2013 Spring Report of the Auditor General of Canada Appendix—Main Points of the Report of the Commissioner of the Environment and Sustainable Development—Fall 2012
2013 Spring Report of the Auditor General of Canada
Appendix—Main Points of the Report of the Commissioner of the Environment and Sustainable Development—Fall 2012
Our Fall 2012 Report of the Commissioner of the Environment and Sustainable Development was presented to the Speakers of the House and the Senate on 18 December 2012, as required by legislation. The Speakers tabled our report in Parliament on 5 February 2013.
We provide here the Main Points for the Fall 2012 Report of the Commissioner of the Environment and Sustainable Development.
Chapter 1—Atlantic Offshore Oil and Gas Activities—Main Points
What we examined
Canada’s offshore oil and natural gas exploration and development activities in the Atlantic region are regulated by the Canada–Newfoundland and Labrador Offshore Petroleum Board and the Canada–Nova Scotia Offshore Petroleum Board. The boards are joint federal–provincial bodies. Their core regulatory responsibilities include safety, protection of the environment, and management and conservation of petroleum resources.
The boards are responsible for managing significant environmental risks associated with offshore oil and gas activities. According to the governing legislation, offshore operators are required to respond to spills. However, if the operator cannot or does not take appropriate measures, the board may lead the response to a major spill. The boards may seek support from federal parties, including the Canadian Coast Guard, Environment Canada, Transport Canada, and Natural Resources Canada.
We examined how the boards are managing the environmental risks and impacts associated with offshore oil and gas activities. Our audit work included the boards’ procedures for assessing and authorizing offshore petroleum projects; ensuring compliance with environmental requirements; and preparing for and responding to spills. The boards work with the federal departments of Natural Resources, Environment, Transport, and Fisheries and Oceans, including the Canadian Coast Guard. We also looked at the advice and support those departments provide to the boards. Our audit did not include any provincial organizations or private sector operators.
Audit work for this chapter was completed on 24 August 2012. More details on the conduct of the audit are in About the Audit at the end of this chapter.
Why it’s important
Marine ecosystems in Atlantic Canada are biologically diverse, providing critical habitat for species at risk and migratory birds in locations such as the Grand Banks, Sable Island, and The Gully Marine Protected Area. The offshore regions are also a vital part of the country’s economy, providing employment for thousands of people and supporting activities such as aquaculture and fisheries, tourism and recreation, and shipping and transportation.
The potential impacts of an offshore oil spill in Atlantic Canada, such as seen in the Gulf of Mexico in 2010, could be widespread and devastating to the environment, industry, and the livelihoods of many Canadians. As a result, it is essential that the offshore petroleum boards manage the risks and impacts associated with the oil and gas activities they regulate.
What we found
- The boards have applied some good practices when assessing and approving offshore projects and activities, such as seeking input from key stakeholders. However, the boards have not yet established or updated their policies and procedures to guide environmental assessments, nor are they systematically tracking the measures to prevent or reduce environmental impacts. It will be important for the boards to determine how they will meet the objectives of their governing legislation to protect the environment, given the changes introduced by the new Canadian Environmental Assessment Act, 2012.
- The boards have taken adequate steps to ensure that offshore operators comply with environmental requirements. More remains to be done to implement risk-based audits of the operators’ management systems, and to establish more formal arrangements for obtaining independent observations of offshore oil and gas activities.
- The boards have managed the current environmental impacts associated with oil and gas activities in Canada’s Atlantic offshore areas in a manner consistent with the existing size and scale of operations. However, if a board were to take over the response to a major oil spill, the board and the federal entities that might contribute to the response efforts are not adequately prepared to play this role.
- Specifically, we found that the response plans of the boards and the federal entities are not coordinated and are sometimes inconsistent; the boards and federal entities have not tested or exercised their collective plans or collective capacity; and several memoranda of understanding are either out of date or not in place. In addition, the Newfoundland–Labrador Board has not yet completed the assessment of the operators’ spill response capabilities that it began in 2008.
