During the 1950s, Canadian industry’s energy production started to exceed domestic demand, so the surplus was slated for export to American markets. This sparked a national debate over what constitutes the best use of Canada’s energy resources, and whether those energy products should go toward servicing domestic need over exportation. In response to the political turmoil created by the debate, the Diefenbaker government convened a Royal Commission on Energy (the Borden Commission) to investigate the “interplay between domestic and international energy markets.” Based on the recommendations of the Commission the National Energy Board was created in 1959.
As regulator, the NEB was empowered to regulate:
“offshore areas and frontier lands not covered by federal-provincial agreements; the construction, operation and abandonment of interprovincial and international energy infrastructure (oil and gas pipelines and where designated electric power lines); tolls and tariffs for pipelines under its jurisdiction; international exports and imports of natural gas; and international exports of oil, natural gas liquids, refined petroleum products and electricity.”
Transferring the power to regulate these activities to the NEB was (partially) intended to insulate technical regulatory decisions from partisan interference.
The role of the NEB was then later modified when the legislation was amended by the Harper Conservatives in 2012. In an effort to overcome regulatory bottlenecking, the Harper Government included provisions in the legislation that set strict time limits on the length of time it takes the Board to process project applications. The legislation also provides the NEB’s Chair with greater authority to intervene, if the timelines for the application were unlikely to be met.
The former government also made changes to limit the number of parties that can intervene in the NEB’s proceedings. Amendments to the act also narrowed the scope of who would be allowed to testify. The narrowed definition was intended to limit interveners to those parties who are directly impacted by a project. This measure was also intended to help curb obstruction of resource development by extreme, ideologically-driven activists (which are a persistent and growing issue in this country). Despite the criticism that this move was solely intended to muzzle opponents of a project, the Board was actually still entitled to use its discretion to determine whether a party was eligible to provide testimony. Coupling this change to the time limit for processing applications provides investors, and the impacted parties, with some certainty on timelines, potential costs, and eligibility associated with the application process. So if Canadians want to continue to attract capital to our energy sector, we must provide investors with sufficient clarity on what to expect when they submit a pipeline application.
Delays in the application process not only set back project timelines, they also produce substantial financial pressures for the applicant. According to Enbridge, delays in the approval of the Keystone XL project raised that project’s cost from $4.5 billion to $8 billion. Moreover, the “Institute for Energy Economics and Financial Analysis and Oil Change International outlined that anti-oil-sands campaigns have cost the [Canadian energy] industry over $17 billion.” The delays stemming from irresponsible activism have already stifled investment in (and the growth of) the oil sands. A recent example includes Shell’s decision to cancel its Carmen Creek project. The company decided to scrap the multi-billion dollar investment because of the increasingly grim prospects for the approval of a new transnational pipeline. This is a prime illustration of harm wrought on investment in Canadian energy by such regulatory obstruction.
The forces coalescing to inflict regulatory paralysis on the NEB are composed of a vocal minority. These activists produce a sort of mirage by giving the appearance that there is a grassroots opposition to an applicant’s project. When in reality these coalitions are made up of a small fringe of left-wing organizations that hold rather extreme views on resource development. These organizations attempt to high-jack the regulatory process to forward their own agenda. A prime example was when environmental organizations such as 350.org, Leadnow.ca, and the Council of Canadians submitted a petition to the NEB demanding that it include a GHG emissions screening as part of the approval criteria for any new pipelines, including the Kinder Morgan and Energy East projects.
The most contentious change brought in with the 2012 legislation, however, required that if the Board decided to withhold the Certificates of Public Convenience and Necessity (PCN), then the application would be referred to Cabinet for review and approval if the two were still in disagreement. This change spawned the chief criticism that integrity of the process has been compromised. Opponents believe that the NEB is no longer protected against political tampering. This is the one criticism that does have some merit given the original intention for creating the NEB.
In response to the furor created by the 2012 changes, the current Liberal Government made a campaign pledge to overhaul the entire screening system. The Government’s move to establish a working group to examine the Canadian Environmental Assessment Agency Act and the National Energy Board Act was the first step toward fulfilling their pledge. However, before the review could bear fruit, the Government outran its own committee when it announced a climate change assessment would now be included as part of the NEB’s assessment. Now granted, Minister McKenna indicated this will not be a “strict test”. This assessment will require that applicants’ pipeline projects undergo a full accounting of the potential contribution to upstream GHG emissions. The NEB estimates this new hurdle could add nine months to the Energy East review, and four months for the Trans Mountain proposal.
The addition of this assessment will only pile on another burdensome layer of regulation. If the Government’s intent with this move is to win the approval of the activist class, it will be sorely disappointed. Groups like Greenpeace and the Sierra Club will not be satisfied unless the resource is left in the ground. The Liberal Government should use this review as an opportunity to weed out redundancies, and distill down the screening rubric to include only measurable, technically appropriate criteria. Moreover, reducing Canadian emissions is best solved through a policy solution such as a simple carbon tax, rather than loading new stringent requirements on to pipeline project’s review which are only tangentially related to GHG emissions.
Read more insightful analysis from Maxwell Harrison here