Canada moves toward modernising the NEB – a solution in search of a problem?

August 2017 | PROFESSIONAL INSIGHT | SECTOR ANALYSIS

Financier Worldwide Magazine

August 2017 Issue

As part of its election commitment, the Liberal Party of Canada pledged to review and revise Canada’s environmental assessment and regulatory processes in order to further Canada’s commitment to “environmentally responsible development”. The commitment to modernise the National Energy Board (NEB) and the environmental and regulatory process for major projects stems, in large part, from the government’s belief that the Canadian public has lost confidence in the NEB and Canada’s environmental assessment process. This sentiment has been expressed by a vocal minority and magnified within the highly charged political climate surrounding Canadian oil sands and pipeline development and driven by larger policy questions related to issues such as the rights and concerns of indigenous people and climate change, as well as the proper venue to deal with such issues.

These concerns were amplified as a result of changes to the environmental assessment and NEB process introduced by the previous government through the Canadian Environmental Assessment Act, 2012 (CEAA, 2012) which included: (i) an express ‘standing test’ for public participation in NEB hearing processes; (ii) statutory timelines for review of NEB regulated projects; and (iii) the politicisation of the approval process for major pipeline projects by providing the federal cabinet with the ultimate say on a project, even in cases where the NEB concluded that a project should not proceed based on the application of its public interest test. The changes implemented through the CEAA, 2012 represented a significant rewrite of Canada’s federal environmental assessment regime including fundamental changes to the operation of the former Navigable Waters Protection Act and Fisheries Act, and were viewed by many as significantly reducing environmental oversight over major resource projects by the federal government.

In order to fulfil its promise to review Canada’s environmental assessment and regulatory regime, the federal government created four panels which were tasked with providing recommendations on restructuring Canada’s federal environmental assessment and regulatory regime. The Expert Panel for the Review of Environmental Assessment Processes released its report reviewing the federal environmental assessment process (CEAA Report) on 5 April 2017. Standing Committee on Fisheries and Oceans released its report on the Fisheries Act on 24 February 2017, and the Standing Committee on Transport, Infrastructure and Communities released its report on the Navigation Protection Act on 9 March 2017.

The Expert Panel on the Modernisation of the National Energy Board (Panel) was appointed in late 2016 and was tasked with analysing the structure, role and mandate of the NEB, and to come up with recommendations to modernise and restore public trust in the institution. On 15 May 2017, the Panel released its report entitled ‘Forward, Together – Enabling Canada’s Clean, Safe and Secure Energy Future’. The report is based on five core principles: (i) a commitment to living the ‘nation-to-nation’ relationship with indigenous peoples; (ii) the alignment of NEB activities to national policy goals; (iii) transparency of the decision-making process and restoring confidence; (iv) public engagement throughout the lifecycle of energy projects; and (v) regulatory efficiency and effectiveness. The report, which is generally consistent with some of the CEAA Report conclusions, sets out 46 recommendations which, if implemented, would represent a significant and fundamental change from the current NEB.

Over the next few months, the government of Canada has indicated it will review the reports and recommendations before deciding on its next steps.

Panel recommends relocation to Ottawa

The report recommends that the current NEB should be replaced with two agencies, namely the Canadian Energy Transmission Commission (CETC), whose function would be similar to the current NEB, and a new, independent Canadian Energy Information Agency (CEIA).

The role of the CEIA would be to provide decision-makers and the public with energy data, information and analysis. In this respect, the CEIA would have the ability to ‘tell it like it is’ on energy matters but have no say on energy policy or regulations, similar to the role played by the US Energy Information Administration. The report recommends that CEIA be located in Ottawa close to Statistics Canada, Natural Resources Canada, and Environment and Climate Change Canada.

The CETC would oversee and approve all federally regulated energy projects over the lifecycle of a project similar to the NEB. If the Panel’s recommendations are implemented, the CETC will be governed by a board of directors, with decisions rendered by a separate group of hearing commissioners similar to the structure used by the Alberta Energy Regulator.

One of the more contentious recommendations set out in the report is the recommendation that the CETC board of directors be based in Ottawa. The report notes that it heard concerns from stakeholders that the NEB’s Calgary headquarters is perceived to be problematic due to its close proximity to the oil & gas industry which suggests a bias in favour of the industry.

