Ottawa tables bill imposing absolute liability of $1 billion on pipeline operators for spills

The federal government introduced Monday legislation intended to impose absolute liability, on major oil pipeline operators, of up to $1 billion in case of incidents such as spills, and to require them to have the “financial resources necessary to pay the amount of the limit of liability,” such as insurance, bonds or guarantees.

Natural Resources Minister Greg Rickford tabled Bill C-46, the Pipeline Safety Act, for first reading in the House of Commons.

“Companies will automatically be responsible for up to $1 billion in damages,” Rickford told reporters at a press conference Monday. “It doesn’t matter who or what causes the incident. The company is responsible for that $1 billion regardless. If a company is found negligent or at fault there will be no limit on liability.”

The absolute liability of $1 billion applies to “major” crude oil pipeline operators, Natural Resources Canada said in a press release Monday. “Major” operators would be those with “the capacity to transport at least 250,000 barrels of oil per day.” The absolute liability amounts for other pipeline operators would be specified in regulations.

In June 2013 then-Natural Resources Minister Joe Oliver had promised that the federal government would introduce regulations requiring major pipeline operators to have the “financial capability to respond to any incident and remedy damage.”

The Pipeline Safety Act tabled Monday would give NEB the power to order a pipeline operator, after a spill, to reimburse “any federal, provincial or municipal government institution, any Aboriginal governing body or any person” for costs and expenses that NEB “considers reasonable that they incurred in taking any reasonable action or measure in relation to the release.”

That power would apply “even if the costs and expenses are more than the amount of the limit of liability” mandated by Bill C-46.

“If a company is unable to respond immediately to an incident, the National Energy Board will have authority to take over the job,” Rickford said Monday during the press conference. “If that ever does happen, the National Energy Board will have the authority to recover any and all costs from industry.”

The absolute liability is for “unintended or uncontrolled releases” of commodities such as oil and gas from pipelines. That would apply to all pipelines regulated by the National Energy Board.

Pipeline operators will also be required to have a “minimum level of financial resources” so they can respond quickly to incidents.

The Pipeline Safety Act does not specifically require certificates of pollution liability insurance. However, it does propose to allow the government to mandate, by regulation, certain “types of financial resources.” It proposes to require pipeline operators to “satisfy” the NEB that they meet “the requirement to maintain the amount of financial resources” in case they would have to pay out under the absolute liability provision.

The NEB “may consider, among other things, the company’s financial statements, letters of credit, guarantees, bonds or suretyships and insurance,” the bill states in its present form.

Bill C-46 also proposes to allow pipeline operators, under certain circumstances, to “meet all or a portion” of their financial requirements through access to pooled funds.

All provisions of Bill C-46 would be implemented through changes to the National Energy Board Act and the Canada Oil and Gas Operations Act.

If passed into law with no changes, Bill C-46 would let the federal government pursue companies for environmental damages, Rickford suggested during Monday’s press conference.

“These provisions apply over the entire life cycle of the pipeline, up to and including its abandonment.”

In its report for 2013-14 to Parliament, issued Aug. 20, Canada’s Transportation Safety Board noted that 11 pipeline accidents were reported to the TSB in 2013, up from a total of seven in 2012. The last fatal accident on a federally-regulated pipeline system occurred in 1988. TSB did not issue any pipeline safety recommendations in 2013-2014.

Bill C-46 is one of several in the works that is designed to ensure companies operating in Canada can cover pollution liabilities.

Bill C-3 – Safeguarding Canada’s Seas and Skies Act – passed third reading Dec. 3 in the Senate and is now ready for royal assent. When implemented, Bill C-3 will establish strict liability, for ship owners, for incidents involving hazardous and noxious substances.

Bill C-3 proposes to implement, in Canada, the provisions of the International Convention on Liability and Compensation for Damage in Connection with the Carriage of Hazardous and Noxious Substances by Sea, also known as the HNS Convention.

That convention “imposes a compulsory insurance requirement on all ships that are flagged in the states that are members of the convention, as well as all ships that are calling at ports in those same states,” Francois Marier, Transport Canada’s manager for international marine policy and liability, said last month before the Senate’s Transport and Communications Committee.

“So if Canada were to become party to the convention, all Canadian-flagged ships would have a requirement to carry the adequate amount of insurance and all foreign ships that call at Canadian ports would have the same requirement to demonstrate evidence of insurance which is certified by a state party.”

Another government bill that recently went to the Senate is Bill C-22, the Energy Safety and Security Act. It passed second reading Dec. 4 and was referred to the Standing Senate Committee on Energy, the Environment and Natural Resources.

If passed into law with no amendments, Bill C-22 would increase the absolute liability limits – for some offshore petroleum producers – to $1 billion, for damages arising from spills. That limit is currently about $30 million in the Atlantic offshore area and $40 million in the Arctic.

Bill C-22 would also increase – from $75 million – the absolute liability (and insurance coverage requirement) for nuclear operators. On royal assent, nuclear operators would need $650 million in coverage and that would be increased, over three years, to $1 billion.

Nuclear operators in Canada are required to buy insurance from an insurer approved by the federal government. They currently buy both liability and first-party property insurance through the Nuclear Insurance Association of Canada (NIAC), a non-profit association of insurers.