Who Pays for
an Oil Spill
#clearfacts #whopays #oilspill
Surrounded by busy waterways, Canadians inevitably have questions about who pays for the costs associated with a ship-source oil spill into water.
For example, if a spill were to happen tomorrow – would Canadians have to pay for it?
How much money is available to clean up a spill?
This site’s purpose is to share objective information about who pays for the costs of cleaning up a ship-source oil spill in Canadian waters and to encourage informed conversations about marine shipping in Canada.
This site was created by Clear Seas, an independent research centre that supports safe and sustainable marine shipping in Canada.
The Law in Canada
In Canada, the polluter pays – whether the oil pollution came from tanker cargo or fuel (called bunker) from vessels of any size.
The Marine Liability Act (MLA) establishes responsibilities and liabilities and incorporates international compensation conventions into Canadian law. The Marine Liability Act also establishes the requirements of Ship and Rail Compensation Canada – Ship Fund.
Under the Marine Liability Act, the shipowner pays, usually through mandatory liability insurance.
The amount a shipowner pays depends on the source of the oil (cargo or fuel) and on the size of the ship.
If the costs associated with a tanker cargo spill exceed a tanker owner’s liability limits then additional compensation is available from other sources funded by industry, including the International Oil Pollution Compensation Funds (IOPC Funds) and Ship Fund. Both of these funds are incorporated into the Marine Liability Act. If the costs associated with a fuel (bunker) spill exceed a shipowner’s liability limits then additional compensation may be sought from the Ship Fund.
Tanker Cargo Spills in Canadian Waters
While some risk is inherent in the transportation of oil, thanks to increased preventive measures such as mandatory double hulls for ships carrying oil as cargo and local marine pilots to guide ships in Canadian coastal waters, the volume and frequency of oil spills has been decreasing in Canada and globally since the 1970s[1].
Although a spill is unlikely to occur, in order to operate in Canadian waters, tankers must always[2]:
- Contribute funds to and have a contract with one of Canada’s four certified response organizations.
- Carry enough insurance to cover their liability in the unlikely event of a spill.
Limits of Liability for Tankers
The amount which a tanker owner is liable to pay depends on the size of the tanker and how much oil it can carry.[3]
$8.2 million
The amount of insurance required for ships smaller than 5,000 gross tonnes.
0
Ships larger than 5,000 gross tonnes and smaller than 140,000 gross tonnes require an additional $1,147 CDN of insurance per gross tonne above 5,000.
$163.2 million
The amount of insurance required for ships larger than 140,000 gross tonnes.
* Gross tonnes is a measure of volume inside a vessel including all areas from keel to funnel and bow to stern. Aframax tankers, common in Pacific waters, are a maximum of 68,000 gross tonnes while Ultra Large Crude Carriers, common in Atlantic waters, are a maximum of 310,000 gross tonnes.
** These values, presented in Canadian dollars, have been approximated based on a conversion from Special Drawing Rights as of October 10, 2019. The actual amount of compensation available fluctuates depending on conversion rates which would be calculated as of the date of an incident.
Should claims exceed the shipowner’s limit of liability, the Marine Liability Act makes available additional sources of funding paid for by industry.
International
The 1992 International Oil Pollution Fund
The 1992 Fund
Financed by entities receiving persistent oil carried by sea.
Pays compensation for oil pollution damage caused by persistent oil when claims exceed the tanker owner’s liability or when the tanker owner is incapable of meeting their obligations.
International
The International Oil Pollution Compensation Supplementary Fund
The Supplementary Fund
Also financed by entities receiving persistent oil carried by sea.[4]
Pays compensation for oil pollution damage caused by persistent oil when claims exceed the 1992 Fund.
Canadian
Ship and Rail Compensation Canada – Ship Fund
The Ship Fund
Financed by levies collected from oil cargo companies.
Pays compensation for oil pollution damage caused by any type of oil spill (including persistent and non-persistent oils) from any type of vessel or reasonable measures taken to prevent such a spill.
National and International Oil Tanker Spill Compensation Funds
If an oil tanker spills its cargo in Canadian waters, four sources of funding are available. Changes made to the Ship Fund in December 2018 removed the per-incident limit of liability; there is effectively no limit to compensation available from the Ship Fund.
* These values, presented in Canadian dollars, have been approximated based on a conversion from Special Drawing Rights as of October 10, 2019. The actual amount of compensation available fluctuates depending on conversion rates which would be calculated as of the date of an incident.[5]
And If the Oil Spilled Isn’t Tanker Cargo?
Between 2003 – 2012, 78% of oil spills 10,000 litres or greater in Canadian waters involved fuel oil rather than oil carried as cargo. Oil tanker cargo has not been the source of most oil spills in Canadian waters.[6]
If a ship spills fuel oil in Canadian waters, under the Marine Liability Act, three sources of compensation are available – the shipowner, the shipowner’s insurance, and the Ship Fund.
Limits of Liability for Fuel Spills
Under the International Convention on Civil Liability for Bunker Oil Pollution Damage (Bunkers Convention), all ships above 1,000 gross tonnes must have insurance for damage resulting from a fuel spill. The amount a shipowner is liable to pay depends on the size of the ship.
