The polluter pay rule sound great in theory, but, when it comes to mining operations in B.C., the often-quoted policy does not reflect reality, says a report, released Wednesday, by the Ecofiscal Commission, an independent group of high-profile economists who look for ways of increasing economic activity while better protecting the environment.

Juggling economic activity and risks to the environment usually involves putting a price on pollution and in a case study of Canada’s mining sector, which looks at financial assurance policies in B.C., Alberta, Yukon, Ontario and Quebec, the economists found that B.C. is not practicing what it preaches.

“Financial assurance in B.C. is stronger in theory than in practice,” says the report, which found that the broad authority given to the Chief Inspector of Mines to set the amount of financial assurance that companies have to post before digging, is used more to encourage economic activity than to deal with compensation or to deter companies from making environmentally-risky decisions.

“In practice, the government has not required stringent assurance. As a result, the province does not hold sufficient financial assurance to cover its potential reclamation liabilities,” it says.

B.C. not honouring polluter pay principle

In 2016 provincial Auditor General Carol Bellringer sharply criticized B.C.’s under-funding of liability for mine reclamation and lack of mining regulation enforcement. The audit was followed by a report by economist Robyn Allan that revealed gaping holes in B.C.’s financial assurance policies.

Since then, the province has made an effort to increase the amount of financial assurance it holds, says the Ecofiscal study.

“However, the province still holds only $1 billion in financial assurance against a $2.1 billion cleanup liability,” it says.

Lead researcher Jason Dion said every jurisdiction has its pros and cons, but B.C.’s financial assurance choices are inconsistent with the polluter pay principle.

“There is scope to do more with financial assurance to help honour that principle,” he said.

Unlike provinces such as Quebec, which demands hard financial assurance, such as cash or securities, to cover the full cost of remediation within two years of a mine starting operations, B.C. phases in financial assurance to keep costs low during the expensive construction stage.

“By phasing in assurance, the province effectively accepts a mine’s still substantial reserves as a form of soft assurance. However, doing so provides weak deterrence incentives for firms during the early phases of an operation. Because the value of reserves can fluctuate, it also undermines compensation,” the report says.

Dion said it is a choice B.C. has made because the initial stages of mine construction are extremely capital intensive, meaning projects may be less viable if the province demanded hard financial assurance.

In an e-mailed statement to The Narwhal a spokesperson for the B.C. Ministry of Energy and Mines said staff are reviewing the Ecofiscal Commission’s report.

“This government recognizes the need to ensure the people of B.C. are protected if a mining company fails to meet its requirements around reclamation and remediation of a mine site,” the statement read. “The Ministry of Energy, Mines and Petroleum Resources requires security at the time of mine permitting and regular review of the amount as conditions change throughout the life of the mine.”

Lack of up-front cash for cleanup can prompt bankruptcy

Quebec stands out as having the most stringent financial assurance requirements in the country and, according to the Fraser Institute annual survey of mining companies, is also one of the top jurisdictions for mining as it has simultaneously tweaked rules and regulations to encourage investment.

The complexity of different tools and financial assurance methods used across Canada is surprising, Dion said.

However, one major gap is that none of the provinces apply financial assurance to disasters, such as a tailings spill.

“If a company does cause a disaster it is liable for that. The tricky part is if they end up declaring bankruptcy or if there is a liability cap, they may not end up bearing the cost. It’s an important gap and financial assurance is a tool we can use to fill this gap,” Dion said.

The lack of up-front cash to clean up a disaster may encourage some companies to declare bankruptcy and is certainly a missed opportunity to lower risks and the potential social costs of mining disasters, the report says.

“If a tailings spill like Mount Polley were to occur in any of these jurisdictions and the responsible company was bankrupted, society would be left to bear the cost. The potential for mining firms to pass on their costs in this way reduces their incentive to reduce environmental risk, exacerbating the risk of a mining disaster,” the study says.

The 2014 rupture of the tailings dam at Imperial Metals’ Mount Polley mine spilled 24 million cubic metres of waste and tailings into Quesnel Lake and nearby creeks and rivers, making it the largest tailings dam failure in Canadian history.

Imperial Metals escaped criminal charges and, although the company is not bankrupt and has paid much of the cleanup tab, Allan estimates that B.C. taxpayers are on the hook for about $40 million.