Implementing a regulatory system that aligns with ‘national interest’

The report proposes a new process for the review and approval of major projects or projects of national consequence. Any such project would be subject to a two-stage review process – that would involve a preliminary approval of projects that are in the ‘national interest’ by the Governor in Council (GIC), followed by a detailed review of the project before a joint CETC/Canadian Environmental Assessment Agency (CEAA) hearing panel (Joint Panel). The report suggests that ‘national interest’ review would be a year long process while the licensing review would be a further two year process. The report does not define what types of projects will trigger the need for a national interest review. The Panel suggests that ‘national interest’ will be measured against enumerated criteria, including consultation with indigenous people; consistency with provincial emissions limitation strategies; and alignment with national economic, energy and environmental policy, economic benefits and results of the strategic impact assessments.

The Panel indicates that the ‘national interest’ review would start with a coordinated governmental department review of the proposed project. Following that review, the Minister of Natural Resources would make a recommendation to the GIC on whether the project aligns with the national interest. The GIC would have the ultimate power to recommend or deny the project. Assuming the project receives a favourable recommendation it would then proceed to a detailed regulatory review and environmental assessment conducted by a Joint Panel of two members from CETC, two members from CEAA and a fifth independent member. One of these five members must be indigenous. The report does not deal with how the independent member would be appointed. The Joint Panel would assess the environmental risks and impacts, aboriginal and treaty rights, emergency plans and preparedness and engineering details. The Joint Panel has the authority to either deny or grant a licence, with or without conditions, to a project.

Significant projects would only be subject to a single review. The Panel’s report does not demarcate between major projects and significant projects, presumably leaving this distinction to be determined by regulation. From a review perspective, a significant project would not need a ‘national interest’ determination, and would only have to go through a Joint Panel review.

Smaller projects would only be subject to a single review by the CETC for licensing which would replace the existing section 58(1) process that currently applies to smaller projects. In these circumstances, the CETC will evaluate the potential risks of a project to indigenous people, the environment and human health and safety. The definition of a smaller project is not defined by the report.

Improvement of consultation

In furtherance of the objective of reconciliation with aboriginal peoples, the report recommends that a federally funded indigenous major projects office (IMPO) be created and governed by indigenous peoples. IMPO would define clear processes, guidelines and accountabilities for formal consultation on projects. It is hoped that IMPO would also define and disseminate best practices and help interested indigenous communities enhance the quality of their participation in consultation processes. The report also recommends that Crown delegates responsible for consultation must represent the government and that project proponent should not be delegated responsibilities for formal consultation. Clear guidance on who may or must be physically present on behalf of the Crown during aboriginal consultation is a welcome change.

The current standing test at the NEB, including the ability to file a Letter of Comment, is whether a person is considered to be ‘directly affected’ by an application or have relevant information or expertise. The Panel recommends repealing this and allowing every interested party a “reasonable opportunity to participate”. By expanding who can be involved, the Panel recommends creating a new public intervenor office to manage increased public consultation. This office would inform participants of the mechanics of a hearing, directly represent the public’s interests in hearings, and coordinate scientific and technical studies.

In conclusion

In conducting its review and completing its report, the Panel undoubtedly heard from a number of stakeholders, including many with strong views about the environment and the future of oil & gas but with little practical experience or understanding of the NEB’s current mandate or processes. Given that the report is premised on a lack of public trust in the NEB it is not surprising that the report’s conclusions appear to give little weight to the NEB’s long history of safe and responsible regulation; including significant public engagement efforts and the strong technical and scientific review process the NEB has traditionally undertaken.

The report is far-reaching and, if adopted, would significantly alter the NEB’s current structure and mandate. The report’s recommendations may not ultimately appear in the final draft of any new legislation that may eventually be put forward; however, it seems likely that some of the broad themes and recommendations contained in the report will likely be implemented in the future. The recommendations certainly merit careful study, but it is perhaps optimistic to believe that the proposed changes will have the benefits the Panel envisions for both indigenous communities and Canadians more generally. Moreover, given the current regulatory climate where any process that offers the prospect of project approvals that support continued oil & gas development is perceived by some to lack legitimacy, there is likely no amount of reform available that will satisfy all stakeholders, particularly those purported to have already lost confidence in the NEB.

Evan W. Dixon is a partner and Brittany Scott is a student at Burnet, Duckworth & Palmer, LLP. Mr Dixon can be contacted on +1 (403) 260 0162 or by email: edixon@bdplaw.com. Ms Scott can be contacted on +1 (403) 260 0373 or by email: bscott@bdplaw.com.

Evan W. Dixon and Brittany Scott

Burnet, Duckworth & Palmer, LLP