Overly broad and politically charged impact assessment process drives investment away from Canada, warns the MEI
Montreal, January 16, 2025 —Canada’s energy sector has seen dwindling investment in the past decade because of a hostile regulatory environment, according to a new MEI (formerly known as the Montreal Economic Institute) publication released today.
“While global investment in oil and gas projects has grown by over a quarter since the 2015 glut, in Canada it has shrunk by nearly a quarter,” said Krystle Wittevrongel, director of research at the MEI and co-author of the publication. “Policies that are hostile to large projects, such as the Impact Assessment Act, are the reason why we’re missing out on tens of billions of dollars of potential investment in our economy.”
After dropping to $481 billion USD in 2015, global investment in upstream oil and gas production had grown to an estimated $603 billion USD in 2024, according to a joint International Energy Forum and S&P Global Commodity Insights report.
Over the same period, investment in construction of extraction or pipeline transportation facilities in Canada shrank from $56.8 billion to $42.9 billion, a 24.4 per cent drop.
Global upstream investment in oil and gas production is expected to rise a further 22 per cent by 2030, per the joint IEF and S&P report.
In 2019, the Impact Assessment Act replaced earlier legislation, and MEI researchers point to the uncertainty created by its adoption as a key contributor to this drop in Canadian investment.
The legislation broadened the scope of governmental assessments to include not only environmental impacts, but also the social and cultural effects of large infrastructure projects.
Since it came into effect over five years ago, only one project, the Cedar LNG project, has been approved, and that took 3.5 years. In contrast, 17 projects were approved in the first five years of the previous legislation. Currently, 25 per cent of all projects stuck in the assessment process are in the oil and gas sector.
“Our new impact assessment process is trying to do too many things at once, resulting in the current gridlock,” explains Wittevrongel. “Investors look at this and, when faced with the choice to invest here only to be stuck in regulatory limbo, or invest elsewhere and see better returns, they choose to put their money – and the jobs it creates – anywhere but here.”
Investors have expressed concerns about Canada’s growing regulatory framework: 68 per cent of investors cite environmental regulations as a concern in Canada, compared to just 41 per cent in the United States. Similarly, 54 per cent of investors see regulatory duplication as an issue in Canada, versus only 34 per cent in the U.S.
Oil and gas investment in the US grew by 51 per cent from 2009 to 2017, compared with a mere one per cent in Canada.
Canada is the second-largest oil and gas producer in the Western Alliance, and accounts for 17 per cent of its total oil and gas production.
In 2023, the sector contributed $208.8 billion to real GDP, representing 7.7 per cent of the nation’s overall economy. Canadian energy makes up 25 per cent of the country’s total exports and supports approximately 446,000 direct and indirect jobs.
“This is an industry that generates exceptional value and could help reverse our weak standard of living trends,” says Wittevrongel. “Watching domestic investment stagnate as global demand for energy rises to record levels should be a major wake-up call for Canadian policymakers.”
The MEI outlines three recommendations to help reduce the regulatory burden:
- Return to a permitting process that includes automatic issue upon meeting environmental standards, as previously done under the Canadian Environmental Assessment Act, 2012.
- Establish a firm deadline of 18 months for completion of the entire impact assessment process.
- Automatically recognize previously approved provincial assessments.
The MEI publication is available here.
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The MEI is an independent public policy think tank with offices in Montreal, Ottawa and Calgary. Through its publications, media appearances, and advisory services to policymakers, the MEI stimulates public policy debate and reforms based on sound economics and entrepreneurship.
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