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Rethinking the Function of Financial Assurance for End-of-Life Obligations

July 2020

Citation: 50 ELR 10573

Issue: 7

Author: Colin Mackie and Laurel Besco

This Article develops a new normative account of the function of financial assurance requirements (FARs) for end-of-life obligations in the energy sector. These obligations cover restoration of the site to its original condition or to a level that could accommodate another productive use once the energy project ends. FARs necessitate that operators evidence ability to pay for this. However, many FARs are failing across the United States, Canada, and the United Kingdom, posing serious implications for public funds and the environment and resulting in significant cost savings for operators that have the potential to distort trade. The authors argue that it is time to rethink FARs’ function, and that they ought to empower operators and regulators to discharge important legal responsibilities—or duties—ascribed to them prospectively. From the operator’s perspective, this is a duty to perform their end-of-life obligations. In contrast, the regulator’s duty is to protect the environment and human health by obtaining an appropriate guarantee from the operator that the works will be performed. The authors conclude that the empowering quality of FARs may be achieved most effectively through ensuring that fully funded capital reserves are “ring-fenced” from the claims of creditors prior to operations commencing.

Dr. Colin Mackie is a Lecturer in Business Law in the School of Law at the University of Leeds, U.K. Dr. Laurel Besco is an Assistant Professor in the Institute for Management and Innovation and in the Geography Department at the University of Toronto-Mississauga.

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