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February 25, 2019

My flight back west was delayed at Toronto’s Pearson Airport, and I got talking to a Calgary banker, who was also homeward bound after a circuit around Bay Street. “Capital is thin right now,” she said. “Upstream investment for Canadian oil and gas is just a no-go: It’s not a matter of risk premium. No one knows how to price the politics.”

Investment in Canada’s resource sector fell dramatically in the past four years and the outlook for new projects remains depressed. Ottawa has proposed an overhaul under Bill C-69 of the federal environmental assessment for major capital projects, and our Senate is now scrutinizing the legislation.

In a report published on Thursday by the C.D. Howe Institute, Alberta’s former deputy minister of energy Grant Sprague and I aimed to add data and detail to this policy discussion. We believe that, in its present form, Bill C-69 risks amplifying political risk and further impairing confidence in Canada’s resource sectors. It also doesn’t address Ottawa’s past failures to adequately consult Indigenous peoples, which resulted in the Federal Court of Appeal quashing cabinet’s approvals of the Northern Gateway and Trans Mountain expansion pipeline.

First, our report highlights the downdraft to investment in our natural-resources sectors. Since 2014, annual capital investment in these sectors has fallen by $50-billion – equal to roughly 20 per cent of capital spending across all Canadian industries. Looking ahead, the estimated value of planned major natural-resource projects has plunged from 2017 to 2018 by $100-billion – an amount equivalent to 4.5 per cent of Canada’s GDP.

In this context, Bill C-69 could further discourage investment in major projects. We believe that the legislation risks congesting the assessment process with wider public-policy concerns. It will exacerbate the political uncertainty with a highly subjective “public interest” standard that would likely apply to every project subject to an assessment.

Bill C-69 will mean that every project that triggers federal assessment will face a subjective, political decision. This is because Bill C-69 removes the “significant adverse environmental effects” threshold before requiring a political “justification” decision by the federal cabinet.

The bill instead empowers the Minister of Environment and Climate Change or the federal cabinet to make a “public interest” decision for any designated project with any “adverse effects." Under the present Canadian Environmental Assessment Act, the responsible authority (the Canadian Nuclear Safety Commission, National Energy Board or Canadian Environmental Assessment Agency) first undertakes an evidence-based assessment of whether a project is likely to cause “significant adverse environmental effects." This appropriately splits the scientific assessment from the political balancing of trade-offs.

Bill C-69 also piles new, poorly-defined mandatory considerations into assessments. As the submission on Bill C-69 by the Canadian Bar Association noted, definitions of “effects” are very broad and could recognize any possible concern that might be raised about a designated project.

It also lacks any “standing” test – that is, for who participates in review hearings. This compounds the risk of blowing out timelines and crowding-out stakeholders with real skin in the game. The present “interested party” test limits participation to those who are “directly affected” by a project or bring relevant expertise. Projects such as Energy East or the Trans Mountain expansion received thousands of applications to participate. We hear fears from communities around resource projects – including Indigenous peoples – that busybodies with political aims will suck up airtime in hearings.

Finally and perhaps most important, Bill C-69 does not fix Ottawa’s failures around the duty to consult affected Indigenous peoples. The federal government has not updated its guidance for federal officials on the duty to consult since 2011. Ottawa’s consultative failures for Northern Gateway and the Trans Mountain expansion occurred after the respective environmental assessments. It was the federal cabinet that failed on the duty to consult, dispatching “note-takers” (in the words of the Federal Court of Appeal) rather than engaging in “meaningful, two-way dialogue” for both decisions.

Ottawa now pitches Bill C-69 as a remedy for the crisis facing Canada’s resources sector. However, in its present form, the proposed cure will only worsen the disease.

Grant Bishop is an associate director, research, at the C.D. Howe Institute.

Published in the Globe and Mail

 
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