Ottawa introduces new rules for energy sector at worst possible time

Last month, the Trudeau government released rules, part of the new federal regulatory process under Bill C-69, requiring certain projects including new mines, power plants, pipelines, airports, oil and gas projects, and railways to provide climate change-related information. These new Strategic Assessment of Climate Change (SACC) rules mandate proponents of projects with a lifetime beyond 2050 to submit a plan describing how the project will achieve net-zero emissions. According to federal Environment Minister Jonathan Wilkinson, the plan will ensure Canada’s goal to exceed its Paris climate agreement targets by 2030 and then hit net-zero by 2050.

SACC rules will require project proponents to estimate and provide information on “GHG emissions, impact of the project on carbon sinks, impact of the project on federal emissions reduction efforts and on global GHG emissions, mitigation measures and climate change resilience” at each of the five phases of the Impact Assessment Process.

Ottawa’s new requirements are troubling for three reasons. First, the federal government is expecting firms to come up with “a credible plan” to achieve net-zero emissions when Ottawa hasn’t released details of its own plan. In fact, the government hasn’t even released a detailed cost-benefit analysis demonstrating how reaching this target would be in the best interest of Canadians. Given the lack of details from Ottawa, it’s reasonable to question the economic, political, and technical feasibility of reaching net-zero emissions by 2050. And yet, the federal government is requiring firms to produce their own detailed plans to reach this target. If project proponents are unable to produce net-zero emission plans, projects won’t be approved.

To make matters worse, requiring companies to develop net-zero plans means that Ottawa expects firms to commit to things they can’t know about the future like potential technological breakthroughs and changes in input costs. How can the federal government expect firms to take such a risk with incomplete information?

Second, SACC requirements will increase regulatory compliance costs for firms as they will now have to calculate and provide a plethora of emissions-related information (such as net GHG emissions and emissions intensity) at every stage of the application process. This means that firms will likely need to invest in monitoring equipment and hire experts (lawyers, consultants, and engineers) to comply with Ottawa’s new climate change regulations. What’s more, increasing regulatory costs is particularly problematic given that various companies (including oil and gas companies) are struggling to stay afloat during the COVID-19 recession.

Finally, since firms do not know what the federal government considers an “adequate amount of emissions” that would comply with Ottawa’s commitments (given that there is no detailed plan), proponents are taking a massive risk of getting their projects rejected.

Why?

The new rules require that the minister considers the “extent to which the effects of the project hinder or contribute to the Government of Canada’s ability to meet its environmental obligations and its commitments in respect of climate change.” But again, no one knows the details of Ottawa’s plan because it hasn’t been released. These new rules will make the regulatory process more subjective and uncertain, and ultimately raise serious concerns about whether any new projects will ever be built.

As we’ve written previously, Bill C-69, which overhauled the entire environmental assessment of major projects, has made the regulatory system more complex, uncertain and subjective. Keep in mind these new regulations are being added on top of existing measures that have materially harmed Canada’s energy sector in recent years including Bill C-48 (oil tanker ban), the federal carbon tax, the coal phase-out, and proposed clean fuel standard regulations.

The Trudeau government must acknowledge how its policies have—and continue to—hurt one of Canada’s most important sectors. The reality is that Ottawa needs to adopt a new approach to the energy sector—we simply can’t afford to continue down this same destructive path.