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 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

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

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