Canada should temporarily stop giving oil companies licences to drill in the Arctic because it is unprepared to handle any oil spill that may result, a new report says.

"We need to push the pause button for a while," said Trevor Taylor, policy director for the Pew Environment Group's Oceans North Canada and one of the co-authors of the report. The group is a U.S.-based foundation focused on promoting public policy on environmental issues, and Oceans North Canada is its Arctic-focused Canadian arm.

The report released Friday follows a similar report from the World Wildlife Fund a day earlier that estimated weather conditions in the Arctic would make it impossible to deploy an emergency oil-spill response 84 per cent of the time.

Both reports were triggered by a U.S. National Energy Board review of safety measures for drilling in Canada's Arctic, which is expected to be completed by December.

Ocean North Canada's report outlined a number of problems related to Canada's current "Arctic readiness for drilling":

The Canadian Coast Guard has not tested its ability to handle an Arctic oil spill since 2000.

Company liability for any spill is capped at $40 million in Canada, despite evidence that damage can exceed that amount by several orders of magnitude. The BP oil spill in the Gulf of Mexico in 2010 has cost $40 billion so far, meaning that the similar cap would have left the company off the hook for $39.96 billion.

Canada doesn't screen companies to see if they can afford to handle the worst-case Arctic drilling disaster scenario.

Canada has not consulted enough with Inuit organizations in the Eastern and Western Arctic even though they have land claims that entitle them to that consultation.

The report also noted some technical problems with Arctic oil spills that aren't specific to Canada:

There are few ways to clean up oil spills under thick Arctic ice and there has been very little research on that kind of clean-up to date. Such ice covers the Western Arctic 22 to 66 per cent of the time.

According to the National Energy Board, measures typically used to deal with oil spills can rarely be used in the Arctic even when there is no ice because of high winds, darkness and waves.

Despite the concerns outlined in the report, Canada issued three offshore drilling licences in 2010.

Most of the drilling that has taken place in Canada's Arctic so far has been in relatively shallow water of the Beaufort Sea. But companies are now seeking approval to drill in deeper water.

The report recommends that Canada:

Not give out any more deep water drilling licences in the Arctic until environmental assessments on drilling in the proposed licensing area are complete.

Require companies to show they can afford to control an Arctic oil spill and meet technical standards for doing so.

Provide for the ability to review and cancel existing long-term drilling rights and licenses, with compensation, in case of "justifiable circumstances" such as major environmental change, industrial accidents or national security issues.

Taylor acknowledged that drilling for oil will inevitably take place in Canada's Arctic.

"If we are going to continue to rely on the fossil fuels, we are going to punch a hole in the bottom of the Arctic Ocean," he said. "But we need to think about how we are going to do it."

The report also recommends that the National Energy Board not relax a rule that requires oil companies to be able to drill a relief well in the same season that a blow-out occurs at their main well. A relief well is designed to stop the resulting gush of oil into the ocean.

Oil companies want the rule changed, and the board is considering a change as part of its review. But environmentalists are concerned that would allow an oil leak to gush for up to nine months before the sea ice once again melts enough for companies to return and drill a relief well.