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Oil and Gas Development, Investment, and Regulation: Canada’s Impact Assessment Act

Research Paper proposing reforms to accelerate project approvals in order to strengthen investor confidence and allow for the responsible development of the Canadian oil and gas sector

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This Research Paper was prepared by Krystle Wittevrongel, Director of Research at the MEI, and Gabriel Giguère, Senior Policy Analyst at the MEI.

Highlights

Canada’s regulatory environment is so onerous and uncertain that the country has developed a reputation as a jurisdiction where major projects simply cannot get built. To reverse this trend and safeguard future prosperity, policymakers need to ensure an attractive business environment. The oil and gas sector in particular is responsible for a significant proportion of GDP, contributes to the funding of public services, and raises the standard of living of Canadians. Moreover, in the context of energy security, Canada can be a reliable source of oil and gas for allied countries.

Chapter 1 – A Cautionary Tale for Canada’s Oil and Gas Sector

  • Oil and gas extraction plays a key role in the Canadian economy, contributing approximately $208.8 billion in real GDP in 2023, or 7.7% of the nation’s GDP, and accounting for 25% of total exports.
  • The 181,000 oil and gas sector workers earned an average annual salary of $150,461 in 2023, which is 2.4 times the national average of $62,661 across all sectors.
  • Canada is the fourth largest oil producer globally, and is fifth in natural gas production, with substantial reserves.
  • Unfortunately, between 2009 and 2017, investment in the oil and gas sector in Canada grew by just 1%, while in the United States it increased by 51%.
  • The lack of export infrastructure for Canadian oil and gas not only hampers the country’s economic growth; it also constrains its ability to contribute to the energy security of allied nations.
  • Canada has failed to capitalize on the opportunity to supply the world with the energy that it needs, while others have brought their resources to market.

Chapter 2 – Canada’s Regulatory Quagmire

  • Regulatory delays and political interference have driven up project development costs and increased the perceived risk, making Canadian energy projects less appealing as long-term investments.
  • Investors often point to factors such as uncertainty about environmental regulations, regulatory duplication and inconsistencies, and the cost of regulatory compliance as reasons for Canada’s less favourable investment climate relative to the United States.
  • Unlike the previous Canadian Environmental Assessment Act, 2012 (CEAA 2012), which focused primarily on mitigation of adverse environmental effects, the 2019 Impact Assessment Act (IAA) incorporates a broader scope of factors.
  • In addition, significant uncertainty was added by giving the Minister (or Governor in Council) the ability to extend or suspend timelines at various stages and under certain circumstances.
  • In the five years since the IAA came into force, only one single project has successfully navigated the entire process, and that assessment took three and a half years. In contrast, during the first five years of CEAA 2012, 17 projects were assessed and approved.
  • The Supreme Court ruled in October 2023 that parts of the IAA were unconstitutional, as Parliament had “plainly overstepped its constitutional competence,” and that the law was overly broad in the imposition of regulations on matters that should be managed by the provinces.
  • The continued disagreement regarding the constitutionality of the IAA and the potential for ongoing legal disputes create further investment uncertainty by adding legal risks and unpredictability around project approvals.

Chapter 3 – Recommendations for Efficient Impact Assessment

These reforms will foster a regulatory environment that accelerates project approvals in order to strengthen investor confidence and thus attract investment. This will not only drive economic growth, but also advance Indigenous economic reconciliation, while shoring up Canada’s reputation as a reliable supplier of energy on the global stage.

  • Recommendation #1 – Return to a permitting system focused on ensuring that projects comply with environmental standards through the issuance of permits, as done under the CEAA 2012, rather than the broadened scope of the IAA.
  • Recommendation #2 – Establish a firm deadline of 18 months to complete the entire impact assessment process. This in turn requires:
    • Removal of the ministerial authority to suspend or extend time limits; and
    • Implementation of strict enforcement mechanisms, with penalties for any failure to respect the deadline
  • Recommendation #3 – Automatically recognize provincial assessments that have already been conducted and approvals already granted. Under the IAA, most major projects require both federal and provincial approval to proceed.

