Canada: In Process? New Federal Rules For Pipeline Approvals

On January 27, 2016 the Government of Canada (Government) announced new interim rules which will guide federal decision-making on natural resource projects. These rules will apply until the Government's formal review of the federal environmental assessment legislation and the National Energy Board's (NEB) process, announced in December, 2015, is complete. While the Government has not yet announced any of the specific measures it plans to take to overhaul the existing system, it is expected to take several years. In the meantime, the federal interim review process will be undertaken as the Government's second review step, after the NEB has reviewed and approved a project.

The Government's stated reason behind the proposed review of federal environmental assessment process, and the interim rules, both of which will operate separately from, and in addition to, the NEB's review process, is to "restore lost confidence" in the regulatory regime. The NEB's role with respect to approving a pipeline project is to consider the pipeline's "economic, technical and financial feasibility, and the environmental and socio-economic impact of the project." However, the Commissioner of the Environment and Sustainable Development's recent audit of the NEB concluded that there are several deficiencies in the NEB's process such as not adequately tracking company implementation of pipeline approval conditions or following up on deficiencies in company compliance with regulatory requirements. It is the Government's view that it is only by regaining Canadians' trust in the regulatory process that any resource project will be approved.

The interim rules provide that the Government will undertake and fund deeper consultations with Indigenous peoples, increase public and community engagement in resource projects, and assess and publish the upstream greenhouse gas emissions associated with such projects (which will include emissions from the oil sands). The Government will take these steps in addition to, and after the completion of, the current NEB regulatory process. The NEB review does not currently assess upstream greenhouse emissions. The Government has indicated that its consultation process will be more extensive than the current regime, and extend to the public generally.

The Government will weigh the economic benefits, the science, the total environmental impact (including upstream greenhouse gas emissions), and the results of the consultations including indigenous knowledge to determine whether the projects are in the national interest. However, the Government has not said how the factors will be weighed, or what will be the determining factor in their decision. The Government has also not committed to approving these projects once the regulatory review is complete, but has said that it is committed to bringing Canada's resources to market in a sustainable way.

The NEB is currently considering two significant pipeline projects, Kinder Morgan's Trans Mountain Expansion and TransCanada's Energy East Pipeline, which will be immediately affected by these interim rules. Although the review process for these projects will not start afresh, the Minister of Natural Resources (Minister) has announced that he will seek extensions to the legislated review time-limits under the National Energy Board Act for both the NEB review process, and the Governor in Council's decision of whether to approve the project, in order to facilitate compliance with the interim rules.

In the case of the Trans Mountain Expansion, the Minister will seek a four month extension for the Governor in Council's decision, for a total of seven months from when the NEB is expected to submit its final report in May, 2016. In the case of the Energy East Pipeline, the Minister will seek a six month extension to the NEB review process, for a total of 21 months, and a three month extension to the Governor in Council's decision, for a total of six months, resulting in a total review time of 27 months.

Implications

The chief implication from the announcement is the delay these interim rules and the review process will create. Moving Canadian natural resources to international markets is one of the most critical economic issues facing the country. Adding extra regulatory hurdles - the scope of which is largely unknown - may be a signal to the energy sector and its investors that uncertainty can be expected in the process.

The Minister is adamant that without the interim rules, there would be no chance of approval. The question is whether the interim rules will have the desired effect. That is, will added consultation with people who are not directly affected by the pipelines, allowing more people to be heard, and assessing the upstream greenhouse gas effects of the project make a difference in the public's perception of the regulatory system?

The other key implication is whether the NEB is once more involved in a very politicized process.  Under the previous government, Cabinet was given the power to approve projects in the "national interest" even if the NEB did not recommend that a project be approved. The Government has not indicated whether it will reverse these Cabinet powers. The question then is how an independent quasi-judicial body can gain the confidence of the public when its decisions are open to politicization no matter how much consultation or environment assessment has been done.

No doubt, the provinces and the federal government will have much to discuss in their upcoming meeting on climate change on March 2nd and 3rd, 2016 in Vancouver, with the interim rules chief among them and federal involvement on environmental assessments and their related jurisdictional issues.  

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