Trudeau pumps $1.7 billion into cleaning orphan and inactive wells

Canada is putting a combined $2.5 billion toward cleaning up thousands of risky, contaminated oil and gas wells and cutting a potent form of carbon pollution, Prime Minister Justin Trudeau announced Friday.

The two measures consist of $1.72 billion for cleaning up orphan or inactive wells in British Columbia, Alberta and Saskatchewan, the prime minister said, as well as $750 million to create an “Emissions Reduction Fund” to help firms meet federal methane-reduction standards. A tenth of that fund, designed to offer loans, is meant for cutting pollution in Newfoundland and Labrador’s offshore oil industry.

Trudeau said he wanted to support workers and their families and help oil and gas companies avoid bankruptcy, while supporting his government’s environmental goals, after the coronavirus pandemic and an oil-price crash have created new obstacles for the industry.

Many energy firms are experiencing cash-flow issues and “don’t have the funds to invest in technologies to reduce emissions or fix methane leaks,” the prime minister said from Rideau Cottage in Ottawa, adding that the new fund would create jobs to allow this kind of work to be done.

Methane is a greenhouse gas 86 times as powerful as carbon dioxide at trapping heat over a 20-year period. The fossil fuel industry, a primary contributor to atmospheric methane, burns it off or vents it as an unneeded byproduct of drilling, and it also leaks accidentally from equipment.

Scientists say methane is jeopardizing efforts to halt the global temperature rise and slow climate change. Canada has committed to cutting methane from the oil and gas sector by 40 to 45 per cent from 2012 levels by 2025.

Meanwhile, orphan wells are a major problem in Western Canada. National Observer has reported Alberta’s industry-funded non-profit, the Orphan Well Association, has an inventory of 2,789 wells that need to be abandoned and a further 3,331 sites where land must be reclaimed.

The Supreme Court of Canada has ruled companies cannot use federal bankruptcy laws to avoid regulations requiring them to pay for cleaning up abandoned wells. But it could take more than 2,800 years to clean up some of them, a senior official from the Alberta Energy Regulator has told industry.

A private presentation in 2018 by a high-ranking official from the regulator estimated it could cost $260 billion to clean up all environmental liabilities, including problematic wells, pipelines and tailings ponds. The presentation describes that figure as “likely less than the actual cost" and warned liabilities from conventional wells were getting larger, although the regulator would later characterize it as a “worst-case” scenario and an "error in judgement" following media reports.

“We’ve listened to the concerns of landowners, municipalities and Indigenous communities who want to make sure that the ‘polluter pays’ principle is strengthened and that their voices are heard,” Trudeau said about orphan wells.

Overall, the two commitments are expected to maintain “roughly 10,000 jobs” countrywide, the prime minister said, with more than half of those based in Alberta.

“Just because we’re in a health crisis, doesn’t mean we can neglect the environmental crisis,” he said.

Canada's domestic and export credit agencies, Export Development Canada and the Business Development Bank of Canada, will also offer fresh support to “medium-sized” energy firms in trouble, Trudeau added, so they can keep employees on the payroll. The government is expanding eligibility for the Business Credit Availability Program it first announced March 18.

Environmental advocates who spoke with National Observer on Friday said they were relieved Trudeau — at least for now — has avoided a much larger bailout of the oil and gas industry. One media report, for example, had suggested a $15-billion package was in the works. It also avoids some demands, like freezing the carbon tax or delaying climate regulations, that the oil lobby has been pushing for.

Still, they also raised questions about whether the funding would come with sufficient oversight, be steered by appropriate voices such as Indigenous communities and municipalities and not the federal cabinet and be able to stick to the stated goal of cleaning up emissions and contaminated sites, without money being funnelled into the hands of large, still-profitable corporations.

Julia Levin, climate and energy program manager at Environmental Defence, said she was glad to see the government stick to federal methane regulations, given Ottawa has been negotiating equivalency agreements with provinces that she said could weaken pollution standards.

“But the taxpayers shouldn’t be on the hook for compliance,” she added. “These companies have known they have to work on their methane reductions for years, and now, all of a sudden, we have to pay so they can have more efficient infrastructure.”

Marc Lee, a senior economist with the B.C. office of the Canadian Centre for Policy Alternatives, said he liked that the methane fund was designed as repayable loans rather than a direct subsidy to industry.

“The government definitely needs to make an attempt to try to align its support in Alberta with its broader climate and environmental measures,” he said about the fund. “There is a lot that you could criticize around that, but in this particular moment, with the pandemic, I think it’s overall a decent result.”

Lee said given the broader scope of potential environmental liabilities in the hundreds of billions of dollars for Alberta, the $1.7 billion announced by Trudeau on Friday seemed small.

“The overall amount isn’t particularly large in the context of the size of the industry, and the size of the cleanup that needs to happen,” he said.

But he noted that, “in the current context, where unemployment is a concern, and there needs to be another level of regional and industry-level support, it’s not the worst thing in the world.”

Part of the government’s commitment includes a $200-million loan to the Orphan Well Association. Late last month, Alberta moved to expand the organization’s powers, for example allowing it to take ownership of orphan pipelines and wells that can still produce petroleum.

Levin said it was key that inactive wells don’t become orphans. She has called for legislated timelines for wells to be cleaned up, and for security deposits to be made up front. Without details on that, she said, there is uncertainty over whether the funds could be used to “let companies off the hook.”

She also wants to see funds administered by First Nations representatives, municipal governments and landowners so the decision of which well to clean up and when does not become politicized.

“If it’s a fund that’s being administered by cabinet, that leaves a lot of political discretion — cleaning up wells for certain companies over other ones, or cleaning up wells from municipalities that you like,” she said.

Following Trudeau's announcement, Alberta Premier Jason Kenney said he was “grateful” and thanked Trudeau for an “important first step.” He said the funding to address inactive wells “will immediately save or create thousands of jobs.”

Canadian Association of Petroleum Producers president Tim McMillan also said in a statement he appreciated the initiatives announced by Trudeau and called the orphan-wells announcement “welcome news.”

“Reducing environmental liabilities is a priority for the oil and natural gas industry and this initiative will allow important work to accelerate, while supporting thousands of jobs,” McMillan wrote.

Carl Meyer / Local Journalism Initiative

Editor's note: This story was updated on April 20, 2020 at 9:50 a.m. Eastern to clarify that the description of the $260-billion estimate as a "worst-case" scenario came after a private presentation had stated the figure was likely less than the actual cost.