However, Dion said it appears regulators and the industry have learned many lessons from the Mount Polley disaster and financial assurance plans can add to other efforts to make tailings dams safer.

The Ecofiscal report also points the finger at mine operators who walk away from their obligations.

Abandoned mines a liability

Numbers have improved dramatically since 2006, when there were 10,000 orphaned and abandoned mines across Canada, but it it is another reason why the liability gap must be filled with full financial assurance to genuinely cover remediation, so that governments are not left to foot the bill, the report says.

“Most remediation occurs at the end of a mine’s lifecycle when no further revenues will be generated. This can create perverse incentives for small firms to walk away from their sites before costly remediation and reclamation work begins and for large firms to do the same by structuring their mining projects as independent subsidiaries,” it says.

Also, when mining firms know they will bear only part of the cost of a spill or remediation, there is less incentive to manage the site in an environmentally sound way, it says.

The risk of companies walking away without paying angers Southeast Alaskans who fear that a spill or leak into Alaska’s salmon-rich rivers from the proliferation of mines along the B.C. border, will leave them picking up the costs.

Last year, Allan, in a brief to the Alaska State Legislature, pointed out that Teck Resources Ltd. fully funded its $558 million reclamation obligation for the Red Dog Mine in Alaska, where the state demands cash or bonds up front before a project can proceed.

However, across the B.C. border, where reclamation costs for Teck’s 13 mines was estimated at $1.4 billion, only $510 million in bonding was required, Allan said.

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A small, conservative movement is growing in Ontario to “reset the conversation” around carbon pricing and bring the centre-right back to an originally-conservative position, one in support of a market-based approach to fighting climate change. But the movement faces an uphill battle.

“It’s very ironic — the idea of carbon pricing, came more from the right than the left originally,” Mark Cameron, executive director for Canadians for Clean Prosperity, and former policy director to Prime Minister Stephen Harper, told DeSmog Canada.

“There are well known conservative economists who endorsed carbon taxes for decades.”

“You don’t need to feel alone, there are a number of people coming into this tent,” said Chris Ragan, chair of the Ecofiscal Commission, associate professor at McGill University and research fellow at the C.D. Howe Institute.

Those hoping for a reset will soon see how the Ontario Progressive Conservative party engages on the topic when the governing Liberals introduce a cap-and-trade plan in the near future.

“It’s coming, it was campaigned on by the Liberals, “ said Progressive Conservative finance critic and Nipissing MPP Vic Fedeli.

Fedeli was the moderator of a recent discussion with Cameron and Ragan on market-based solutions to climate change. The event in downtown Toronto was organized by Blue Skies Ontario, an idea incubator for Ontario’s centre-right (interestingly managed by Jamie Ellerton, formerly of Ethical Oil), and Canadians for Clean Prosperity, a non-profit organization working to educate Canadians about the “benefits of the polluter pay system.”

If the Ontario right does reset the conversation and agree with the left-leaning parties and economists that carbon pricing is the right approach, the debate would become focused on the details: how is the carbon tax or cap-and-trade system set up and what happens to the money? Will the revenue collected go into general government coffers, get spent on developing clean technology, building infrastructure or get returned in tax cuts?

“Once we get to the debate how we should recycle revenue, I’m going home,” Ragan told the crowd during his opening presentation on carbon pricing.

“Once we have gotten to that point, apparently we have accepted the idea that carbon pricing is sensible.”

Ontario Tories at Cross Roads

With the election of Patrick Brown as the leader of the Ontario Progressive Conservatives in May 2015 and then to the legislature in early September, the Ontario Tories have the opportunity to redefine their party’s position on climate change. Brown has in the past come out against the idea of pricing carbon, but Fedeli says Brown is open to ideas if they work.

“He is very quick to suggest to all parties that a good idea can come from any party and he has agreed and vocalized whether if it is a Liberal idea, an NDP idea, or a PC idea, if it is a good idea, our party should be looking at supporting it,” Fedeli said.

