Who Pays for
an Oil Spill #clearfacts #whopays #oilspill

#clearfacts#whopays#oilspill

Surrounded by busy waterways, Canadians invariably have questions about who pays for the costs associated with an oil spill.

For example, if a spill were to happen tomorrow – would Canadians pay for it?

Or how much money is available to respond to a spill?

The purpose of this site, created by Clear Seas Centre for Responsible Marine Shipping, is to outline who pays for the costs related to an oil spill in Canadian waters and to encourage informed conversations about marine shipping in Canada.

The Law in Canada

In Canada, the polluter pays – and there’s one law that oversees the entire system – whether the pollution is cargo oil from a tanker, or fuel or other oil used in propulsion (called bunker oil) from any ship.

The Marine Liability Act (MLA) establishes responsibilities and liabilities and incorporates international compensation conventions into Canadian law.

Under the MLA, the shipowner pays, usually through insurance which they are required to carry.

These limits vary depending on the source of the oil (tanker cargo or bunker oil) 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 may be sought from other sources funded by industry. These are: the International Oil Pollution Compensation Funds (IOPC Funds) and Canada’s Ship-source Oil Pollution Fund (SOPF), which are incorporated into the MLA. If the costs associated with a bunker oil spill exceed a shipowner’s liability limits then additional compensation may be sought from the SOPF, as incorporated into the MLA.

Learn more about 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)

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 (BUNKER 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-source Oil Pollution Fund (SOPF) which is described in more detail below.

Tanker Cargo Spills in Canadian Waters

While some risk is inherent in the transportation of oil, thanks to continually improving preventative measures, the volume and frequency of oil spills has been decreasing in Canada and globally since the 1970s.

While a spill is unlikely to occur, in order to operate in Canadian waters, tankers must always:

  • Contribute funds to and have a contract with one of Canada’s four 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.

$8.06 million

The amount of insurance required for ships smaller than 5,000 gross tonnes.

 

Ships larger than 5,000 gross tonnes and smaller than 140,000 gross tonnes require an additional $1,128 CDN of insurance per gross tonne above 5,000.

$160.47 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.
  • These values, presented in Canadian dollars, have been approximated based on a conversion from Special Drawing Rights as of January 5th, 2018. The actual amount of compensation available fluctuates depending on conversion rates which would be calculated as of the date of an incident.

Learn more about 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. This means that tanker owners are liable even in the absence of fault. Tanker owners are only exempt from liability if they can prove the oil pollution damage resulted from an act of war, a natural phenomenon, or the negligence of another. Find the entire list of exemptions here.

Compensation owed for a tanker cargo spill is paid out by the tanker owner’s insurer. Anyone requiring compensation for efforts in responding to a tanker cargo spill or for damages suffered from a tanker cargo spill has a right to take direct action against the ship’s insurer.

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 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.

Pays compensation for oil pollution damage caused by persistent oil when claims exceed the 1992 Fund.

Canadian

The Ship-source Oil
Pollution Fund

The SOPF

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.

Learn more about the 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 which 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.

National and International Oil Tanker Spill Compensation Funds

If an oil tanker spills its cargo in Canadian waters, four sources of funding can provide up to $1.51 billion in compensation per incident.

Vessel Size - Thousands of Tonnes
Cumulative Totals
Tanker Owner’s Insurance Up to $160.47 million
$160.47 million
1992 Fund Up to $202.41 million
$362.88 million
Supplementary Fund Up to $977.81 million
$1.34 billion
SOPF Up to $171.79 million
$1.51 billion
  • These values, presented in Canadian dollars, have been approximated based on a conversion from Special Drawing Rights as of January 5th, 2018. The actual amount of compensation available fluctuates depending on conversion rates which would be calculated as of the date of an incident.

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 bunker oil rather than oil being carried as cargo – meaning that oil tanker cargo has not been the source of most oil spills in Canadian waters.

Should a ship spill bunker oil in Canadian waters, under the MLA, three sources of compensation are available – the shipowner, the shipowner’s insurance, and the SOPF.

Limits of Liability for Bunker Spills

The amount a shipowner is liable to pay depends on the size of the ship.

$500,000

The amount of insurance required for ships smaller than 300 gross tonnes.

$2.70 million

The amount of insurance required for ships larger than 300 gross tonnes and smaller than 2,000 gross tonnes.

$32.93 million

Ships larger than 2,000 gross tonnes and smaller than 30,000 gross tonnes require an additional $1,080 CDN of insurance per gross tonne above 2,000.

$65.32 million

Ships larger than 30,000 gross tonnes and smaller than 70,000 gross tonnes require an additional $810 CDN of insurance per gross tonne above 30,000.

$65.32 million+

Ships larger than 70,000 gross tonnes require an additional $540 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.
  • These values, presented in Canadian dollars, have been approximated based on a conversion from Special Drawing Rights as of January 5th, 2018. The actual amount of compensation available fluctuates depending on conversion rates which would be calculated as of the date of an incident.

In addition, the SOPF can provide compensation if and when the limit of liability of the shipowner has been reached.

