Canada: Some Thoughts On BC's Plan To Restrict Increased Transportation Of Bitumen

On January 30, 2018, the government of British Columbia announced that it intends to further regulate oil spill response in the province.  As part of the announcement, BC said that it may restrict the increase of diluted bitumen transportation through the province "until the behaviour of spilled bitumen can be better understood and there is certainty regarding the ability to adequately mitigate spills".

The government of Alberta reacted swiftly.  First, Premier Rachel Notley announced that Alberta was immediately cancelling further talks with BC on the import of electricity from that province, including from the Site C project currently under construction on the Peace River.  Following that, the Premier announced a ban on the import of wine from BC.  As well, the Premier has publicly called on the Prime Minister to intervene in the dispute, on the basis that BC's actions are unconstitutional because they trench on federal jurisdiction.

What, exactly, is going on and what does it mean for major pipeline projects, in particular the Kinder Morgan TransMountain project approved by the federal government in 2016?

What did BC announce, exactly?

On one view of things (BC's view), all that was announced was that BC intends to consult on "proposing a second phase of regulations to improve preparedness, response and recovery from potential spills" (a first phase of regulations was approved in October 2017).  The regulations would be made under BC's Environmental Management Act.

The announcement, made by BC's Minister of Environment and Climate Change Strategy, stated that BC is "looking for feedback" in five areas:

  1. Response times, to ensure timely responses following a spill;
  2. Geographic response plans, to ensure resources are available to support an immediate response, that take into account unique characteristics of a given sensitive area;
  3. Compensation for loss of public and cultural use of land, resources or public amenities in the case of spills;
  4. Maximizing application of regulations to marine spills; and
  5. Restrictions on the increase of diluted bitumen transportation until the behaviour of spilled bitumen can be better understood and there is certainty regarding the ability to adequately mitigate spills.

BC says that an independent scientific advisory panel will be established to make recommendations to the Minister on "if and how heavy oils can be safely transported and cleaned up, if spilled".  Specifically, the panel will help address the scientific uncertainties outlined in the report, The Royal Society of Canada Expert Panel: The Behaviour and Environmental Impacts of Crude Oil Released into Aqueous Environments.  The recommendations of the advisory panel will inform future regulatory development and approaches to spill response.

The process to receive feedback on the proposed regulations will feature engagement with First Nations, to begin as soon as possible.  BC says it will also meet with industry, local governments and environmental groups "over the coming weeks and months".  As well, the general public will be able to provide input online through written comments, once an "intentions paper" is released. The intentions paper will provide an overview of the proposed regulations and is expected to be posted before the end of February 2018. 

No timeline is included as to how long BC expects it will take to receive and consider this feedback, nor how long it will take for the independent scientific advisory panel to make its recommendations.

The part of the announcement that has caught everyone's intention is this:

"In order to protect B.C.'s environmental and economic interests while the advisory panel is proceeding, the Province is proposing regulatory restrictions to be placed on the increase of diluted bitumen ("dilbit") transportation."

This has been interpreted almost universally as being directed at the TransMountain Pipeline Expansion (TMX), a project that would increase the amount of diluted bitumen shipped from Alberta's oil sands to 890,000 barrels per day from 300,000 barrels per day.  The current BC government has previously stated that it will use every legal means possible to block the TransMountain expansion.

Is further review/study of spill response warranted?

While this is ultimately a policy decision, and opinions will differ widely, it is worth remembering that the issue of the potential for, and ability to clean up, a marine spill of bitumen was considered and assessed by the National Energy Board ("NEB") when it reviewed the TMX project; it was also considered by the NEB in its review of Enbridge's Northern Gateway project.

As noted by the NEB in its report on TMX, the Board completed a comprehensive environmental assessment of the Project in accordance with its authority under the National Energy Board Act (NEB Act) and the Canadian Environmental Assessment Act, 2012.  Although marine shipping is not regulated by the Board, as part of its overall public interest determination under the NEB Act, the Board considered the potential environmental effects of Project-related marine shipping.  Specifically, the NEB considered the likelihood and potential consequence of a spill from the Project or from a Project-related tanker.