- Unlike the Newfoundland–Labrador Board, the Nova Scotia Board does not currently regulate activities that produce oil. It expects exploration for oil within its jurisdiction in the near future, and so has work to do to prepare for this.
The entities have responded. The entities agree with our recommendations. Their detailed responses follow the recommendations throughout the chapter.
Chapter 2—Financial Assurances for Environmental Risks—Main Points
What we examined
Environmental financial assurances are an important mechanism the federal government uses to help shield taxpayers from the costs of environmental protection, cleanup, and reclamation for a range of natural resource development projects of the private and public sector, including mining, energy projects, the transport of oil and gas, and nuclear. Absolute liability limits are used in certain sectors to limit or cap the total amount that an operator may be liable for if an incident occurs, without proof of fault. Such absolute liability caps are used in Canada and in other countries.
Assurances can be in the form of letters of credit, trust funds, guarantees, and insurance. The federal government holds or has access to these assurances during the lifetime of a project.
The responsibility for natural resource development rests primarily with the provinces. However, there are several specific and well-defined federal regulatory responsibilities covering natural resource development, energy production, and transportation.
We examined whether selected federal entities have appropriate systems in place for obtaining and managing environmental financial assurances. Our audit focused on federal regulation of four sectors: mining (north of the 60th parallel), nuclear, offshore oil and gas, and marine transportation. We also examined liability limits established for nuclear facilities and oil spills from ships, as well as the liability regime for offshore oil and gas production, which includes both an absolute liability limit and an unlimited liability for parties at fault.
Audit work for this chapter was completed on 31 August 2012. More details on the conduct of the audit are in About the Audit at the end of this chapter.
Why it’s important
The environmental costs resulting from natural resource development projects can run into tens of millions—or in rare cases billions of dollars. Environmental financial assurances are an important safeguard, since they provide funds for future environmental liabilities to be paid for by a proponent or operator. They provide for liabilities arising from projects with long lifespans where risks associated with decommissioning and their related costs may not become known for decades. In conjunction with a regulatory framework, they can act as a powerful incentive to industry to reduce environmental impacts as a core part of business.
Environmental financial assurances are a tangible example of the “polluter-pays principle” in action, since the project proponent or operator is expected at the outset to cover all costs associated with environmental protection, site reclamation, longer-term protection of closed sites, and damages from accidents.
What we found
- Federal entities we examined have procedures in place for obtaining environmental financial assurances. Based on available information, we estimate that the assurances they have received give them access to approximately $11.6 billion.
- Federal entities lack information to know if the assurances received are sufficient to cover the financial risks of projects, such as the cost of decommissioning and reclamation. We noted that Aboriginal Affairs and Northern Development Canada did not compare, on a regular basis, whether the financial securities obtained during the life of a mine are sufficient to meet the cost of reclamation of land and water. Fisheries and Oceans Canada was not able to confirm the total dollar value of the securities it held, whether the securities were still valid, or if they fully covered the estimated cost of fish habitat compensation plans.
- In two of the examined sectors—nuclear and offshore oil and gas—liability limits for damages to third parties are outdated and generally much lower than those in other countries. Liability limits for damages to third parties from nuclear facilities have not changed in 35 years. Similarly, the offshore oil and gas liability limits have not changed in more than 20 years. In the marine transportation sector, Transport Canada acknowledges a risk that the current maritime liability limits and compensation regimes may not be sufficient to cover the cost of any major spill in Canadian waters. As a result, taxpayers may have to cover shortfalls and pay for environmental remediation.
- The Canadian Nuclear Safety Commission has obtained environmental financial assurances to cover the decommissioning costs of major nuclear sites. It is working to expand the requirement for such assurances to include licensees in the areas of medical and industrial applications and academic research.
The entities have responded. The entities agree with all of our recommendations. Their detailed responses follow the recommendations throughout the chapter.
