The Canadian government has agreed to assume the expenses associated with a planned deepwater oil venture that could become payable under a United Nations agreement, sparking criticism from environmental organizations who argue that taxpayers should not be subsidizing oil corporations.
Federal Fisheries Minister Joanne Thompson confirmed this decision on Tuesday evening during an event revealing Newfoundland and Labrador’s partnership benefits with Norwegian energy firm Equinor for the Bay du Nord offshore oil project.
Bay du Nord is poised to become Canada’s initial deepwater oil facility and the first one outside the nation’s exclusive economic zone, as specified by the United Nations Convention on the Law of the Sea (UNCLOS).
The issue of who would cover the expenses linked to Bay du Nord’s UNCLOS obligations has plagued the project for years, with Newfoundland and Labrador contending that Canada should bear the financial burden.
John Fragos, press secretary for federal Finance Minister Francois-Philippe Champagne, stated that Canada is dedicated to fulfilling its duties under the treaty. Fragos mentioned in an email that “further discussions are needed to ascertain the potential financial contribution connected with this project.”
The expenses could potentially amount to $1 billion, as per officials from the Newfoundland and Labrador government during a press briefing on Tuesday.
Canada ratified the treaty in 2003, committing to making payments to the International Seabed Authority for any resource extraction beyond the exclusive economic zone, extending 370 kilometers or 200 nautical miles from the coastline.
The yearly payments commence after the initial five years of production. They start at one percent of the production value or volume of oil extracted, escalating by a further percentage point each year until reaching seven percent. The fees remain constant at seven percent for the project’s duration.
If Bay du Nord proceeds, it would be situated farther offshore than any other oil facility globally, potentially becoming the first project worldwide triggering these obligations, Fragos explained.
When asked in St. John’s on Tuesday if the federal government would cover these fees even if they reached $1 billion, Thompson affirmed, “the federal government is committed to that, yes.”
She mentioned that Canada is still in negotiations on how this will unfold.
Danielle LaBrash, a policy analyst at the International Institute for Sustainable Development, emphasized the importance of Canada adhering to its commitments under the convention. Nevertheless, she suggested that Equinor and BP, the companies behind Bay du Nord, should be responsible for the expenses.
“Paying these royalties on behalf of Equinor is a subsidy. It’s a direct transfer of wealth from Canadians to an international oil company,” LaBrash stated. “This is essentially an indefinite subsidy.”
She highlighted instances of Newfoundland and Labrador’s offshore regulator flagging the convention requirements in notices to oil companies bidding for exploration in the region where the Bay du Nord discoveries are located.
Julia Levin, an associate director at Environmental Defence, asserted that Canada would violate its pledge to cease subsidizing oil and gas firms if it covered the UNCLOS fees for the Bay du Nord project.
“Using taxpayer funds to boost the profits of a Norwegian oil company during an affordability crisis is not in the best interest of Canadians,” Levin remarked.
Thompson stressed the significance of Bay du Nord to the federal government in bolstering the economy amidst rapidly evolving global politics. When questioned about whether the federal Liberals under former Prime Minister Justin Trudeau would have covered Bay du Nord’s expenses, Thompson referred to Prime Minister Mark Carney as “another leader” in “another time.”
“Yes, we’re taking a different approach, because we must adapt,” she affirmed.
Equinor is expected to make a final investment decision regarding Bay du Nord in the upcoming year.