Alberta Liabilities Disclosure Project (ALDP)
On 5 April, the ALDP held a news conference to raise awareness about the scope and scale of the orphan well issue in the Province of Alberta. According to its website, the ALDP “is an independent and non-partisan initiative pushing for accurate and transparent government level data pertaining to Alberta’s oil and gas liabilities.”
This initiative, of which I am a participant, is aimed at making oil and gas environmental liabilities an issue during the recent provincial election. While media outlets such as The Globe and Mail, National Observer and Postmedia shared information about the initiative, political parties -other than the Alberta party’s David Khan and Dr. David Swann, did not click on the bait.
Source: National Observer
The founder and chief organizer of the Initiative is Regan Boychuk an earnest, understated researcher. He is a contributor to the National Observer and served as a member of the Oilsands Expert Group under the Alberta 2015-16 Royalty Review. Boychuk has been a dogged champion of landowners’ rights. For the past three years he has carried out research based on public data from the Alberta Energy Regulator and information obtained through various freedom of information applications.
Boychuk and his associates have painstakingly re-worked the numbers done by AER for oil and gas wells. The research followed AER’s division of the province into seven reclamation regions. Within each region it then further divided the wells analyzed by: land type; age; access to reclamation site; contaminants present; the nature of the reclamation; degree of disturbance; topsoil; back-fill; ironwork requirements; and infrastructure removal. This level of detail was then used to determine estimates for each of the 300,000 wells either operating or abandoned.
The analysis brings into serious question the official estimates used by the AER for reclamation of conventional oil and natural gas wells. The Energy Regulator estimates the liabilities are $18.5 billion whereas the ALDP estimates the liabilities in a range of $40 to $70 billion or two to 3.5 times the AER’s estimate. Only $200 million in security is held by the Regulator.
The findings beg the question of who will pay? Will the bill be picked up by the polluter, members of the Orphan Well Association who are still solvent, or the taxpayers?
Central banks get serious about environmental liabilities
The Final Report from the Task Force on Climate-Related Financial Disclosure (Bloomberg) report was released in June 2017. The Task Force received its remit from the Financial Stability Board. The Task Force, chaired by Michael Bloomberg, was appointed in late 2015 to assist corporations to improve disclosure on climate-related financial information.
Source: Forbes.com
The Task Force’s mission was to:
1) develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders;
2) consider the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries; and
3) help firms understand what financial markets want from disclosure in order to measure and respond to climate change risks, and encourage firms to align their disclosures with investors’ needs.
Key recommendations include:
1.Disclosures should present relevant information; 2. Disclosures should be specific and complete; 3. Disclosures should be clear, balanced, and understandable; 4. Disclosures should be consistent over time; 5. Disclosures should be comparable among organizations within a sector, industry, or portfolio; 6. Disclosures should provide high-quality reliable information. They should be accurate and neutral- i.e. free from bias; and 7. Disclosures should be provided on a timely basis
More recently, Governor of the Bank of England Mark Carney, Francois Villeroy de Galhau, Governor of la Banque de France, and Frank Elderson, Chair of the Network for Greening the Financial Services, released an open letter on climate related financial risks.
Source: Banque de France
Financial sector supervisors which include central banks, securities regulators, bank, pension and insurance regulator, and national treasury departments form one of the most powerful regulatory systems in the world. The Bank for International Settlements’s Financial Stability Board (FSB), until recently chaired by Mark Carney, was established in April 2009 after the Lehman Brothers collapse by the G-20. The FSB is the successor organization to the Financial Stability Forum set up in 1999. The FSB’s mandate is to monitor and assess “vulnerabilities affecting the global financial system” and to propose actions needed to address them. In the context of the open letter and the Bloomberg report, this means global financial regulators and supervisors are concerned about the risks of climate -change to the global financial system.
