Should the polluter pay?

A recent Supreme Court of Canada decision, Imperial Oil Ltd. v. Quebec (Minister of the Environment), (2003), has been hailed as "one of the great environmental law victories in Canadian history" (EnviroLine Online, Vol. 14, No. 15 & 16, Oct. 31, 2003). The quote is from Jerry DeMarco, a Sierra Legal Defence Fund lawyer who, with several colleagues, made a written submission in the case on behalf of intervener Friends of the Earth. A Sierra Legal Defence Fund press release implies that the Court's decision deserves such high praise because it affirms the "polluter pays" principle that was expressed in the Quebec environmental legislation and that, as the Court itself noted, is now common in environmental legislation across Canada, and increasingly accepted on a global level. (Interestingly, the Court stopped short of declaring that the principle was now entrenched in customary--i.e. non-treaty--international law.).

Jerry may well be one of the great Canadian environmental lawyers, so his opinions on Canadian environmental law deserve the utmost respect. However, Jerry's high opinion of the Court's decision gives me pause for thought both, because of the narrowness of the issue the Court actually decided, and also because of the complexities of the "polluter pays" principle that still need to be resolved. This column addresses primarily the first of these two concerns.

Imperial Oil v. Quebec involved the validity of an order, issued by the Quebec Environment Minister, requiring Imperial to hire an independent contractor to assess the extent and nature of soil contamination, and to advise on remediation options, at a site on the south shore of the St. Lawrence opposite Quebec City. Imperial had owned and used the site as a petroleum depot for several decades before selling it to a buyer who tore down the buildings and re-sold the site to a real estate developer. The developer then took on the soil contamination problems in order to obtain the necessary residential building permits. The Quebec Environment Ministry participated in the decontamination effort and ultimately approved the work. According to the Court's decision, no one thought to notify and solicit Imperial's contribution or even opinion during this cleanup effort. With the cleanup work done and building permits in hand, the developer built and sold residences to families. The Court's decision doesn't say whether these families had any warning of the previous contamination problem although, presumably, the remedial work would have been no public secret.

As with many initial remedies to complex, risk-based environmental problems, the cleanup proved to be inadequate. Signs of ongoing hydrocarbon contamination resurfaced, further studies were conducted, and several residents filed lawsuits against the developer, the city, and the Environment Ministry. With its own back somewhat against the wall, the Ministry issued the site "characterization" order to Imperial Oil in 1998.

Imperial chose to fight the order rather than follow it, no doubt fearing the short and long term cleanup costs at this site. Imperial may also have been eager to set a precedent for its defence of similar orders in the Calgary Lynnview Ridge dispute, as well as in the potentially numerous other Canadian sites that the company has owned. (The Sierra Legal Defence Fund press release claims that Imperial has a "legacy of contaminated sites across" Canada. But this kind of legacy is no doubt also common among numerous former gas station owners and other owners and operators of industrial sites, especially, those that had underground fuel storage containers).

Although Imperial raised numerous reasons for challenging the order in the lower judicial stages, Imperial's only claim before the Supreme Court of Canada was that the Minister was improperly biased due to a conflict of interest. According to Imperial, this conflict arose from the Ministry's role in mistakenly advising and signing off on the initial soil decontamination work and the Minister's status as defendant in the civil lawsuits brought by the residents.

The Court essentially agreed with Imperial's claim that the Minister had not approached the matter with a blank or thoroughly objective slate. However, the Court ultimately rejected Imperial's appeal because the Justices felt that the subjects of the Minister's bias--especially its concern for the public fiscal implications--reasonable bore on the Minister's exercise of its inherently political function of deciding who should pay for the cleanup. (In my view, the Court should have characterized this hybrid policy-, fact-, and law-making function as administrative or executive, rather than political, in nature, because the political label implies that the function should be immune from judicial scrutiny).

To be clear, the Court did not itself decide the policy issue of whom--among Imperial, the subsequent owners, and the public generally--should pay for the cleanup. Nor did the Court decide that, as a matter of law, that the polluter pay principle, or Quebec's environmental legislation generally, required that Imperial be stuck with the bill. (Although Imperial appears to have run out of options for skirting the Minister's site characterization order, the issue of who leads the actual site cleanup, and how those costs will ultimately be distributed, may take years to be resolved.). The Court just held that the government should not be precluded from sticking Imperial with the cost simply because that option might obviate the need to dip into the public's purse.

From hindsight, the Court's decision was inevitable. All or most regulatory actions have implications for the public purse, whether or not civil lawsuits have been lodged directly against the government. These public financial implications arise because regulatory actions are usually intended to allocate social costs that are not directly reflected in the market in which the cost-generating activities occur. Regulators rarely re-allocate these environmental externalities back to their original source--i.e. remove the social costs directly from the public's shoulders--but that is what the polluter pays principle purports to accomplish. With or without that principle, however, regulatory decisions could not be made without regulators' need to consider the extent to which the public might be on the hook for various regulatory options.

From this standpoint, the Court's decision was significant only in a negative sense. The Court was not called upon, and nor did it provide, any affirmative solution to the complex problem of allocating cleanup costs and of facilitating actual and accurate cleanup work. Rather, the Court simply blocked Imperial from raising a barrier to that process and to environmental regulation in general.

Another column or perhaps a longer paper is necessary to explain the issues of policy, finance, and fairness that are raised by the broader question of who should pay. For purposes of this column, I do not question the appropriateness of the "polluter pays" principle, but I echo the caution expressed by others that reflexive resort to the principle does not resolve the complex issues of allocating cleanup costs, especially, in the context of historic contamination.

Michael Wenig is a Research Associate with the Canadian Institute of Resources Law in Calgary, Alberta.

Reference

For additional reading, I recommend the 2000 LL.M. thesis by Calgarian Nickie

Vlavianos--"Liability for Well Abandonment, Reclamation, Release of Substances and Contaminated Sites in Alberta: Does the Polluter or Beneficiary Pay?" (Univ. of Calgary Faculty of Law)