#15 - The Forever Ponds

Generations often bequeath liabilities to those who follow. Fiscal conservatives worry about the debt burden we leave our kids. Climate hawks fret about the permanently destabilized biosphere they’ll grow up in. Citizens wonder who pays to restore an abandoned industrial site on the edge of town. A physical hazard becomes a moral hazard when it unfairly burdens those not responsible for it. Occasionally, there emerges a spectacular liability that stretches even a nation-state’s ability to remedy. Canada has just such a hazard in plain sight. And as the high-carbon energy industry responsible for it fades in a low-carbon future, you can bet the cost falls squarely on the shoulders of future generations.

Alberta’s tailings ‘ponds’ are massive industrial waste deposits that contain the toxic tailings of decades of heavy oil production. At more than 300 square kilometers, they contain a trillion and half litres of water saturated with bitumen, phenols, arsenic, aromatic hydrocarbons. It’s nasty stuff, and no-one has any clue what to do with it. Estimates of cleanup range from a publicly-acknowledged $60 billion to a leaked estimate of more than $130 billion . And they’re still growing — by nearly half over the last five years. Whatever the number is, it gets higher every year.

No-one knows the real cost of reclamation of the tailing ponds because we don’t yet know how to do the job. Some tailings[1] can be de-watered to make giant piles of sludge or dry ‘cake’ — a tasty euphemism for a toxic dump. The main method lets the tailings sit — for a century or more — while fine particulates slowly settle (all the while leaking[2] into groundwater and evaporating into air). Another proposal — water-capped tailings — puts the crap back in a mining pit with a thin cover of fresh water. During my time helping entrepreneurs at MaRS, I must have met a dozen start-ups with hopes of a techno-fix that to extract fine particulates from the tailings: a machine where valuable stuff came out one pipe and clean water another. None bore fruit. Were there such a solution we’d see it in action by now. I see nothing.

Each mine and tailings pond was approved with the promise it be returned to ‘equivalent land capacity’. While I’ve no expectation that definition means pristine wilderness, it’s reasonable to expect the toxins are mitigated. They have not been, and they will not be. Until 2009 there were essentially no regulations. That year, progressive restraints were put in place. With which not one company complied. And for which non-compliance there were zero penalties. Those regs were abandoned in 2015. Another attempt to regulate in 2016 led Pembina to calculate — based on industry numbers — tailings volumes won’t start to decline until 2037. Based on the record, you can bet that’s not going to happen.

When Suncor announced they’d demonstrated the first reclaimed tailings pond back in 2010, the industry PR jumped into high gear. Lots of pictures of trees over what was once a tailings pond argued the nay-sayers and enviro-freaks were wrong: industry did know how to clean up its act! But … all Suncor did was pump crap from pond A into pond B — voila! — problem solved in pond A. Shell games indicate there’s no solution hiding behind the scenes. Why play such games if there were?

Big companies are good at PR, co-opting policy and avoiding liability. Just like the industry walked away from $60 billion in unfunded abandoned wells , they’ll walk away from these tailings ponds. It’s a legal game they almost always win. I wrote previously about pressure to compensate energy companies as they abandon high-carbon assets in the face of regulatory and competitive pressures to reach net zero. This is far worse. These are not assets — they’re 100% liabilities. And the companies that created them will not survive the transition to a low-carbon future.

A hard truth: there’s no oil burned in cars and trucks in a zero-carbon world. That’s what COP finally had to grapple with last year . And in a merely ‘low’-carbon future, there’s no room for high-cost, high carbon oil. The Saudis survive as low-cost producer, perhaps the Americans as swing producers. And whatever heavy oil producing companies make it will ensure there’s no cash on their balance sheet for us to go after to fix this mess.

Few hazards compare in scope. One is the UK’s Sellafield site, which holds nearly a century of European military-grade nuclear waste, mostly from weapons production and fuel reprocessing. It’s physically small by comparison — six square kilometers of buildings and roads that resemble a steampunk dystopia — but the cost of cleanup is similar. Built in the heat of the cold war, it was never designed to be decommissioned. As it degrades, it’s leaking. Reclamation is optimistically pegged at about $100 billion and a century of effort. Awful as it is, though, Sellafield is no moral hazard: the public sector commissioned the weapons, and the public sector pays for cleanup.

Canada’s tailings ponds are a moral hazard par excellence: the private sector profits partly by pushing the effluent risk on to future generations. Let’s be generous and peg the cost of cleanup as an average of the public and leaked numbers. That’s $80 billion. Now account for growth through 2040 — so call it $120 billion. Industry has put aside just under $2 billion. Tax revenue to the Alberta government is normally around $5 billion. So — the liability sucks up a quarter century of provincial tax payments. But the industry doesn’t have that much time left.

Albertans often tell Canadians the energy industry is their own business. Sure, maybe. Resources fall under provincial jurisdiction. But we all know this moral hazard will hit the Canadian taxpayer — just like the abandoned well liability. No thanks.

My prediction? Oil sands producers keep kicking the can down the road. Around 2035–40, faced with existential risk due to changing global markets for heavy oil, they throw up their hands and walk away. The government at the time will make noises about chasing for compensation but there’s nothing to go after. They too will wring their hands at the cost. Given other climate risks the public purse must take on by that time, those ‘ponds’ remain in place. Effectively forever.

My recommendation? Get an accurate cost for cleanup. Have the estimation process put under public- and peer-scrutiny — as called for by the University of Calgary. Eliminate the moral hazard by taxing every barrel to cover the cost over the next decade, before these companies’ balance sheets evaporate. At $120 billion, and production levels of 1.3 billion barrels per year, that amounts to about $10 per barrel.

As Premier Smith pushes for bonds on solar and wind projects, she’d do well to even the playing field. I don’t worry about my kid being passed the burden of recycling solar panels. But toxins that last forever, as a legacy from an industry that accelerated climate change? Ya, that pisses me off.

[1] About a third can’t be de-watered because the particulates are too fine (FFT — fluid fine tailings)

[2] A 2008 study estimated the ponds are leaking at least 11 million litres per day. That’s more than 4 billion litres a year.