Big Changes Ahead for Energy Regulation in Canada

On February 8, 2018, the Government of Canada announced major changes to the assessment of energy projects subject to federal oversight. This blog post provides the highlights of the most important changes, and what they mean for the regulatory process overall.

Before getting into the details, it is useful to review the broad features of the current system to give some context to the magnitude of the changes. Currently, the National Energy Board (NEB) is the lead agency for deciding whether a major energy project (such as an inter-provincial or international pipeline or electricity transmission line) is in the public interest. The NEB reviews the project proponent’s application, holds hearings to gather evidence from affected groups and ask questions of the proponent, studies and evaluates the economic and environmental impacts, and makes a recommendation to Cabinet. The NEB draws on work from other government agencies, such as the Canadian Environmental Assessment Agency (CEAA). Upon a recommendation from the NEB, the Government of Canada reviews the evidence and Cabinet makes a final decision on whether the project is in the public interest.

This process, however, has become fraught with controversy, and many projects and government decisions are subject to court challenges. The Government of Canada initiated a review of the NEB, CEAA and the environmental assessment process in 2016, on February 8, announced the changes it intends as a result of the review process.

The primary changes are as follows:

1. Lead Agency Responsible for Impact Assessments

The government announcement moved responsibility for impact assessments and the evidence-gathering required to form a public interest determination from the National Energy Board to the Canadian Environmental Assessment Agency. As part of the change, the CEAA will be renamed the Impact Assessment Agency of Canada (IAAC). Importantly, the IAAC reports to the Minister of Environment and Climate Change; the NEB reports to the Minister of Natural Resources. This moves the responsibility for evaluating energy projects from Natural Resources Canada (NRCan) to Environment and Climate Change Canada (ECCC), which is a fairly significant shift.

Another consideration within this larger change is the role of the Major Projects Management Office (MPMO); this is a department within Natural Resources Canada that coordinates the federal ministries affected by energy projects or that are required to provide input into the assessment process (usually, Environment and Climate Change Canada, Fisheries and Oceans, and Indigenous and Northern Affairs). I didn’t see anything in the announcement today related to MPMO (there were a lot of documents to read, so I may have missed something) and it remains to be seen whether MPMO will remain in NRCan, be moved to ECCC, or eliminated as unnecessary because of the new IAAC.

2. What is Included in an Impact Assessment

Currently, impact assessments focus on the economic and environmental impacts. The new, expanded definition of an impact assessment will include health and social impacts, a mandated inclusion of Indigenous traditional knowledge, an assessment of how a project fits within Canada’s climate change goals and the Pan-Canadian Framework on Clean Growth and Climate Change, and a gender-based analysis of the project. This change is essentially an expanded definition of what matters in determining the public interest. Given that many of the arguments in opposition to past energy projects reviewed by the NEB raised many of these points (currently outside of the NEB’s mandate), explicit inclusion of these concerns may reduce subsequent court challenges of government decisions.

3. The Regulatory and Assessment Process

The Government of Canada has proposed a two-stage regulatory process, with an “early planning” phase where the project proponent provides the IAAC with an “initial project description” and the IAAC engages with Indigenous groups and other stakeholders, then provides feedback to the proponent. The proponent then submits a “detailed project description” to the IAAC, and the IAAC determines whether an Impact Assessment is required. If it is required, the IAAC provides detailed guidelines to the proponent on the required information for an Impact Statement. This proposed stage will take no more than 180 days.

The proponent then provides an Impact Statement to the IAAC, triggering the second stage: an IAAC-led impact assessment (300 days) or an assessment by a Review Panel (600 days). In the case of an IAAC impact assessment, the decision on whether a project is in the public interest is made by the Minister of Environment and Climate Change within 30 days (the Minister can also refer the decision to Cabinet). With a Review Panel assessment, Cabinet makes the decision within 90 days. In either case, the Minister issues a decision statement with detailed reasons for the yes/no decision about the project.

This two-stage process (with shorter review timelines) has the potential to increase investor certainty.

4. The Standing Test in Regulatory Hearings

Currently, intervenors in a regulatory hearing under the NEB (interested parties who can comment and in some cases cross-examine the project proponent) are limited by a standing test. The test limits intervenors to those who are directly affected by the project or have special expertise the NEB deems valuable. Under the new process, anyone can participate in a regulatory review, in the early planning phase or the impact assessment phase (the government has increased funding to support this as well). This specifically addresses one of the concerns noted in the review of the NEB; however, it may conflict with the new mandated timelines for government engagement and review.

5. A New Canadian Energy Regulator

The final major change is to the NEB; a change in its structure (separating executive and regulatory functions) and name (to the Canadian Energy Regulator). However, beyond that, details are scant as to how the new CER will interact with the IAAC and what its responsibilities will be (I haven’t reviewed the legislation, which may have more detail). One hint is provided in Minister Carr’s speech announcing the change; he stated that “For major new energy projects, [the CER] will work with the new Impact Assessment Agency to provide its own recommendations in a single, final report. For all other projects, it will retain its existing responsibility to review.” Most likely, and based on the details about the IAAC, the primary responsibility of the CER will be the after-approval regulation of energy projects (safety and cost-of-service regulation), and continuing the NEB’s role as a provider of energy information.

What’s Next?

Even though new legislation was tabled, the announced changes are not the end of the line for changes in federal energy regulation. The Government of Canada has committed to continuing consultation on two important factors: (i) information requirements and time management, and (ii) the type of projects subject to impact assessments. For the former, consultations are ongoing regarding the information project proponents must provide in the early planning phase, the documents the IAAC is required to provide to proponents if an impact assessment is required, and the circumstances under which the regulatory “clock” can be stopped during an impact assessment process.

Second, the discussion paper on the type of projects that will be subject to impact assessment also mentions the Government of Canada will engage in a “strategic assessment of climate change … which will lay out how climate change considerations would be integrated in the impact assessment process and in determining whether a project is in the public interest.” This will be key consideration for project proponents, and means, unfortunately, the uncertainty is not over yet.