Holding Frackers Accountable for Groundwater Pollution: An Analysis of Canada’s Liability Regimes for Hydraulic Fracturing

Holding Frackers Accountable for Groundwater Pollution: An Analysis of Canada’s Liability Regimes for Hydraulic Fracturing by Adam Shedletzky, University of Toronto Law School for Environment Probe, July 30, 2012
Several cases of suspected groundwater contamination due to faulty well casings from fracking operations have been documented, and one landmark case concerning fracking for shallow coal bed methane, Ernst v. Encana, is currently making its way through the courts in Alberta.

This paper will focus on the legal provisions governing groundwater pollution due to fracking for shale gas. More specifically, it will examine the legal liability regimes that regulate the compensation of individuals and the public in the event of groundwater pollution due to fracking activities in Ontario, British Columbia, and Alberta. It will conclude with several recommendations for strengthening the regulatory regime to enhance frackers’ incentives to take care and to ensure that those who are adversely affected by fracking can be “made whole.”

Because the use of fracking in the extraction of shale gas in Canada is still very limited, there has been little opportunity to test the laws governing it. The lack of precedent makes it unclear whether the current legal liability regime is sufficient to ensure the sustainability of the fracking industry and the safety of the groundwater it potentially endangers.

There are several flaws with the current regulatory scheme. The Crown can choose whether to prosecute a polluting company or give it a free pass, with little recourse for concerned citizens. As long as a company takes “all reasonable precautions,” groundwater pollution could go unpunished (except, in some circumstances, in Ontario), and adversely affected individuals uncompensated. Individuals can sue under the common law, but only for damage to their own property. Additionally, there do not appear to be specific provisions to ensure that fracking operators are financially able to pay any fines or damages awarded against them.

On the other hand, those fracking for shale gas are subject to greater liability than are some other players in the energy industry. The current scheme leaves frackers open to potentially unlimited liability. The high daily fines, especially in Ontario and British Columbia, could lead to possible bankruptcy if the maximum fine is awarded for a longterm leak of fracking fluids or gas into groundwater. Additionally, there is no prohibition on common-law actions nor is there a cap on damages, leading to the potential for enormous penalties.

As governments around the world conduct environmental reviews of this burgeoning industry, it would be wise to further consider the implications of the current regulatory scheme and design a system of legal liability that ensures that 1) fracking operators have every incentive to take care and 2) adversely affected individuals can be “made whole.”

Incorporating the following recommendations would be a strong starting point:
• Eliminate the due diligence defence. At a minimum, limit the defence by creating a two tier regulatory scheme that imposes some level of absolute liability for administrative penalties and strict liability for criminal prosecutions.
• Ensure that administrative penalties are set at a level that accurately reflects potential damage.
• Require fracking operators to hold sufficient insurance to be capable of cleaning up groundwater pollution and paying substantial fines or damages.114
• Explicitly permit citizens to prosecute fracking operators for statutory violations where the Crown is unwilling to do so.
• Provide the court with explicit authority to impose additional penalties over and above the maximum in the case of negligence.
• Require companies to include a tracer in their fracking fluids so any potential groundwater contamination can be easily linked to a specific fracking operation.
• Ensure that individuals directing fracking operations are held personally liable for statutory and/or common-law violations.

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