If the largest containership to have called on a Canadian port to date were to spill bunker oil in Canadian waters, the shipowner’s liability under the BUNKER Convention combined with the SOPF could provide up to $282.56 million CDN in compensation.

Learn more about the BUNKER Convention

Under the BUNKER Convention, a shipowner’s liability for pollution caused by the escape or discharge of bunker oil from their ship and for the cost of preventative measures, is determined by ship size. Shipowners are liable even in the absence of fault.

Compensation owed under the BUNKER 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 ship’s insurer.

Ship-Source
 Oil Pollution Fund

The Ship-source Oil Pollution Fund (SOPF) is Canada’s domestic oil spill fund which can pay claims for oil pollution damage in Canadian waters caused by the discharge of oil from any type of vessel or spills of unknown origin (often called mystery spills).

Funded by levies collected from oil cargo companies, the SOPF can provide compensation for oil pollution damage caused by any type of oil spill from any type of vessel. In the case of tanker spills, the SOPF provides additional compensation if the international funds are exhausted.

The majority of claims submitted to the SOPF concern derelict or abandoned vessels that pose a threat of oil pollution damage to Canada’s coastlines. For example, between 2005 and 2016, the number of incidents involving derelict and abandoned vessels resulting in claims totalled 58% of the incidents for which the SOPF received claims. The majority of these involved fishing vessels.

Incidents Handled by the SOPF in 2016/2017

British Columbia
Quebec
Nova Scotia
Newfoundland and Labrador
in Arctic Waters
Ontario
Manitoba
New Brunswick

These incidents involved a variety of vessel types including fishing boats, cruise ships, pleasure craft, ferries, tug boats, commercial ships and barges, many of which were abandoned and derelict; as well as mystery spills.

69

The number of incidents the SOPF handled during the 2016-2017 year.

16

The number of claims the SOPF received during the 2016-2017 year.

3
out of
5

incidents resulting in claims to the SOPF are related to derelict or abandoned vessels and wrecks.

99.9
%

of the total amount claimed during 2016-2017 was claimed by the Canadian Coast Guard.

$
5,429,169

The combined amount claimed from the SOPF during the 2016-2017 year.

Learn more about the SOPF

The SOPF is both a fund of the last resort and of the first resort – at the choice of the claimant. As a Fund of last resort, the SOPF compensates victims of oil pollution damage when they have been unable to obtain full compensation for such damage from the shipowner or any other party through Court action or settlement. It is also a Fund of the first resort, meaning that any person – including the Crown – may file their claims directly with the SOPF 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.

Canadians impacted by an oil spill of any kind from any vessel in Canadian waters can choose to submit their claim directly to the SOPF rather than deal with a shipowner and, if their claim is founded, the SOPF is mandated to take all reasonable measures to recover compensation from the polluter or other responsible party.

Recent measures announced as part of the Federal Government’s Oceans Protection Plan aim to strengthen Canada’s polluter pays principle.

Amendments to the SOPF are likely to include the removal of the per-incident limit of liability, making an unlimited amount of compensation available, and will provide a guaranteed top-up in the event that the Fund is depleted.

Canadians are encouraged to share their views on the Oceans Protection Plan and these proposed changes here.

About Clear Seas

Clear Seas Centre for Responsible Marine Shipping is an independent research centre that promotes safe and sustainable marine shipping in Canada.

Clear Seas was established in 2014 after extensive discussions among government, industry, environmental organizations, indigenous peoples and coastal communities revealed a need for impartial information about the Canadian marine shipping industry.

Clear Seas received seed funding in 2015 through equal contributions from the Government of Canada (Transport Canada), the Government of Alberta (Alberta Energy) and the Canadian Association of Petroleum Producers. Our funders saw the need for an independent organization that would be a source of objective information on issues related to marine shipping in Canada.

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 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

  1. International Tanker Oil Pollution Federation. (2017). Oil tanker spill statistics 2017.
  2. Tanker Safety Panel Secretariat. (2013). A review of Canada’s ship-source spill preparedness and response: Setting the course for the future.
  3. International Oil Pollution Compensation Funds. (2017). The 1992 Civil Liability Convention.
  4. International Oil Pollution Compensation Funds. (2017). The 1992 Fund Convention and Supplementary Fund Protocol.
  5. Ship-source Oil Pollution Fund. (2017). Limits of Liability and Compensation.
  6. Council of Canadian Academies. (2016). Commercial Marine Shipping Accidents: Understanding the Risks in Canada.
  7. Transport Canada. (2017). Civil Liability Insurance for Marine Pollution: Frequently Asked Questions.
  8. Ship-source Oil Pollution Fund. (2017). Fund Liability.
  9. Ship-source Oil Pollution Fund. (2017). Statistical Report on Incidents Involving Derelict and Abandoned Vessels and Wrecks that Resulted in Claims with the Ship-source Oil Pollution Fund over a 10-year period.
  10. Ship-source Oil Pollution Fund. (2017). The Administrator’s Annual Report 2016/2017.
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