Chapter 3—Marine Protected Areas—Main Points
What we examined
Marine protected areas (MPAs) are a key tool that Canada has committed to using to protect and conserve marine biodiversity. As a signatory to the United Nations Convention on Biological Diversity, Canada agreed to an international target of conserving 10 percent of marine areas by 2020 through networks of protected areas and other conservation measures. A network of marine protected areas is a collection of individual marine protected areas that operates cooperatively in order to fulfill ecological aims more effectively and comprehensively than individual sites could do alone.
Fisheries and Oceans Canada, Parks Canada, and Environment Canada are the three federal authorities with specific, complementary mandates to establish and manage marine protected areas in Canada’s oceans and Great Lakes. Fisheries and Oceans Canada is responsible for leading and coordinating the development and implementation of a national network of MPAs on behalf of the Government of Canada and also has a mandate to establish individual marine protected areas. Parks Canada is responsible for establishing marine protected areas to protect and conserve representative examples of Canada’s natural and cultural marine heritage, to provide opportunities for public education and enjoyment, and to contribute to a national network of marine protected areas. Environment Canada is responsible for protecting habitat for a variety of wildlife, including migratory birds and species at risk.
We examined actions taken by Fisheries and Oceans Canada and Parks Canada to plan, establish, and manage marine protected areas.
Audit work for this chapter was completed on 28 August 2012. More details on the conduct of the audit are in About the Audit at the end of this chapter.
Why it’s important
The world’s oceans are under threat from the effects of pollution and over-exploitation. According to Fisheries and Oceans Canada, in 2009 the quantity of Canada’s fishery catches was 41 percent less than the peak harvest volumes of the late 1980s; the 2009 landed values were among the lowest on record since 1984.
Conserving and protecting marine biodiversity is not solely an environmental priority. As recently reported at the 2012 World Economic Forum, the ocean’s natural capital (the stock of ecological goods and services that can be maintained for use in the future) is intrinsic to the health and functioning of the world economy. Today, more than 1.5 billion people count on fish for their daily protein source. With the world population projected to reach 9 billion by 2050, humankind needs to double the production of food without further depleting Earth’s natural capital.
In concert with other ocean management initiatives, the benefits of marine protected area networks include protecting species and ecosystems, protecting unique and threatened species, capturing and storing carbon, and providing refuge for species displaced by habitat change. MPA networks can also provide social and economic benefits, such as sustained fisheries, and enhanced recreation and research opportunities.
What we found
- Fisheries and Oceans Canada has established eight MPAs, led the development of the 2011 National Framework for Canada’s Network of Marine Protected Areas, and is now developing technical guidance for implementing the Framework. However, the Department has not coordinated with other authorities and stakeholders to produce a plan for a network of marine protected areas as called for by the Oceans Act (in force in 1997). The Department has not identified the specific areas that need to be protected by it and others to create a national network that would conserve and protect Canada’s marine habitats, animals, and plants.
- Parks Canada has made substantial progress toward its plan for establishing MPAs that would be representative of Canada’s marine environments. The Agency has defined 29 marine regions in Canada, identified representative areas within 28 of those regions, decided on MPA candidate sites within 14 regions, and established two MPAs in legislation. However, significant work remains to be done. Parks Canada needs to select candidate sites for MPAs in 15 of its marine regions, and establish MPAs in the 26 of 29 regions where they have yet to be established. Although it has not set a timeline for doing so, the Agency plans to have MPAs in each of its 29 defined marine regions—these MPAs will be the Agency’s contribution to Canada’s MPA network.
- Both Fisheries and Oceans Canada and Parks Canada have recognized through their commitments within the Federal Sustainable Development Strategy that concrete actions are needed to complete this work, but they have not met these commitments. It has been 20 years since Canada ratified the United Nations Convention on Biological Diversity and 15 years since it committed to leading and coordinating the development and implementation of a national network of marine protected areas under the Oceans Act. Yet there is no national network of marine protected areas. Fisheries and Oceans Canada estimates that marine protected areas currently cover about 1 percent of Canada’s marine environment. At the current rate of progress, it will take many decades for Canada to establish a fully functioning MPA network and achieve the target established in 2010 to conserve 10 percent of marine areas under the United Nations Convention on Biological Diversity.