The evidence before the NEB was that the TransMountain project would result in an increase in the number of tankers calling at the Westridge Marine Terminal in Burnaby from 5 per month to up to 34 per month.  Trans Mountain said that the Project-related increase in marine traffic within Burrard Inlet would represent approximately 16.4 per cent of total marine traffic volume, compared to the current 3.0 per cent.  It also said that within Juan de Fuca Strait, Project related tanker traffic would increase to about 6.6 per cent of total marine traffic volume as compared to the current 1.1 per cent.

The NEB examined that existing regulatory framework for marine shipping and found that while the federal government has constitutional authority for navigation and shipping, both the provincial and federal governments have shared authority over the environment.  The NEB stated:

"The evidence before the Board indicates that there are competent authorities responsible for this regime and that these jurisdictions cooperate with each other and other organizations in facilitating the safety of marine shipping. The evidence indicates that the regime is functioning appropriately."

The NEB's key findings on marine oil spills may be summarized as follows:

"The Board is satisfied that sufficient evidence has been placed on the record regarding the fate and behavior of an oil spill to support assessment of potential spill-related effects and spill response planning".
The Board found that while the consequences of large spills could be high, the likelihood of such events occurring would be very low given the extent of the mitigation and safety measures that would be implemented:  "The Board finds that there is a very low probability of a marine spill from a Project-related tanker that may result in a significant effect (high consequence). The Board finds this level of risk to be acceptable."

It is obvious that many people, including presumably the province of BC, do not agree with these findings made by the NEB in its report on TMX.  While that may be the case, it is not fair to say that the issue of marine oil spill was not reviewed and assessed by the NEB.  In other words, it's not that the issue has not been reviewed and assessed by the NEB, it's that some people reject that assessment.

Report of the Royal Society of Canada Expert Panel:  The Behaviour and Environmental Impacts of Crude Oil Released into Aqueous Environments

As noted above, one of the justifications made by BC for striking an independent scientific advisory panel is that the panel "will help address the scientific uncertainties" outlined in the report, The Royal Society of Canada Expert Panel: The Behaviour and Environmental Impacts of Crude Oil Released into Aqueous Environments ("Royal Society Report").

The Royal Society Report arose as a result of the NEB's review of the Northern Gateway project.  In its Northern Gateway report, the NEB ordered Enbridge to "establish a research program regarding the behavior and cleanup (including recovery) of heavy oils spilled in freshwater and marine aquatic environments".  In mid-2014, the Royal Society was approached by the Canadian Energy Pipeline Association and the Canadian Association of Petroleum Producers about carrying out an independent, arm's length assessment of the state of the science in this area.

The Royal Society Expert Panel ("Panel") was composed of international experts on oil chemistry, behaviour and toxicity.  It reviewed the current science relevant to crude oils spilled into Canadian marine waters, lakes, waterways and wetlands.  The Panel relied on scientific literature, key reports and selected oil spill case studies, including well-known tanker spills (e.g., the Exxon Valdez spill in 1989), the Deepwater Horizon spill of 2010, pipeline spill ruptures and train derailments.

The Panel found that the dozens of crude oil types transported in Canada exist along a chemical continuum, from light oils to bitumen and heavy fuels, and the unique properties of each of these oil types determine how readily spilled oil spreads, sinks, disperses, and impacts aquatic organisms and what proportion ultimately degrades in the environment.  Despite the importance of oil type, the Panel concluded that the overall impact of an oil spill, including the effectiveness of an oil spill response, depends mainly on the environment and conditions (weather, waves, etc.) where the spill takes place and the time lost before remedial operations.

Interestingly, the Panel also said:

The good news is that transporting oil at sea is safer than it has ever been. According to the International Tanker Owners Pollution Federation, large tanker spills occurred almost 14 times more often during the 1970s on average than they do today. Undersea blowouts during oil production and exploration are also rare (although Canadian offshore exploration and drilling is expected to increase). Less known is how much oil spilled from pipelines, trains and trucks reaches our lakes, rivers and wetlands (where oil can become trapped and remain concentrated causing more harm or creating more concern because towns and cities are nearby). However, while big oil spills from grounded tankers, oil rigs, pipeline ruptures or train wrecks are guaranteed newsmakers, in truth most of the oil-related chemicals that make it into our oceans arrive from natural seepage, routine tanker maintenance and runoff from land.  [emphasis added]

The main thing the Panel did in the Report was to identify (many) gaps in the current state of knowledge and recommend further research required to fill those gaps.  The Panel prioritized the research into that it believes is required within the next 5 year, 5-10 years and +10 years. 

