End uncertainty on energy-project approvals

One hundred billion dollars. That’s the value of cancelled projects over the past three years in the Canadian energy sector. The drop in energy prices certainly played a role, but our approval process for large projects, which has a substantial arbitrary component, was also a factor.

The Northern Gateway and Energy East pipelines, valued at a combined $23-billion, both fell victim to political and legal reversals, despite the approval of the National Energy Board (NEB).

The expansion of the Trans Mountain pipeline is the most recent example. Its future is still uncertain today, as is the $4.5-billion of public funds that Ottawa spent to try to save it. And yet, the project had received the approval of the NEB and won its first 17 legal battles against the various groups and politicians that opposed the project.

These recent failures, among others, highlight our deficient regulatory process. A long and unpredictable process discourages investment.

Companies are taking note. According to a 2017 survey conducted by the Fraser Institute of oil-sector companies, the two main producing provinces, Alberta and British Columbia, are at the bottom of the pack in terms of predictability, delays, and costs related to the environmental approval process among 26 provinces and states (ahead of only California). More than two-thirds of the companies polled expressed a reticence to invest in these provinces.

Unfortunately, things could get worse. At the moment, the Senate is studying Bill C-69, the sweeping environmental legislation, which, among other things, will create the Canadian Energy Regulator, to replace the NEB. Most observers believe the new provisions would have the effect of lengthening and complicating the approval process, and increasing political arbitrariness.

Meanwhile, south of the border, the approval process for energy projects is being simplified. Certain infrastructure projects deemed to be priorities can be subject to an expedited approval process. Furthermore, two laws currently being studied by the U.S. Senate aim to simplify the approval of projects involving trade in oil, natural gas, and electricity between states, but also with Canada and Mexico. They would put an end to political uncertainty, since the decision would come from an independent and transparent federal agency, based on objective criteria.

Obtaining a permit has also been simplified and centralized. Agencies that miss deadlines will be sanctioned with financial penalties. These measures will continue to widen the competitiveness gap between Canada and the United States, which has already grown following fiscal and regulatory reforms south of the border.

It is possible to get back on track and re-establish a positive investment climate in Canada. In order for this objective to be achieved, Bill C-69 should be amended to include the following elements:

• Impose budgetary sanctions on agencies that do not respect the time limits prescribed by law, as our neighbours do;
• Eliminate the discretionary power of politicians to block a project once it has received all the necessary approvals;
• Prohibit the changing of the rules for assessing a project once the process has begun;
• Compensate companies for losses incurred due to missed deadlines.

When individuals and companies do not respect deadlines prescribed by the law, the government does not hesitate to penalize them. The same logic should apply to the government when it does not respect its own deadlines and regulations. Canada can become again the welcoming place it used to be for investors. It’s just a matter of taking the necessary steps.

Alexandre Moreau est analyste en politiques publiques à l’IEDM, Germain Belzile est chercheur associé senior à l’IEDM. Ils sont les auteurs de « Projets énergétiques : réduire l’incertitude pour relancer l’investissement » et signent ce texte à titre personnel.