The Liberals tried to portray Brown as an extreme social conservative during the by-election based on his voting record as an MP — a label Brown is quick to say is false. On the energy file, the Ontario Tories have for years hammered the Liberals for the mismanagement and cover-up of the cost of cancelling two gas plants. The former Ontario PC leader campaigned in the 2014 provincial election to cancel the Green Energy Act — an act that paid preferential rates to green energy producers — because it caused electricity prices to skyrocket.

Ontario shut down its coal-fired power plants, resulting in a big improvement in air quality, a major reduction in greenhouse gases and eliminated up to $4.4. billion in environmental and health costs. The plan to replace some capacity with green energy significantly underestimated the cost increase to electricity bills.

When Green Energy Act act was introduced in 2009, the Liberals projected a one per cent increase per year in electricity rates, but a 2010 forecast by the Ministry of Energy predicted a 7.9 per cent annual increase, with 56 per cent of the increase coming from renewable energy sources, reported a 2011 Ontario Auditor General report. Ontario electricity prices are now among the highest in the country and may force one in 20 Ontario businesses to close, a recent Ontario Chamber of Commerce report said.

Supporting a price on carbon and by extension a policy to further increase energy prices may prove difficult for the Ontario Tories after years spent hammering the Liberals on the energy file.

Right-wing Idea?

When finding a policy to reverse climate change, there are really only three options that economists say can work: regulation, a carbon tax or cap and trade. 

Regulation can achieve the goal of reducing greenhouse gases but is economically “inefficient” and “moral suasion and green subsidies are ineffective,” according to environmental economist Mark Jaccard and researcher Nic Rivers.

“One of the problems — age old problems — with regulation is that it becomes a source of potential corruption,” Ragan said.

Markets are remarkably flexible in responses to changes, they decentralize power away from a central authority and they drive innovation, but do a poor job of protecting the environment because “we don’t put a price on it,” Ragan said.

Cap and trade and a carbon tax are market mechanisms that leave the decision-making to industry to determine how to cut emissions and beat their competition.

Originally a cap-and-trade scheme was a right-wing idea, implemented by the first Bush administration to successfully reduce ozone-depleting chemicals. The plan, putting a hard cap on emissions and allowing polluters to buy or sell pollution credits to meet the target, gave industry the power to determine what was the best approach. The idea was disempowered the regulators used to overseeing command-and-control regulations and created an economic incentive to cut pollution. As a result, emissions fell by three million tonnes in the first year, well below targets.

A carbon tax sets a price per tonne of carbon emissions, requiring industry to either pay the tax or cut emissions. Granted a new tax, is not normally an idea a right-leaning politician would support to get re-elected, but if it used as a way to cut other taxes — taxes that hinder economic growth — then the argument shifts. Furthermore when compared to regulation or cap-and-trade, it is the most efficient policy tool to implement.

“In B.C., it took them six weeks to implement the carbon tax,” Cameron said.

A cap-and trade system is more administratively complex to set up and the complexity can open the system to exemption and backroom maneuvering, but that can happen with any system, says Ragan.

“We need to hold governments to account for doing what they said they would do,” Ragan said.

Follow the Money

Prime Minister Harper says a carbon tax is a tax grab dressed up as an environmental policy.  A carbon price could be designed in a way to funnel billions into government coffers, but as the British Columbia model demonstrates, all of the money collected is returned to consumers and businesses in the form of revenue neutral tax cuts with accountability baked into the legislation.

“The [B.C.] Auditor General has to certify that the carbon tax is being treated in a revenue-neutral manner,” Cameron said.

The B.C. model demonstrates the tax as an environmental policy can work. Since the tax was implemented, the B.C. GDP per capita grew faster than the Canadian average, the per-person consumption of fuels dropped over 16 per cent, while in the rest of Canada it grew by three per cent, reported the Economist in 2014. Denmark, Ireland, Sweden have all cut emissions using carbon taxes, while Norway’s emission have risen largely because of the boom in their oil production.

Canadian Opinion

78 per cent of the Canadian population believes the climate is changing. Of those who believe the climate is changing, 72 per cent think it is caused by human activity, according to a Forum Research poll. Those numbers drop for conservative voters to 63 and 50 per cent, respectively. The May 2015 poll is considered accurate +/- 3 percentage points, 19 times out of 20.

When the climate change debate hits the Ontario provincial floor, the Progressive Conservatives, under their new leader Patrick Brown, will have to weigh the fact that a large segment of their base sees no change in the climate or doesn’t believe humans are too blame.