$2.75 million
The amount of insurance required for ships larger than 300 gross tonnes and smaller than 2,000 gross tonnes.
$33.5 million
Ships larger than 2,000 gross tonnes and smaller than 30,000 gross tonnes require an additional $1,098 CDN of insurance per gross tonne above 2,000.
$66.4 million
Ships larger than 30,000 gross tonnes and smaller than 70,000 gross tonnes require an additional $824 CDN of insurance per gross tonne above 30,000.
$66.4+ million
Ships larger than 70,000 gross tonnes require an additional $549 CDN of insurance per gross tonne.
* Gross tonnes is a measure of volume inside a vessel including all areas from keel to funnel and bow to stern. Aframax tankers, common in Pacific waters, are a maximum of 68,000 gross tonnes while Ultra Large Crude Carriers, common in Atlantic waters, are a maximum of 310,000 gross tonnes.
** These values, presented in Canadian dollars, have been approximated based on a conversion from Special Drawing Rights as of October 10, 2019. The actual amount of compensation available fluctuates depending on conversion rates which would be calculated as of the date of an incident.
Ship and Rail Compensation Canada – Ship Fund
The Ship and Rail Compensation Canada – Ship Fund is Canada’s domestic oil spill fund to ensure claims for oil pollution damage in Canadian waters are paid. Spills can be caused by the discharge of oil from any type of vessel or be of unknown origin (often called mystery spills).[8]
Funded by levies collected from oil cargo companies in the 1970s and with an accumulated surplus of over $408 million in 2019, the Ship Fund can provide unlimited compensation for oil pollution damage caused by any type of oil spill from any type of vessel. In the case of persistent oil spilled from a tanker’s cargo or ship’s fuel tanks, the Ship Fund provides additional compensation if international funds are exhausted.
The Ship Fund is a special purpose Government of Canada account, established under Part 7 of the Marine Liability Act to protect taxpayers while facilitating the payment of claims from ship-source oil pollution in Canadian waters. Amendments in 2018 to the Marine Liability Act improved the Ship Fund.
The Ship Fund has:
- An unlimited per-occurrence limit of liability;
- The authorization to temporarily transfer funds from the Consolidated Revenue Fund if the Ship Fund is depleted;
- Alignment with international conventions for claims for economic losses (notably lost revenue) caused by oil pollution;
- Liability for the costs and expenses incurred by the Minister of Fisheries and Oceans or any other person for measures to prevent oil pollution damage even without a grave and imminent threat of a spill;
- Provision of up-front emergency funding to the Minister of Fisheries and Oceans for significant oil pollution incidents.
The Ship Fund is both a fund of the last resort and of the first resort, at the choice of the claimant.
At last resort, the Ship Fund compensates victims of oil pollution damage when they have been unable to obtain full compensation for damage from the shipowner or any other party through Court action or settlement.
At first resort, any person – including the Crown – may file claims directly with the Ship Fund, which will investigate and assess the claim, make the claimant an offer of compensation, and, once accepted, seek to recover the amount paid from the polluter or other responsible party.
Types of Claims
The majority of claims submitted to the Ship Fund are in response to wrecked, derelict or abandoned vessels that pose a threat of oil pollution to Canada’s coastlines. For example, between 2005 and 2016, the number of incidents involving wrecked, derelict or abandoned vessels resulting in claims totalled 58% of the incidents for which the Ship Fund received claims[9]. Fishing boats generate a larger number of claims than any other type of vessel, but tugs and barges are responsible for higher monetary value claims.[10]
Under the Ship Fund “last resort” model, claims for compensation can be submitted for any kind of reasonable loss, damage, costs or expenses, including economic losses, caused by oil pollution, if:
- The shipowner does not or cannot pay;
- The shipowner is not liable under the Civil Liability Convention or Bunkers Convention;
- The International Fund and Supplementary Fund are not liable or the claim exceeds their limits;
- The Ship Fund Administrator is considered a party to proceedings against a shipowner;
- The cause of the oil pollution is unknown (mystery spill).
Under the Ship Fund “first resort” model, none of these restrictions apply: claims for compensation are submitted directly with the Administrator, who assesses and pays the claim and then pursues the shipowner, the International Funds, or any other liable party as is deemed reasonable.
Claims for compensation can also be submitted to the Ship Fund for costs and expenses incurred by the Minister of Fisheries and Oceans or others taking action to prevent an oil spill, even when the threat of oil pollution damage is later determined not to be grave and imminent. Actions to respond to grave and imminent threats of pollution are eligible under the International Fund or the Supplementary Fund.
Making a Claim
Anyone involved in responding to an oil spill or the threat of an oil spill, or anyone who suffers damages as a result of an oil spill, can make a claim to the Ship Fund for compensation.
The Ship Fund is available for claims of all sizes with a simplified process for claims up to $35,000.
