to tell whether this potential will translate to real, on-the-ground benefits for Canadian taxpayers.

  • It has significant gaps.

For example, Bill C-46 doesn’t identify the absolute liability limit for gas and other non-oil pipeline companies, or for small oil pipeline companies. Instead, this limit might be set in the future by a Cabinet regulation. Likewise, Bill C-46 provides no clear guidance on the calculation of “environmental damages,” nor does it provide the government with the power to develop such guidance at a later date through regulation. Because recognition of this kind of damages is very new in Canadian statutes, this omission makes it less likely that a government will try to recover compensation and weakens the potential benefits of including these damages.

  • It doesn’t impose unlimited absolute liability.

Finally, and perhaps most crucially, Bill C-46 doesn’t impose unlimited absolute liability on polluters. In fact, Bill C-46 takes a step back by eliminating the government’s ability to recover clean-up costs for a pipeline spill under the Fisheries Act, which applies in certain circumstances to make a polluter absolutely liable, without limit. No liability regime can truly and comprehensively be termed a polluter pays regime unless and until polluters are made absolutely liable for the full costs of environmental harm. Although a liability limit of $1 billion for some companies is a good first step, we only need to look to Michigan and Kalamazoo River to know that the clean-up costs for a major spill can top that number — and that doesn’t include compensation for damages.

The Takeaway

Bill C-46 is a much needed, overdue first step towards a “polluter pays” regime for pipelines in Canada. In general, it could add a lot of good, innovative tools to the National Energy Board’s toolbox that could effectively protect Canadian taxpayers from paying the clean-up costs in the wake of a pipeline spill. How effective these tools will be is, unfortunately, left largely to the discretion of the Board and politicians. This lack of certainty about the degree to which polluters will be required to pay for their pollution undermines what is, in principle, a good first step.