The entities have responded. The entities agree with all of the recommendations. Their detailed responses follow the recommendations throughout the chapter.
Chapter 4—A Study of Federal Support to the Fossil Fuel Sector—Main Points
What we examined
As a member of the G-20, Canada has officially recognized that efforts to deal with climate change, wasteful energy consumption, market distortions, and barriers to clean energy investment are undermined by inefficient fossil fuel subsidies.
The purpose of this study was to provide parliamentarians with information on the various means, including but not limited to subsidies, by which the government supports the fossil fuel sector, and the cost of that support. Because there is no single entity within government that is responsible for assembling a listing of government programs and activities that support the fossil fuel sector in Canada, our study undertook to compile such an inventory.
Where a program offered support to other economic sectors as well, we considered to the extent possible only the value of the support attributable to the fossil fuel sector. We also included programs that reduce carbon footprint through clean energy technology.
This document is not an audit report. For this reason, our observations should not be considered an assessment of the government’s current practices. Our study did not assess the effectiveness or efficiency of the programs and activities identified or their impacts.
Our work for this chapter was completed on 28 August 2012. More details about the objectives, scope, and approach are in About the Study at the end of this chapter.
Why it’s important
In general terms, subsidies have a direct effect on public sector budgets. Subsidies can help address market failures, respond to social needs, and encourage environmental improvements. At the same time, subsidies can also exert market and pricing distortions that can have negative impacts on environmental quality.
The Organisation for Economic Co-operation and Development has identified fossil fuel subsidies in its member nations amounting to between US$45 billion and US$75 billion annually between 2005 and 2010. Approximately 30 percent of that amount was received by producers, and the majority was provided through tax expenditures. A report submitted to the G-20 noted that subsidies to producers of fossil fuels worldwide may be around US$100 billion per year.
According to the International Energy Agency (IEA), the complete phase-out of global subsidies for fossil fuel consumption could reduce greenhouse gas emissions by 1.7 gigatonnes by 2020. This would amount to approximately 40 percent of the abatement needed to limit global warming to a 2°C rise by 2020. Although reform of fossil fuel subsidies on its own may not be sufficient to resolve climate change, according to the IEA it is a necessary step forward.
What we found
- The government has a broad range of programs that provide support to the fossil fuel sector. That support can be grouped into two main types: direct spending through various programs; and tax expenditures under the Income Tax Act, which represent the majority of financial support.
- Based on the data that the government provided to us, the majority (97 percent) of direct spending to support the fossil fuel sector was for research and development, more than half of which related to clean technology. Other direct spending went to economic development activities. Total direct spending amounted to $508 million over the fiscal period 2007–08 to 2011–12. Extended over 30 years, this would represent a significant decline in direct spending support to the sector since the 30 years preceding our 2000 study of government support for energy investments.
- The costs of tax expenditures are not as easily determined as are direct expenditures, due to limitations in data availability and the methodological challenges of developing cost estimates.
- The estimated costs of tax expenditures that Finance Canada was able to attribute specifically to the fossil fuel sector amounted to $1.47 billion over the fiscal period 2006–07 to 2010–11, primarily relating to the accelerated capital cost allowance for oil sands projects. This tax expenditure is being phased out over four years. A number of other tax expenditures are also being phased out over varying time periods. The estimated costs of tax expenditures attributable to the oil and gas, mining, and clean energy sectors as a whole amounted to about $2 billion, accounted for largely by deductions for flow-through shares. Finance Canada was unable to estimate the proportion of this support that was attributable specifically to the fossil fuel sector. For other tax expenditures, such as the accelerated capital cost allowance for mining and Canadian exploration expenses, the Department was unable to provide an estimate of the costs.