Incidents Handled by the Ship Fund in 2018/2019
These incidents were a result of spills and leaks from a variety of vessel types, most of which were abandoned and derelict, including fishing boats, cruise ships, pleasure craft, ferries, tug boats, commercial ships and barges as well as mystery spills.
30
The number of years the fund has been compensating those impacted by oil pollution from ships.
89
The number of active files the Ship Fund handled or monitored during the 2018-2019 year.[10]
$170,505
The average value of a claim to the Ship Fund – but 64% of claims are less than $50,000.
92%
of the claims during 2018-2019 came from the Canadian Coast Guard, but only 42% of the dollar value.
$8,137,253
The combined amount claimed from the Ship Fund during the 2018-2019 year, a record.
Measures announced as part of the Canadian government’s Oceans Protection Plan have made Canada’s “polluter pays principle” even stronger, protecting Canadians from the costs associated with oil spills in Canadian waters.
About Clear Seas
Clear Seas is a Canadian not-for-profit organization that provides independent fact-based information to enable governments, industry, and the public to make informed decisions on marine shipping issues. We work to build awareness and trust so that all people can feel a part of the marine sector. Our vision is a sustainable marine shipping sector that is safe, vibrant, and inclusive, both now and for future generations.
As an independent research centre, Clear Seas operates at arm’s length from our funders. Our research agenda is defined internally in response to current issues, reviewed by our research advisory committee, and approved by our board of directors.
Our board of directors is composed of mariners, scientists, community leaders, engineers and industry executives with decades of experience investigating human, environmental and economic issues related to our oceans, coastlines and waterways.
Our reports and findings are available to the public at clearseas.org
Sources & Citations
- International Tanker Oil Pollution Federation. (2018). Oil tanker spill statistics 2018.
- Tanker Safety Panel Secretariat. (2013). A review of Canada’s ship-source spill preparedness and response: Setting the course for the future.
- International Oil Pollution Compensation Funds. (2019). The 1992 Civil Liability Convention.
- International Oil Pollution Compensation Funds. (2018). Liability and compensation for oil pollution damage.
- Ship and Rail Compensation Canada. (2019). Limits of Liability and Compensation.
- Council of Canadian Academies. (2016). Commercial Marine Shipping Accidents: Understanding the Risks in Canada.
- Transport Canada. (2019). Civil Liability Insurance for Marine Pollution: Frequently Asked Questions.
- Ship and Rail Compensation Canada. (2019). Fund Liability.
- Ship and Rail Compensation Canada. (2019). The Administrator’s 30th Annual Report: 2018-2019 Incident Summaries..
- Ship and Rail Compensation Canada. (2019). The Administrator’s 30th Annual Report 2018-2019. p.8
The Marine Liability Act and International Conventions
The Marine Liability Act gives force of law to the following international conventions:
International Convention on Civil Liability for Oil Pollution Damage 1992 (Civil Liability Convention or CLC)
- Establishes the polluter pays principle and sets limits of liability for tankers carrying oil as cargo.
International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992 (1992 Fund Convention)
- Establishes the International Oil Pollution Compensation Fund 1992 (IOPC 1992 Fund).
Protocol of 2003 to the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage 1992 (Supplementary Fund)
- Establishes the IOPC Supplementary Fund, making more resources available for compensation for oil tanker cargo spills.
International Convention on Civil Liability for Bunker Oil Pollution Damage (Bunkers Convention)
- Modelled on the CLC, it assigns liability for spills of oil other than oil carried as cargo.
The MLA also contains provisions related to Canada’s Ship and Rail Compensation Canada – Ship Fund which is described in more detail below.
Tanker Liability
Tanker owners are liable for pollution caused by the escape or discharge of persistent oil carried as cargo, up to a limit of liability determined by the tanker’s size. Liability under the conventions also extends to preventive measures taken in anticipation of a spill, provided a grave and imminent threat of a spill exists.[3]
Tanker owners are liable even in the absence of fault and are only exempt from liability if they can prove the oil pollution damage or reasonable preventive measures resulted from an act of war, a natural phenomenon, or an act or omission with the intent of a third party to cause damage.
Compensation for a tanker cargo spill is paid out by the tanker owner’s insurer. Anyone incurring costs for cleaning up a tanker cargo spill or damages suffered due to a tanker cargo spill has a right to seek compensation from the ship’s insurer.[3]
International Funds
The 1992 Fund and Supplementary Fund are made available by the IOPC Funds. Potential claimants can visit IOPC Funds’ publication page to find their claims manual, more information on submitting a claim and the types of claims that are accepted.
In future, compensation for damage caused by non-persistent oils will also be made available under the Hazardous and Noxious Substances (HNS) Convention once the convention enters into force.
Bunkers Convention
Under the Bunkers Convention, a shipowner’s liability for pollution caused by the escape or discharge of fuel oil from their ship and for the cost of preventive measures is determined by ship size.[7] Shipowners are liable for this pollution even in the absence of fault.
Compensation owed under the Bunkers Convention is paid out by the shipowner’s insurer and anyone requiring compensation for efforts in responding to or for damages suffered from a bunker oil spill has a right to take direct action against the insurer of a ship of more than 1,000 gross tonnes.