Sept/Oct 2007

Eye on Business

East Kootenay coal projects

By D. Podowski and C. Higgins

Agitation by Montana against East Kootenay development and the U.S. Federal Court decision extending liability to Teck Cominco in Trail, B.C.

Coal demand and East Kootenay development

Favourable price outlooks for metallurgical coal and coalbed methane (CBM) have reinforced interest in the southeastern corner of B.C. (East Kootenay) as an attractive area for exploration and development. The East Kootenay contains three coalfields (Crowsnest, Elk Valley, and Flathead), which together contain over 50 billion tonnes of coal and 19 trillion cubic feet (tcf) of CBM resource.1 Several companies are active in the East Kootenay including Elk Valley Coal, Western Canadian Coal, Cline Mining, and BP Energy Canada. Cline is in the pre-application phase of the development of a metallurgical coal mine, while BP hopes to begin exploration on what could be a $3 billion CBM project in the Crowsnest coalfield.

Two issues could affect future developments. The first is the breakdown of negotiations between Montana and B.C. regarding developing a joint environmental framework for the Flathead River ecosystem, an area in southern East Kootenay that straddles Montana and B.C.. The second is the potential effect of Pakootas v. Teck Cominco Metals, a decision in which a U.S. statute was held to apply against pollution caused by an upstream, Canadian-based smelter.

Divergent approaches to environmental assessment

The British Columbia Environmental Assessment regime (BCEAA) is a two-stage process that reviews projects on a case-by-case basis.3 The pre-application stage focuses on issue identification and is based on consultations with interested and potentially affected parties (Montana was a party in the pre-application stage of the Cline project). The pre-application stage leads to a terms of reference document that is used for the formal assessment application.

Montana believes the B.C. approach under-evaluates ecosystem-wide damage from coal projects in the Flathead River. It would like to see a joint scientific panel established for the trans-boundary watersheds of the Kootenay and Flathead river basins that would conduct a comprehensive, quantitative assessment of baseline environmental conditions of the trans-boundary waters. Talks seeking consensus have broken down and B.C. is continuing with its stated approach.

However, a powerful coalition has formed in opposition to the B.C. assessment and approval process. In addition to various Canadian and U.S. activist groups, Brian Schweitzer, Montana state governor, and Max Baucus, U.S. senator and chairman of the Senate Finance Committee, have spearheaded efforts to force B.C. to change its assessment policy. Secretary of State Condoleezza Rice has become involved and has requested a federal Canadian environmental assessment, as well as a federally brokered solution to the negotiations. Even President George Bush, an erstwhile supporter of coal-based solutions to rising energy demand, spoke against Canadian-situated Flathead River coal development projects.

The International Joint Committee (IJC)

In addition to its political pressure, Montana has threatened to refer the dispute to the International Joint Commission (IJC).4 Doing so would achieve little from a legal perspective, however. The IJC has no binding judicial powers. It can conduct fact-finding investigations, but its reports and recommendations are non-binding. If B.C. wanted to continue with its current environmental assessment process in the Flathead River ecosystem, the IJC has no judicial means to prevent it from doing so.

While the IJC holds no inherent jurisdiction over B.C., the reference process and the hearings associated with it could galvanize activists and political opponents from B.C. and Montana and provide an effective rallying point against coal and CBM development policies. Such a possibility should not be underestimated: in 1988, an IJC reference was released that had been carried out on the proposed Cabin Creek coal mine, a proposed 2.2 million tonne per year thermal coal mine.5 The IJC determined that the proposed development would violate Article IV of the Boundary Waters Treaty between the U.S. and Canada, which says that “waters flowing across the boundary shall not be polluted on either side to the injury or health or property of the other.” The report recommended that regulatory approval be denied until potential trans-boundary impacts were at a level acceptable to both governments. The mine was never developed.

B.C. could ignore Montana or agree to a compromise. A compromise could include giving in to ecosystem-wide baseline standards. However, doing so could allow the U.S. to pressure Canada and B.C. in the future should baseline comparisons indicate contamination. Such an outcome would support U.S. arguments and U.S. ability to pressure B.C. against the region’s coal and CBM projects.

The impact of Pakootas v. Teck Cominco Metals: transboundary liability?

In Pakootas, The U.S. Environmental Protection Agency (EPA), under the Comprehensive Environmental Response, Compen­sation, and Liability Act (CERCLA), had ordered Teck Cominco to carry out a remedial investigation feasibility study on slag discharged from a Canadian smelter up the Columbia River that had ended up in the U.S. and subsequently leached heavy metals in U.S. waters. The U.S. Ninth Circuit Court affirmed the district court’s decision and found Teck Cominco liable for slag discharged, despite the EPA having no obvious jurisdiction over Teck Cominco, a Canadian company. In coming to this conclusion, the Court applied a three-part test for a finding of an extra-territorial origin of the source of damages: first, that hazardous substance “be deposited, applied …placed or otherwise come to be located” on a site called a “facility” (the Court considered the Columbia River to be a “facility”); second, that there be a “release” or threat of release of the substance from the facility into the environment; and third, that the defendant belong to one of the four categories of persons who are subject to CERCLA liability (such as corporations).

Whether such reasoning can be applied to coal and CBM developments has yet to be determined. However, it is possible that baseline data gathered as a result of a baseline data agreement between Montana and B.C., or from reference findings by the IJC, could act as evidence in the future to establish that coal or CBM projects caused damages in the U.S. - whether CERBA or otherwise.

Conclusion

Coal and CBM companies, as well as the government of B.C., will face significant political pressure from the various forces organized against Flathead development, most notably the U.S. State Department and the State of Montana, if B.C. and Montana do not agree to an assessment framework. While Montana possesses no legal means from which it can stop the B.C. preference of approving coal and CBM projects on a case-by-case basis, Montana could ask the State Department to refer a question to the IJC, which could lead to a report with IJC recommendations. Such a report would not be binding. However, the process of creating the report could act as a catalyst to various project opponents (U.S. government and both U.S. and Canadian NGOs), galvanizing them around the issue, leading to media and public relations difficulties, and pressure upon the proponents and on the B.C. government to change its approach and move towards the Montana proposal. Another issue the coal and CBM companies will have to evaluate in the context of East Kootenay is the potential effect of Pakootas (if the case survives the appeal that has been launched by Teck Cominco to the U.S. Supreme Court). An understanding of the liability triggers created by the Ninth Circuit Court could help coal and CBM companies in crafting appropriate early-stage strategies potentially mitigating cross-border down-stream problems in the future.


Darrell Podowski (Vancouver) and Chuck Higgins (Toronto) work for Faskin Martineau DuMoulin LLP. They wrote this article with the assistance of Andrew Derksen, student-at-law (Toronto).

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