It is clear that the research proposed by the Panel will, if undertaken, be ongoing for likely decades.  A moratorium on increased shipments of bitumen while this research is conducted would effectively mean no more pipelines for the foreseeable future.

The Federal Government's Approval of TransMountain

The NEB Report on TMX was issued May 2016.  Later that month, the Minister of Natural Resources Canada, Jim Carr, named a three-member Ministerial Panel for the proposed project.  The objective of the Ministerial Panel was to hear from Canadians and local communities and Indigenous groups along the proposed pipeline and shipping route to hear views that may not have been considered as part of the NEB review.

The federal government announced its approval of TMX on November 29, 2016.  This approval was based on the 157 conditions recommended by the NEB.  In addition, approval of TMX was tied by the federal government to its announcement, earlier in November 2016, of a new national "Oceans Protection Plan". 

According to the federal government, its Oceans Protection Plan will improve marine safety and responsible shipping and protect Canada's marine environment.  The government attached a $1.5 billion price tag to this plan, which it said is designed to achieve a world-leading marine safety system for Canada that will increase the federal government's capacity to prevent and improve response to marine pollution incidents.

Again, whether you think the Ocean Protection Plan will really make marine shipping of bitumen safer or not, it cannot be denied that in approving TMX the issue of increased risk of oil spills was addressed by the federal government.

The Billion Dollar Question:  Is BC's proposal to restrict increases in the transportation of diluted bitumen unconstitutional?

It is beyond the scope of this post to provide legal analysis of the constitutionality of what BC is proposing.  However, we offer the following thoughts.

Under section 91 of the Constitution Act 1867, the federal government has specific jurisdiction over:

The regulation of trade and commerce
While this power has been interpreted restrictively with respect to intraprovincial trade and commerce, federal jurisdiction over interjurisdictional trade and commerce is clear.  To the extent that the "pith and substance" of BC's proposed ban on increased bitumen transportation within the province is to restrict imports from Alberta, it could be unconstitutional.
Navigation and shipping
Sea coast and inland fisheries
While the federal government has constitutional authority for navigation and shipping and seacoasts, jurisdiction over the environment is shared between the federal and provincial governments.  The regulations that BC is proposing would be made under the province's environmental jurisdiction. 
In a "Backgrounder" to its announcement, the BC government stated:
"The Province seeks to broaden existing ministry authority to ensure provincial interests are fully addressed in marine spill prevention, preparedness, response and recovery. While the primary responsibility for marine spills lies with federal agencies, a spill of any significance will impact and involve all orders of government. The provincial government has a responsibility to ensure there is a regulatory framework in place that protects its coastal resources."
It seems clear that the BC government is aware that there is a fine constitutional line between its jurisdiction over the environment and the federal government's jurisdiction over navigation and shipping and seacoasts.  For example, the federal power over navigation and shipping has been held to give it the power to regulate the discharge of oil and other harmful substances into the sea.

In addition, the federal government has jurisdiction to make laws for the "peace, order and good government of Canada" in relation to all matters not coming within the classes of subjects assigned exclusively to the provinces.  Finally, under the doctrine of "paramountcy", where there are inconsistent (conflicting) federal and provincial laws, the federal law prevails.

Under sections 92 and 92A of the Constitution, the provinces have jurisdiction over:

Local works and undertakings other than ships, railways, canals, telegraphs and other works and undertakings connecting the province with any other or extending beyond the limits of the province—hence, for example, the NEB's jurisdiction over interprovincial pipelines.
Property and civil rights in the province—this power has been held to authorize the regulation of land use, including the regulation of emissions that could pollute the environment.

Non-renewable natural resources, forestry resources and electrical energy

With respect to non-renewable natural resources, a province may make laws in relation to the export from the province to another part of Canada of the primary production from such resources in the province, but such laws may not authorize or provide for discrimination in prices or in supplies exported to another part of Canada.  Arguably, the logical corollary of this is that a province may not make laws which discriminate in the supply of a non-renewable resources imported from another part of Canada.

Conclusion

If BC's proposed new regulations relating to marine spill response did not include the potential restriction on increased bitumen transportation, it is likely there would be little controversy as to its constitutionality (notwithstanding the federal jurisdiction over marine spills).  However, it will be interesting to see how BC justifies the constitutionality of the restriction of increased bitumen transportation given that the transportation network is interprovincial.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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