The federal government will raise the bar for oil companies operating off the East Coast and in the Arctic, increasing the limit on their liability for environmental and other damage from a blowout or oil spill to $1-billion.

Natural Resources Minister Joe Oliver said the $1-billion cap – up from $30-million in the Atlantic and $40-million in the Arctic – is part of the government's "polluter pays" approach to resource development. But environmental groups complain it could still leave taxpayers on the hook for massive costs, noting the cleanup from BP PLC's Gulf of Mexico spill has cost more than $40-billion.

To implement the proposed changes, Ottawa will have to amend different acts that govern offshore oil and gas development off Newfoundland and Labrador, Nova Scotia, and off Canada's northern coast. It will also strengthen the ability of governments to get compensation in the event of spills, and for regulators to impose fines.

Story continues below advertisement

"Canada is taking steps today to improve its robust offshore regime and make it even stronger," the minister told a news conference in Halifax, where he was joined by Nova Scotia Premier Darrell Dexter. "As I've said many times, our government will ensure that development will not proceed unless it is safe for Canadians and safe for the environment.

Last week, Mr. Oliver announced a similar plan to increase liability limits for nuclear operators, though again critics said the caps are far short of the expected cost of a major accident.

The government's announcement comes as Enbridge Inc. is pushing back against the national energy regulator's demand to have nearly $1-billion in liability coverage set aside for the proposed Northern Gateway pipeline project. Enbridge instead is calling for an industry-financed fund that would cover cleanup costs resulting from a "catastrophic oil release" from a pipeline.

The government's proposed $1-billion cap for offshore drilling would apply to "no fault" liability, while operators would continue to face unlimited liability should they be found to be at fault or negligent. Companies will also be required for the first time to demonstrate to the regulators their financial capacity to cover $1-billion in cleanup costs should it become necessary.

"In the event of an oil spill off the coast of Canada, it's going to be very costly to the taxpayers of Canada," said Pierre Sadik, manager of legislative affairs for EcoJustice, an environmental advocacy group.

Mr. Sadik added that it can be difficult for governments to collect compensation when they have to prove fault or negligence in an oil spill, as is the case with unlimited liability.

At the same time, a blowout in Canadian waters could be extremely damaging and expensive to contain, given the harsh conditions, the remoteness of operations and the lack of the kind of equipment that was readily available to BP as it sought to battle the Macondo blowout in 2009.

Story continues below advertisement

Oceans North Canada researcher Chris Debicki said the proposal is "a step in the right direction," and will highlight the risks of drilling in the Arctic. "But it's impossible to put an economic figure on ecosystem destruction," said Mr. Debicki, whose group is part of the Pew Charitable Trust.

The offshore oil industry has long been expecting the increased liability, and can work within it though it may affect smaller companies that want to explore in shallow waters, said Paul Barnes, manager for Atlantic Canada for the Canadian Association of Petroleum Producers.

"It's something that we had been anticipating and we are seeing governments around the world undertake similar initiatives to modernize and make improvements to their regulatory regime, especially in light of disasters that have occurred in recent times," Mr. Barnes said. "There is nothing in it that really concerns us."