Report finds Big Oil can afford to clean up its mess but needs arm-twisting to pay up

Oil and gas companies can afford the billions it will take to clean up their messes and it’s up to governments to force them to do so, a new analysis has found.

Right now, it would cost an estimated $123 billion to clean up the environmental liabilities created by oil and gas companies in Canada, according to a new analysis by the Parkland Institute — a non-partisan research centre located at the University of Alberta — and commissioned by Environmental Defence. If the industry maintains current production levels, that number could hit nearly $224 billion by 2040.

The estimated cost of environmental liabilities laid out in the report includes cleanup or reclamation of oilsands mines, abandoned or orphaned oil and gas wells, and tailings ponds. The issue of leaky tailings ponds made national and international headlines earlier this year when it came to light that Imperial Oil failed to notify downstream communities for nine months about seepage and leaks from its Kearl oilsands site.

Pipelines and facilities such as refineries, tank farms and more are not included in this report's estimates due to a lack of data, however, all of these will eventually need to be decommissioned and will be an added cleanup cost, the report explained.

The Parkland Institute modelled three different scenarios and contrasted them with projected oil and gas industry profits, illustrating that companies have the means to pay for cleanup.

“Oil and gas companies are not voluntarily going to pay their bills; they must be forced to do so by governments and that's at every level,” said Julia Levin, national climate program manager with Environmental Defence. “In this world of declining demand for Canadian oil and gas … it is incumbent on provincial governments to start collecting the money ahead of time.”

There's an enormous risk the public will have to bear the cost of these environmental liabilities, which would be unacceptable, said Levin, pointing out that the current $123 billion of liabilities amounts to roughly $3,000 per Canadian.

The Canada Energy Regulator recently produced its first forecast that takes into account domestic and global climate goals. In a scenario where Canada and the rest of the world are able to keep global warming at or below 1.5 C, the regulator predicts oil production in 2050 will be 76 per cent lower than 2022 levels and natural gas production will be 68 per cent lower.

“We can't wait for 10 years from now to start charging these companies their cleanup costs because 10 years from now, production will have fallen,” said Levin. “Now is when these companies are still making massive, massive, massive profits. And they must be forced to use the profits, to use the revenues, to clean up their mess now.”

Canadian law states polluters must bear the cost of cleaning up their mess, but time and again, the cost of cleaning up abandoned oil wells has fallen on the public purse.

In 2020, the Alberta government received $1 billion of $1.7 billion in federal funding to clean up abandoned and inactive oil and gas wells. In 2021, a Parkland Institute report found that much of the $1 billion in taxpayer money was given to large companies not at risk of insolvency and used to carry out work the companies should have already been doing.

Some governments have liabilities funds, but as of 2022, Saskatchewan only held about two and a half per cent of the funds required, and Alberta holds less than one per cent for the traditional oil and gas sector and about three per cent for the tarsands, Parkland Institute’s new analysis points out.

To stimulate discussion, the analysis explores three scenarios. In the first scenario, Canada's oil and gas production stops by the end of 2023. While not “politically realistic,” this scenario is the only one in which Canada can stay within its “fair share” of the global carbon budget, taking into account historical emissions and the ability to transition off fossil fuels.

The second is based on current production levels continuing for six years and then immediately stopping. In this model, nearly 37 per cent of estimated oil and gas industry profits would be required to clean up the sector’s environmental liabilities. In this scenario, liabilities sit at $148 billion and the sector’s profits after six years are estimated at nearly $405 billion.

The third and final scenario is described as “business as usual” and has production remain at current levels all the way until 2040 and then abruptly stop. In this scenario, more than 18 per cent of the total profits (an estimated $1.2 trillion) must go to environmental cleanup, costing nearly $224 billion.

In reality, there would be a more gradual end to oil and gas production, not a hard stop at the end of a certain year, noted the report’s author, Megan Egler, a contract researcher with the Parkland Institute and PhD graduate fellow at the Gund Institute for Environment at the University of Vermont. Her analysis uses a carbon budget for each scenario to look at exactly how much oil and gas is being taken out of the ground in Canada.

To estimate profits from the oil and gas sector as a whole, Egler took the profitability per barrel of oil produced from the four largest oil producers in Canada (Suncor Energy, Canadian Natural Resources Limited, Imperial Oil and Cenovus), plus Tourmaline, Canada’s largest gas producer. Egler did this for 2019 and 2021, omitting 2020 because of the abnormal oil prices that occurred during the COVID-19 pandemic.

“What we're trying to do is take a snapshot of 'OK, where's the industry right now?' And then kind of use that as a jumping off point to say, 'OK, if we continue as is and Canada wants to continue saying that they're keeping with their climate commitments, what would that look like?”' said Egler.

Regardless of oil prices being volatile and subject to geopolitical turmoil, companies are still obligated by law to clean up so that the financial burden doesn’t fall to taxpayers. Despite what the law says, the report points out a track record of companies delaying the cleanup of inactive infrastructure and or declaring bankruptcy and leaving the public on the hook.

“Any public funding for covering the cost of cleanup is an incredibly inefficient fossil fuel subsidy given that oil and gas companies can absolutely cover these costs by themselves,” said Levin.

Natasha Bulowski / Local Journalism Initiative / Canada’s National Observer