Not Fit for Purpose: Oil Sands Mines and Alberta’s Mine Financial Security Program

Abstract

Mining jurisdictions around the world are grappling with the significant environmental harms and costs associated with orphaned mines, i.e., mines whose owners are financially unable or otherwise unwilling to remediate and reclaim their mine sites. Numerous Canadian examples, including the notorious Giant Mine in the Northwest Territories, have significantly harmed water, soil, air, and wildlife, as well as human health, safety, and well-being. Such impacts can be particularly devastating for Indigenous peoples, who continue to rely on their traditional territories for cultural and other purposes.

Canadian governments have gradually developed remediation and reclamation liability regimes
to ensure that mine operators remediate and reclaim in a timely manner, or to at least ensure that governments have access to sufficient funds to carry out this closure work themselves. While they differ in various ways, the basic logic of such regimes is the same: by requiring mine owners to
set aside some funds (e.g., in the form of cash or a letter of credit), they act as a kind of insurance that the public will not bear the costs of remediation and reclamation.

Unfortunately, Alberta has refused to develop an effective regime to protect Albertans from bearing the costs of oil sands mine remediation and reclamation. The regime in place today will not ensure that there are sufficient funds set aside to complete this closure work in the event
that operators fail to do so. In some respects, this is not news. It has been over two decades
since Alberta’s Auditor General first identified serious deficiencies in Alberta’s regime. Continued mismanagement has left Albertans with a significant risk that they will be responsible for cleaning up oil sands mines that threaten potentially irreversible environmental harm, including a growing inventory of nearly 1.6 trillion litres of toxic tailings.

Alberta’s Mine Financial Security Program (MFSP), which applies to both coal and oil sands mines, is a misnomer. While it allows mine owners to post full security against their closure liabilities, it also allows them to rely on the estimated value of their assets (proved and
probable reserves) as collateral to avoid posting meaningful security. This is essentially the
mining equivalent of the province’s failed asset-to-liability approach in the conventional oil and gas sector. The results are staggering. While the coal mining sector has chosen to secure nearly the entirety of its estimated closure liabilities (approximately $700 million), oil sands companies have posted less than $1 billion in security against an official estimate of approximately $46 billion in total closure liabilities. This is less than two percent of official estimates, and less than one percent of internal estimates leaked to the media in 2018, which suggested that total closure liabilities could be as high as $130 billion.

Finally, following two critical reports from the Auditor General (2015 and 2021), Alberta undertook a year-long review of the MFSP in 2022. The results of this review, however, are currently unknown.

Significant reforms are necessary. The MFSP rests on a series of unrealistic assumptions about asset values, future oil markets and prices, and the development of effective but also low-cost remediation and reclamation technologies. The MFSP’s asset-to-liability approach, which allows oil sands companies to avoid posting security where their assets are deemed to be worth at least three times more than their liabilities (3:1), is also counter-intuitive and counter-productive: instead of collecting security when operators can afford it, operators would be required to post security when profitability is declining — precisely when operators are least able to afford it and resulting in further financial distress. Simply put, the MFSP will not provide insurance precisely when it is needed most.

Correcting the MFSP asset calculations, requiring annual security deposits, and opening the process for estimating remediation and reclamation costs to independent scrutiny are three reforms that could be instituted in the short term and that would go some way towards ensuring the fulfillment of the polluter-pays principle upon which all such regimes are ultimately based.

In the longer term, the MFSP exposes Albertans to far too much risk and uncertainty. Our primary recommendation is for Alberta to convene an independent and transparent expert panel,
with opportunities for public participation, to recommend a regime that adequately incentives progressive remediation and reclamation and secures outstanding oil sands liabilities while not exacerbating the near-term risk of default. No matter the specific structure that is adopted for security, the assurance of independent, transparent assessment of the degree to which potential liabilities are fully funded, perhaps in the style of pension fund reporting, is essential.