Liability limits are subsidies that allow companies to pass along costs to taxpayers (or to uncompensated victims) and any government truly committed to the polluter pays principle would not simply raise caps on liability, it would remove them entirely, writes Elizabeth Brubaker.
One billion seems to be the magic number in Ottawa these days.
In June, Natural Resources Minister Joe Oliver announced that the federal government will increase the liability limit for the operators of nuclear power plants to $1 billion from the current $75 million. The proposed limit, like the current one, will be absolute – in the event of a nuclear accident, there will be no need to prove fault. It will also be exclusive – no other party will be held liable.
A week later, Minister Oliver announced that his government will raise the absolute liability limit for oil companies drilling in Atlantic and Arctic waters, making them responsible for $1 billion in clean-up costs in the event of a blow-out or oil spill. Oil companies will also be required to demonstrate their financial capacity to cover this liability. Atlantic drillers currently enjoy an absolute liability limit of just $30 million, and Arctic drillers’ liability is now capped at $40 million. Companies that are at fault or negligent now face unlimited liability, and will continue to do so.
The following week, Minister Oliver announced that the operators of major crude oil pipelines will need to have a minimum of $1 billion in financial capacity to respond to leaks, spills, or ruptures. The minister did not propose a liability limit for pipeline operators.
In announcing the planned increases in liability limits and financial capacity, Minister Oliver explained that they were consistent with the polluter pays principle, which the government intends to make explicit in legislation. He also explained that the moves will both protect Canadian taxpayers (who might otherwise be on the hook for costly cleanups) and protect the environment (by creating incentives to prevent accidents). Tellingly, Minister Oliver also noted that liability limits protect industry. Nuclear liability legislation, he said, provides “stability to the industry.”
But why $1 billion? Minister Oliver noted that the figure is in line with liability limits in many other countries. Although he didn’t say so, he and the government may have been thinking that $1 billion is a nice round number and sounds like a lot of money. But in fact, the proposed limits are arbitrary and may well be insufficient.
A billion dollars wouldn’t even begin to cover damages on the scale of those caused by BP’s 2010 oil spill in the Gulf of Mexico. The full extent of BP’s liability for that spill isn’t yet known. The firm has reserved $42 billion to pay for clean-up costs, criminal penalties, and civil claims against it. But its liability could be still greater. The firm is reported to have already spent $25 billion on clean-up and compensation. In addition, it faces hundreds of new lawsuits launched this spring, along with penalties under the Clean Water Act that could reach $17 billion. One top Louisiana coastal official argues (non entirely convincingly) that BP’s total liability should exceed $125 billion.
Nor would $1 billion cover damages similar to those caused by the Exxon Valdez oil spill into Alaska’s Prince William Sound in 1989. Exxon spent more than $3.8 billion in clean-up costs, government fines, and compensation of 11,000 residents.
And of course $1 billion in liability for nuclear accidents would cover just a small fraction of the costs of Japan’s 2011 Fukushima nuclear disaster. Some estimates put those costs in the hundreds of billions.
Liability limits are subsidies. They enable companies to pass along costs to taxpayers (or to uncompensated victims). They violate Minister Oliver’s vow to “ensure that Canadian taxpayers are not liable for any cleanup costs.” A government that is truly committed to the polluter pays principle would not simply raise caps on liability – it would remove them entirely.