For years, Alberta’s government has reassured the public that it has a plan to ensure the oilsands’ 1.2 trillion litres of hazardous tailings are permanently dealt with after mines shut down.
That assertion is becoming less convincing by the day.
Industry still hasn’t decided on a viable long-term storage technology to begin testing. The fund to cover tailings liabilities in case of bankruptcy is arguably extremely underfunded. And there are concerns from the likes of the Pembina Institute that the future costs for tailings treatment will be far greater than anticipated.
Martin Olszynski, assistant professor in law at University of Calgary, told DeSmog Canada such questions simply can’t be left unanswered.
“It would the height of unfairness if at the end of all this massive profit and wealth generation, Albertans were left on the hook for what will be landscape-sized disturbances that are potentially very harmful and hazardous to humans and wildlife,” he said.
Oilsands Tailings Plans Nonexistent
The history of tailings regulations is a short one in the province: there simply hasn’t been anything binding. Toxic tailings have been allowed to expand for decades without any real constraints. The last attempt by the province’s energy regulator to require companies “to minimize and eventually eliminate long-term storage of fluid tailings in the reclamation landscape” completely failed.
Every single company breached their own targets.
Directive 085, introduced by the Alberta Energy Regulator (AER) in July 2016, is intended to rectify that.
On March 17, the AER somewhat surprisingly rejected the first tailings management plan that was submitted under the new rules by oilsands giant Suncor for a series of reasons, including its uncertain timelines and reliance on the “unproven technology” of end pit lakes or water capping (the practice of sealing fine tailings under freshwater with the expectation ponds will evolve into healthy aquatic ecosystems).
“What this most recent rejection of Suncor’s proposal suggests to me is they haven’t done the work, and they’re not yet doing the work,” Olszynski says.
“And they need to do the work.”
— DeSmog Canada (@DeSmogCanada) April 21, 2017
Provincial Auditor General Warned of Risk of Oil Price Drop
In July 2015, provincial auditor general Merwan Saher issued a harsh indictment of the fund intended to ensure that Albertans won’t be on the hook for reclamation expenses when oilsands and coal mines shut down.
At the time, only $1.57 billion was held as security deposits in the Mine Financial Security Program for all of Alberta’s reclamation liabilities, worth an estimated $20.8 billion.
As of September 2016 that total is now $1.38 billion with oilsands companies responsible for $940 million of the total. The other $19 billion or so is expected to be paid by companies in the last 15 years of a project's life, with reserves effectively serving as collateral — but that's a risky approach, especially with declining oil prices.
There is a “significant risk that asset values…are overstated,” Saher said..
“If an abrupt financial and operational decline were to occur in the oilsands sector,” wrote the auditor general., “It would likely be difficult for an oilsands mine operator to provide this security even if the need for the security was identified through the program.”
Oilsands Accounting Expert Says Situation Is “Major Concern”
That very thing has happened.
Thomas Schneider, assistant accounting professor at Ryerson University who has written extensively on oilsands liabilities, said in an interview that “it’s a major concern” given the recent decline in asset values.
“The main asset securing the liabilities now as per the government and people of Alberta — and ultimately Canada I guess as I don’t know who’s going to have to pay for it if it doesn’t get cleaned up — are supposedly the assets in the ground,” he told DeSmog Canada. “That’s where it stands right now.”
The province’s $20.8 billion estimated liability is already based on shaky market grounds; the asset-to-liability approach considers “proven” (90 per cent likely to be commercially viable) and “probable” (only 50 per cent likely to be commercially viable) reserves as equally valuable, allowing companies to avoid putting in additional securities to the fund so long as assets are assessed at three times that of liabilities.
It’s a potentially troubling prospect in the era of massive write-downs of reserves by the likes of ExxonMobil and ConocoPhillips.
Schneider says at this point in time, the government is supposed to re-evaluate the asset-to-liability ratio and require companies to cover off any missing securities with letters of credit or other financial instruments.
A government spokesperson didn’t respond to a question about whether the government has taken a recent look at the ratio.
No Definite Plan A and Definitely No Plan B For Oilsands’ Tailings
Companies and industry groups are putting a lot of work into developing new technologies to deal with tailings.