To ensure that Canadians benefit from their country’s abundant natural resources, it is crucial to allow the responsible development of its oil and gas sector, creating well-paying jobs and generating economic prosperity in every region. Despite its importance, however, investment in oil and gas projects is fleeing to other, more attractive jurisdictions like the United States. With these reforms, the federal government would be well on its way to establishing a balanced process that both safeguards environmental integrity and ensures the predictability that investors need.

Introduction

One of Canada’s key challenges over the next decade will be fostering robust economic growth. This is especially true given the economy’s poor performance in recent years, marked by a decline in GDP per capita.(1) Canada’s second-to-last ranking in productivity among G7 countries significantly undermines the nation’s economic dynamism and overall prosperity for Canadians.(2) Part of this lagging productivity can be attributed to Canada’s regulatory environment, which is so onerous and uncertain that the country has developed a reputation as a jurisdiction where major projects simply cannot get built.(3)

To reverse this trend and safeguard future prosperity, policymakers need to ensure an attractive business environment—both fiscally and through streamlined regulations—across sectors that drive economic activity and contribute to the wealth of all Canadians. The oil and gas sector is one that policymakers should focus on, as it is responsible for a significant proportion of the country’s GDP, contributes considerably to the funding of public services, and raises the standard of living of Canadians.(4)

Not only is this important in order for Canada to regain its economic momentum, but it also matters in the context of energy security. Canada is the second-largest oil and gas producer among the countries of the Western alliance,(5) and in times of geopolitical uncertainty, it can be a reliable source of oil and gas for allied countries. What’s more, Canada’s oil and gas sector, accounting for 17% of Western alliance production, can play a critical role in ensuring energy security across the globe.(6)

The first chapter of this Research Paper will highlight the vital role of the oil and gas sector in Canada’s economy, including its significance to Indigenous communities and advancing economic reconciliation. It will also examine the decline in capital spending over the past decade—a trend which, were it to continue, could further degrade economic conditions by reducing investments in new, wealth-generating projects and limiting the availability of high-income jobs for Canadians. Additionally, the chapter will discuss Canada’s inability to seize market opportunities in the evolving global oil and gas market, particularly in comparison with other producing nations such as the United States.

The second chapter will explore one of the factors behind Canada’s declining competitiveness in the oil and gas sector, focusing on regulatory uncertainty and the consequences of our complex assessment process for major infrastructure projects. This includes a detailed examination of the federal Impact Assessment Act (2019) and its effects on the sector, emphasizing the uncertainty in assessment timelines and the elevated risk of legal challenges. This regulatory uncertainty has made Canada less competitive than other jurisdictions, including our neighbour to the south.(7)

Finally, we will conclude by proposing three amendments to the current impact assessment process, aiming to revitalize this critical sector for Canadians. These policy changes have the potential to significantly influence Canada’s economic future. With the recent election of a new administration in the U.S. that is even more favourable to boosting oil and gas production, Canada could see a further decline in natural resource competitiveness. Policymakers must take action to ensure the future of the Canadian energy sector.

Read the Research Paper (PDF format)

References

  1. Canadian Chamber of Commerce, “Canada’s Natural Wealth,” September 2024, p. 7.
  2. Renaud Brossard, “Lagging Productivity: A Threat to Canadian Living Standards,” Viewpoint, MEI, August 10, 2023, p. 1.
  3. Dylan Kelso and Mike Holden, “Future Unbuilt: Transforming Canada’s Regulatory Systems to Achieve Environmental, Economic, and Indigenous Partnership Goals,” Business Council of Alberta, June 2023, p. 7.
  4. Statistics Canada, Table 25-10-0065-01: Oil and gas extraction revenues, expenses and balance sheet (x 1,000,000), September 25, 2024.
  5. The Western alliance is comprised of NATO countries plus South Korea, Japan, New Zealand, and Australia. CAPP, Canada Oil and Gas Industry Overview, January 2024, p. 12.
  6. Idem.
  7. Julio Mejía and Elmira Aliakbari, “Canada-US Energy Sector Competi-tiveness Survey 2023,” Fraser Institute, January 2024. p. 36.
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