So will the Progressive Conservatives debate the minutia around revenue neutrality, administrative complexity and industry exemptions or decry the whole exercise as a job killing tax on everything? Time will tell if the conversation gets reset.

When asked if Fideli believed that “climate change is happening and we need to do something about it?”

He said: “Carbon pricing will be presented to the legislature in the fall, we need to be ready to be part of the debate because Kathleen Wynne is going to pass something with or without our input.”

So was that a yes or a no?

Image: Blue Skies Ontario via Twitter

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It’s finally happening: after years of stalling by the Progressive Conservatives, Alberta’s new NDP government announced Thursday it will double the province’s meager carbon levy on large emitters by 2017.

Industry and environmentalists alike welcomed the decision, while also saying it doesn’t go far enough. 

Currently, any facility that emits more than 100,000 tonnes of greenhouse gases per year must reduce its emissions by 12 per cent below typical performance or pay $15 per tonne for emissions over the baseline. By 2017, the new framework will require companies to lower emissions by 20 per cent below typical performance, with a $30-per-tonne levy for emissions above that target.

“It’s not going to drive the meaningful reductions or give the market incentives that we need,” said Ed Whittingham, executive director of the Pembina Institute.

Pembina advocates for a $40-per-tonne levy with a 40 per cent emissions reduction target. Whittingham said the NDP had three options given the circumstances: let the regulation expire at the end of the month, kick the can down the road by renewing the current framework (as previous governments often did) or actually make some changes.

Dan Woynillowicz, director of policy at Clean Energy Canada, said the most impressive element of the announcement was its decisiveness.

“The previous government has been talking about changing the SGER, or changing the price, or changing the coverage for several years,” he said. “Within a matter of weeks, this government has come in and said: ‘We’re going to do that, we’re going to make that change.’ ”

Cenovus Wants Economy-Wide Carbon Price

Brett Harris, media lead at Cenovus Energy — which has historically supported a price on carbon — says the company is pleased the government has provided clarity on the issue. However, he says “in an ideal world” the company would like to see a pan-Canadian or pan-North American carbon pricing regime to create a “level playing field.”

Shell Canada also welcomed the new rules.

Despite support from energy companies, the concept of a carbon tax has consistently been ridiculed by Canada’s federal government.

Dale Beugin, director of research at Canada’s Ecofiscal Commission, acknowledges a national or international carbon tax should be the end goal, but notes it’s a difficult thing to achieve and that reform must happen incrementally.

“It’s great that the big industrial emitters are priced by the SGER, but that’s not the only emissions in the economy: a good carbon pricing policy is going to be broad as well as stringent, Beugin said. “You want to make sure you’re going after the small emitters, the vehicles, the buildings, the process emissions from waste and agriculture.”

How Alberta’s Carbon Levy Works

There are 103 large emitters in Alberta. While most of the sites are gas plants, a great majority of emissions come from seven coal power plants and five oilsands mines/upgraders. Such companies have three options if they exceed the target: buy carbon offsets, use Alberta Emission Performance Credits (similar to carbon offsets but rewarded based on performance) or contribute to the Climate Change and Emissions Management Fund, which funds climate change projects.

“What [this change] is going to do is drive more money into offsets in the tech fund,” Whittingham said. “There are some greenhouse gas savings or benefits to be had from that.”

Andrew Leach to Head Climate Change Panel

In addition to announcing changes to the carbon levy, Environment Minister Shannon Phillips reported the government is forming a climate change panel, chaired by Andrew Leach, the University of Alberta environmental economist.

"Andrew Leach is pretty much the first person I'd choose for that gig, so good job,” said Chris Turner, the author of The Geography of Hope and The Leap.

According to a feature Leach wrote for Maclean’s, the panel will examine a wide assortment of potential actions. It will deliver a report to the government in the fall, prior to Premier Rachel Notley’s trip to Paris in December to attend the United Nations climate change summit.

Many options will need to be considered. Whittingham says the province must find a way to phase out coal-fired electricity, ensure renewable energy fills a fair share of that void and implement energy efficiency programs, as well as deal with growing emissions from the oilsands.

Photo: Kris Krug via Flickr

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