Nina Lothian, senior analyst at Pembina, said in an interview with DeSmog that there are pros and cons to every tailings technology — end pit lakes, centrifuges, atmospheric fines drying, consolidated tailings — with no clear best choice. Based on the recent rejection of Suncor’s plan, it’s clear the AER is expecting more from companies.
However, there’s the obvious related problem of if those plans fail.
The AER has established an unfortunate reputation in some circles for failing to implement required monitoring and enforcement actions to ensure compliance when it comes to pipeline safety and orphaned wells.
Lothian says that end pit lakes are considered a bit of a “silver bullet” by industry.
The Canadian Oil Sands Innovation Alliance, a joint effort by 13 companies, has long planned to build a Demonstration Pit Lakes Project, made up of over a dozen test water bodies and based off of learnings from Syncrude’s Base Mine Lake. The alliance’s website still notes that “phase one of the project could move to construction with potential operation by 2017.” However, when contacted by DeSmog, a spokesperson was unable to provide any information on the status of the Demonstration Pit Lakes Project.
Olszynski says that it will likely require 15 years of monitoring data to know if any particular plan worked. He says that as a result, we wouldn’t have solid results until 2032. But the alliance hasn’t even started building the project.
“For me, the big problem here is we’re well into 2017 at this point, we’re staring down the productive life of some of these sites, and we do not yet have a proven tailings mitigation technology,” he says.
Recent Mining Disasters and Abandonments Point to Potential Dangers
As to whether or not security deposits are meant to include the treatment of tailings, Lothian says Pembina has had no success in answering that question.
Neither Alberta Environment and Parks or the AER have provided clear responses to Pembina. Lothian says that submissions from companies under the Mine Financial Security Program include related reclamation costs like land contouring and revegetation, but there’s no indication of whether funds have been set aside explicitly for tailings treatment.
“We know from all this work with the tailings management plans how many billions of dollars are associated with the treatment side of things,” she says.
In 2011, University of Alberta energy economist Andrew Leach wrote in an Alberta Oil article: “As long as companies expect to pay the full costs of reclamation, there’s no reason to expect that deferring environmental security payments will appreciably increase investment.”
In other words, the “asset-to-liability approach” might not even have notably increased investments, and instead exposed Albertans to serious costs down the road if companies go bankrupt.
That’s assuming companies expect to pay the full costs of reclamation.
There have been numerous examples in recent years that indicate mining companies can get away without fines or charges for catastrophic tailings breaches, most notably the Mount Polley mine disaster in B.C. and Peabody bankruptcy in the U.S. (the latter of which left around $2 billion in unfunded liabilities).
Provincial Regulator Has Variety of Options to Pursue, Critics Say
But regulators like the AER could take a different approach to avoid such financial disasters.
That could include providing clarity around what the Mine Financial Security Program actually covers, revoking leases for non-compliance, update calculations to acknowledge the distinction between “proven” and “probable reserves” and tap into financial instruments such as letters of credit which Olszynski describes as “bankrupt-proof.”
It would ultimately be up to the AER as an independent agency to craft new calculations for required security deposits or improve communication of the scope of the Mine Financial Security Program. But such shifts would likely require pressure from the government.
In fact, Premier Rachel Notley appeared reasonably convinced of that fact when serving as opposition environment critic, asking during Question Period in 2010: “will this government commit to eliminate the existing lakes of poisonous sludge within 20 years and to exercise all authority necessary to make sure it happens?”
However, since forming government the Alberta NDP has said little publicly about tailings management that served as contrast to previous decisions; Environment Minister Shannon Phillips responded to the 2015 report by the auditor general by stating: “We need to analyze whether the asset calculation needs to be changed. We need to update this security program and conduct that detailed risk analysis.”
Nothing appears to have been changed or updated since then.
“This is a really common strategy, where industry just kicks the can down the road over and over again until they are able to get out of cleaning up the waste themselves at the end of operations,” said Jodi McNeill, policy analyst, from the Pembina Institute, in a recent webinar.
Image: Alberta oilsands tailings pond. Photo: Alex MacLean