In the open letter, Messrs. Carney, Villeroy de Galhau, and Elderson write ” (T)he enormous human and financial costs of climate change are having a devastating effect on our collective wellbeing.” The letter summarizes the work by the Network for Greening the Financial System ( NGFS) a body established in 2017 by 23 central banks and financial sector supervisors. It is a call to all policy-makers and the financial sector to undertake four measures to address climate change.
“Carbon emissions have to decline by 45% from 2010 levels over the next decade in order to reach net zero by 2050. This requires a massive reallocation of capital. If some companies and industries fail to adjust to this new world, they will fail to exist.” Open Letter, 17 April 2019.
Source: Bank of England
“The prime responsibility for climate policy will continue to sit with governments. And the private sector will determine the success of the adjustment. But as financial policymakers and prudential supervisors, we cannot ignore the obvious risks before our eyes.” Open Letter, 17 April 2019
The report makes four recommendations. Firstly, supervisors are “encouraged to set expectations to ensure financial firms are adequately addressing the financial risks from climate change, including by conducting scenario analysis to assess their strategic resilience to climate change policy. Firms are encouraged to take a long-term, strategic approach to the consideration of these risks, and to embed them into their business-as-usual governance and risk-management frameworks.”
Secondly, the report recommends that central banks integrate “sustainability” into their own portfolio management. What this means is that when managing their investment portfolios (typically bonds), central banks recognize environmental sustainability as a criteria. Third, in order to improve assessments of climate-related risks, there is a need for greater collaboration to “bridge data gaps.” “Public authorities should share and if possible make publicly available any climate-risk data.” And fourth, financial sector organizations are enjoined to ” build in-house capacity and share knowledge with other stakeholders on management of climate-related financial risks. An important element to achieving effective consideration of climate risks across the financial system is to support internal and external collaboration.”
Source: Climate Finance
Two critical “success factors” identified are “robust and internationally consistent disclosure” and the development by regulators of “an adequate classification system to identify which economic activities contribute to the transition to a green and low-carbon economy. This will be particularly valuable in supporting financial actors to make sustainable investment and lending decisions.”
“The stakes are undoubtedly high, but the commitment of all actors in the financial system to act on these recommendations will help avoid a climate-driven “Minsky moment” – the term we use to refer to a sudden collapse in asset prices.” Open letter 17 April 2019
For an oil and gas executive responsible for strategic planning, these exhortations might be regarded as more blowing wind from out of touch central banks. This perception is a mistake. The Open Letter’s language is couched with “encourage,” “consideration,” and “seeks,” giving it the character of pleas and suggestions rather than prescriptions. Nevertheless, this body can prescribe investment preferences quickly and will act swiftly if climate change threatens to undermine the safety and security of the global financial system.
“As long as temperatures and sea levels continue to rise and with them climate-related financial risks, central banks, supervisors and financial institutions will continue to raise the bar to address these climate-related risks and to “green” the financial system. We need collective leadership and action across countries and we need to be ambitious. The NGFS is the core of the response of central banks and supervisors. But climate change is a global problem, which requires global solutions, in which the whole financial sector has a crucial role to play.” Open letter, 17 April 2019
Several recent articles in The Globe and Mail reinforce this theme. In the 25 April Alberta edition, Kevin Thomas and Laura Gosset of the Canada Shareholder Association for Research and Education (SHARE) ( “If Kenney won’t lead on climate, investors and industry should”) write about the need for industry to set ambitious targets for GHG reductions. In two other neighbouring articles, the newspaper reported on National bank’s annual meeting where its CEO (“National Bank looks abroad to meet lending targets”) made sustainability and environmental issues a theme of the annual meeting. In a similar vein, the newspaper reported the issue of Royal Bank’s first green bond (“RBC to issue first green bond”) of Euro 500 million. According to the article” Institutional investors such as Canadian pension funds have become more vocal proponents of the importance of weighing environmental, social and governance factors when making investment decisions.”
Watch for more light to be focussed on the environmental practices of Canada’s energy industry, the industry’s financial disclosure, and a growing divide between Calgary and Ottawa as Alberta’s oilsands sector seeks to expand.