When it comes to the growing global focus on so-called ESG (environment, social and governance) metrics, Alberta’s oil and gas industry is talking the talk. Slides have been added to investor presentation decks, committees have been struck and key messages have been developed. The UCP government is even in the midst of its own conversion on the road to climate Damascus here, one that was highlighted by the creation of a new “ESG secretariat” in March. Premier Jason Kenney, who once referred to climate concerns from international investors as a “flavour of the month,” has apparently accepted that it’s now a permanent part of their diet.
But when it comes to actually walking the walk, it seems they’re stuck at the crawling stage. Case in point: the Alberta government’s Mine Financial Security Program, which collects deposits from oilsands mine owners and, in theory, protects the public from having to clean up after them. But most of those payments happen near a mine’s end of life, and so far Canada’s large oilsands companies have only paid down $1 billion against estimated cleanup costs that range from $28 billion (according to said companies) to as much as $130 billion (according to the Alberta Energy Regulator). This discrepancy has been flagged repeatedly, including by the province’s own auditor general in a 2015 report.
You might think that the COVID-19-driven market crash last March, when oil briefly traded at negative prices, would have been a wake-up call to start taking that discrepancy more seriously. But based on recent reporting by the Financial Post, it seems like the Kenney government is hitting the snooze button instead.
The current system requires companies to put up more money if the ratio of their assets to their cleanup costs falls below 3-to-1, and it seems many did that last year. But rather than forcing them to pony up the cash needed to bring those ratios into alignment, the government is going to give them a one-time waiver.
“Government officials confirmed to the Financial Post that the security deposits collected this year are expected to be similar to those collected in previous years,” Geoffrey Morgan wrote, “but will be substantially less than they would have been under the existing calculations.”
Once again, the problem of remediating Alberta’s ever more massive oilsands tailings ponds will be left to the future. And as economist Jason Dion wrote in a 2018 report for Canada’s Ecofiscal Commission, this approach is baked into the very design of the MFSP program. “Many of the design features of Alberta’s MFSP support economic activity at the expense of deterrence and compensation,” he wrote. “These choices limit the financial-assurance burden on individual firms, supporting economic activity in the sector. But they also lead to weaker deterrence and compensation.”
Those design features include allowing companies to submit undocumented estimates of assets and liabilities, as well as including both proven and probable reserves in those calculations, which “may overstate their financial health.” More worrisome, perhaps, is that the MFSP allows companies to file reclamation plans that rely on technology (like so-called “water capping,” which involves covering the mine tailings with an artificial lake or wetland) that hasn’t even been proven to work. “If water capping proved ineffective and the firm that operated the mine was no longer in operation,” Dion wrote, “any costs of remediation over and above the financial assurance held by government would fall to Alberta taxpayers.”
When it seemed like oil prices would remain high for the foreseeable future, this willingness to kick the can down the road was understandable, if not morally defensible. But in 2021, as large countries and corporations commit to net-zero emissions targets and embrace the challenge of decarbonization, that’s no longer an option. According to the International Energy Agency’s so-called “Sustainable Development Scenario” — the one that’s aligned with Paris Agreement targets — demand for oil is currently peaking and will drop nearly 33 per cent by 2040 to 67 million barrels per day.
Prices may continue to rally in the near term as the OPEC cartel holds its fire and global supplies struggle to recover from COVID-19. But it should be clear by now the growing global effort to reduce emissions will mean a reduction in demand for Alberta’s oil. As the University of Calgary’s Sara Hastings-Simon and Martin Olszynski wrote in March, “this sudden windfall in oil prices represents the last best opportunity to address the sector’s outstanding liabilities and ensure that the public isn’t left holding the bag. The AER should act quickly and set the mandatory spending targets sufficiently high to ensure that the profits from higher prices are also used to meaningfully address liabilities, not simply enrich owners or shareholders.”
When it comes to the growing global focus on so-called ESG metrics, Alberta’s oil and gas industry is talking the talk — now it needs to walk the walk, writes columnist @maxfawcett. #ableg #oilsands
If the Kenney government is truly serious about being a global leader in ESG, it needs to put its money — and its legislative might — where its mouth is so frequently these days. Environment Minister Jason Nixon has apparently promised a “long-term solution for the Mine Financial Security Program to better protect our environment and taxpayers,” although it remains to be seen what that actually looks like. But one thing should be abundantly clear by now: the time for can-kicking is over.