7 reasons why Canada’s proposed overhaul of energy project reviews is bad for business: GMP FirstEnergy

Catherine McKenna, Canada's minister of environment and climate change, introduced the proposed changes in early February. Image: Chatham House

The federal government’s recently announced plan to overhaul the review process for major energy projects such as pipelines is getting a scathing review from one of the country’s most prominent oil and gas investment banks.

The government is proposing to replace the National Energy Board (NEB) with a new Canadian Energy Regulator (CER) and establish the new Impact Assessment Agency of Canada (IAAC). The stated goal is to “help restore investor confidence, rebuild public trust and advance indigenous reconciliation – all while ensuring good projects go ahead and our energy resources get to markets responsibly.”

In reality, it’s unlikely that any major project would proceed under the new rules, according to the research team with GMP FirstEnergy.

“The proposed legislation appears to create significant new barriers to timely decision making and effectively prevent any major new project from reaching any form of positive recommendation, or to impose such a massive series of requirements under any such positive recommendation as to make the project untenable and cost uncompetitive,” researchers wrote in a research note issued last week.

They added that the literature provided by the government “contains a good deal of political posturing and seems to lean to the side of attempting to please the most extreme critics” of the current process.

“We do not see this as being a good basis for making informed, fact-based decisions when it seems the entire proposed legislation is already front-loaded with certain ideological viewpoints. Moreover, it is not directly stated, but the new policy appears to put the environment first and the economy second, and the wants of a small number ahead of what is best for Canada’s economy as a whole.”

Here’s a look at some of the issues GMP FirstEnergy sees with the proposed new rules.

1. Moving away from science-based decision making

The most concerning aspect for new major project reviews is the shift from science-based decision making to a blend of quantitative and qualitative factors, the researchers said.

“The qualitative factors look to be nearly impossible to measure or assess. Additionally, certain quantitative measures such as gender-based analysis may be almost impossible to implement in practice."

2. Timelines for a final decision

GMP FirstEnergy notes that the government is proposing a two-stage process where first a project outline is provided to the IAAC, which then would engage with indigenous groups and other affected parties and provide feedback to the project proponent, which would then submit a detailed project report. The IAAC would then determine if a review is required, and if so give the proponent 180 days to meet its detail requirements.

In the second stage, the proponent submits an impact statement to the IAAC. The agency itself would then make a recommendation (maximum 300 days, down from 365 days in the current regime), or the impact statement would be sent to a review panel and eventually to federal cabinet (maximum 600 days, down from 720 days currently). A decision on whether the project is in the public interest would then made by the Minister of Environment and Climate Change within 30 days of a recommendation from the IAAC or 90 days of a review panel assessment.

“The timelines for final decision, though appearing to sound more concrete and shorter, are actually vague at best,” according to GMP FirstEnergy.

“The first stage has no clear timeline terms of how long the process will be between when an initial project is submitted and when the proponent can submit the detailed project for review by the IAAC. The consultation process between the IAAC and various stakeholders, after the initial submission, also has no timeline attached to it. This process alone could easily take months, or even years, in which special interest groups will try to influence the process as much as possible and before the project proponent is even granted permission to submit a detailed project to the IAAC which incorporates the initial feedback from stakeholders.”

3. Sub-processes ‘stopping the clock’

“The proposed legislation also appears to have many sub-processes what have the potential for ‘stopping the clock’ on the IAAC review once it is in the second stage,” GMP FirstEnergy notes, including allowing for additional studies and submissions by interested parties and “other delaying tactics such as the Governor in Council having an unlimited ability to extend a pending decision by the minister for as long as desired and suspending the time limit under which the notice of the commencement of assessment begins.”

4. What constitutes a major or minor project

The researchers noted that there appears to be no clear distinction as to what will constitute a major or minor project, or what actually constitutes a project for inclusion in an assessment.

“This appears to be tied to an undertaking for wider public participation in terms of firming up the project list that the public deems to be necessary for review. We cannot understand how opening up potential projects to a wider public assessment of what should or should not be reviewed is supposed to be seen as shortening or improving timelines to decision making.”

5. Concentration of power

GMP FirstEnergy says that under the legislation, there appears to be “a significant concentration of power under one individual, the Governor in Council or the Minister of Environment and Climate Change, in terms of deciding what should or should not be included as part of the assessment, as well as setting nearly impossible parameters for mitigating any environmental impacts from a proposed project. This seems to run counter to the stated objective of making the process more democratic and open to review.”

6. ‘Restoring public trust’ is highly politically charged

The researchers find that the government’s pledge to “restore public trust” in the review process is “a highly politically charged viewpoint which appears to be a major win for special interest groups.

“…The manufactured narrative by these groups of a lack of public trust has effectively amounted to a concerted effort to discredit the NEB and Canadian Environmental Assessment Agency as these agencies brought forth recommendations to cabinet that were not in agreement with their viewpoints. Special interest groups have questioned the independence and integrity of the NEB and the CEAA, and regrettably, the federal government has fully adopted this view…”

7. Who can be involved in NEB hearings

That narrative also comes to the heart of the so-called “standing test” for inclusion in NEB hearings, GMP FirstEnergy said.

“Under current guidelines, this test limits interveners in hearings to those that are directly affected by a proposed project or have special expertise deemed to be of use by the NEB during the hearing process…Under the government’s new definition, any member of the public can have in put into the regulatory review whether they are affected by the project or not. This would seem to open the whole process to becoming a farce since the number of Canadians is only limited by the number of people in the country…this hardly strikes us as an efficient means to render timely decisions in a cost effective manner.”

While the proposed legislation is likely to be viewed negatively by the domestic and international investment community both in energy transportation projects and the upstream development that would feed them, GMP FirstEnergy noted there is a small upside to the announcement.

“The only upside is that the federal government has also made it clear that new legislation will not be applied to any current federally approved projects such as, for example, the Trans Mountain Expansion, the Keystone XL Pipeline or Enbridge’s Line 3 replacement project. This also appears to be the case for any pending LNG export projects which have already received federal approval, such as LNG Canada, but for which a final investment decision has not yet been made by the project proponents.”

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