Pipelines, the environment and the economy: Canada’s new impact assessment law

(December 11, 2018) Political speeches and media coverage of Canada’s new Impact Assessment Act in Bill C-69 has so far been largely based on government media releases, not analysis. Where are the journalists who have properly read the Act and commented on its actual content? Prime Minister Justin Trudeau touted the Act’s protection of women in the construction industry but the Act refers to gender identity, an issue for transgender people, not sex equality in employment. If the Prime Minister and C-69’s critics haven’t read or understood the Act, who has? Retired lawyer Andrew Roman, that’s who. Read his informed analysis here.

By Andrew Roman

Andrew Roman carried on a national law practice in Canada between 1973 and 2017, when he retired. He has appeared in numerous environmental hearings before various federal and provincial tribunals, as well as all levels of court, including the Supreme Court of Canada. He is the author of more than 100 published articles and has been a part-time law teacher at four Canadian law schools.

For the original version of this posting, see here.

For more analysis of energy-related issues by Andrew Roman, check out his blog here:
https://andrewromanviews.blog

Introduction:

Is it possible for a private sector oil pipeline to be approved in Canada within a reasonable time and with finality? The short answer is “No!”. Only the government can accept the cost and risk of attempting to build a pipeline to an ocean port. The new law, C-69 (now before the Senate) will make pipeline approvals even less likely. If that is the government’s intention, it has succeeded; if that is not, the law must be amended.

As two recent court cases (Northern Gateway and Trans Mountain) have shown (NG, TMX), the years of debate at the National Energy Board (NEB) and the Cabinet have become just the slow road to the courthouse.  Whatever the government does, the court still gets the last word. The current score is: proponents = 0, opponents = 2.

Why does any of this matter to you and me?  If Canada’s impact assessment law is a barrier to project development, investment, both domestic and foreign, will leave Canada. Bankers and other private sector business leaders tell us this is already happening (Globe & Mail, November 17, page B1). With investment go jobs, new university graduates, entrepreneurs and other talent, to countries with a better business climate.  The likely long term result is a lower Canadian dollar, causing higher consumer prices for fresh vegetables, manufactured goods, computer software and other imports from the US and elsewhere, higher unemployment and less government revenue for social programs like health care.

It can easily cost a pipeline proponent $1 billion to develop and present a pipeline proposal through the years of the assessment process, with an uncertain outcome. A pipeline proponent has no control over the efforts of either the federal impact assessment agency or the Crown’s consultations with the First Nations (FNs).  However, if either of these government efforts fail to meet judicial approval, the proponent takes the hit.

Bill C-69 replaced the Canadian Environmental Assessment Act (CEAA) with the new Impact Assessment Act (IAA), the stated goal being to improve the project assessment process. But reading the new Act itself (the Act), rather than how it is presented (Government’s description), shows that it is unlikely to achieve its stated purposes.  The IAA will greatly increase complexity and delay in project assessment, and also provide several new and improved litigation opportunities for pipeline opponents.  The underlying message to prospective investors, whose advisors will read the law behind the political salesmanship, is that Canada is now indifferent to, and perhaps actually opposed to any new pipeline projects.

For private sector proponents using private capital, the risk of losing a multi-billion-dollar pipeline proposal after years of assessment was already too great under the CEAA. That is why the Kinder Morgan investors in the Trans Mountain Pipeline Extension (TMX) stopped construction and, without waiting for the FCA’s decision, happily sold their project to the Canadian government. Only the government can take as long as it wants to succeed or fail at obtaining judicial approval. One can only hope that the Senate – the “chamber of sober second thought” – will speak truth to power about amending C-69.

The Intended Results of the IAA Conflict with its Content

The IAA explains its intended results in the Preamble to the Act, which lists certain government commitments:

Whereas the Government of Canada is committed to…..

  • achieving reconciliation with First Nations …. based on recognition of rights, respect, co-operation and partnership;
  • using transparent processes that are built on early engagement and inclusive participation and under which the best available scientific information and data and the Indigenous knowledge of the Indigen­ous peoples of Canada are taken into account in decision-making
  • assessing how groups of women, men and gender-diverse people may experience policies, programs and projects and to taking actions that contribute to an inclusive and democratic society and allow all Canadians to participate fully in all spheres of their lives;

However, the government is unlikely to achieve:

  • reconciliation with FNs via an adversarial hearing process in which one side has to be the winner and the other side the loser, particularly if some FNs support and others oppose the pipeline;
  • transparency via a process in which those who decide the assessment do not hear the parties, while those who hear cannot decide
  • transparency when some parties are permitted by the Act to provide their evidence and opinions in confidence, as secret evidence is not transparent
  • an inclusive and democratic society by assessing and taking unspecified “actions” against the impact of a pipeline on unspecified “groups of women, men and gender-diverse people”.

If the key intended results conflict with the Act itself, and thus, will not be achieved, honesty requires that either the description of the intended results be amended or the Act be amended to correct the conflict.

There Is No Win/Win Solution in Litigation

Natural Resources Minister Amarjeet Sohi recently told reporters (November 15, 2018, Globe & Mail) that the key to building pipelines is building trust in regulatory processes and engaging affected parties early on so that approvals aren’t overturned (as happened with TMX). Unfortunately, that is just wishful thinking.  An adversarial process inevitably creates winners and losers; and impact assessment is an adversarial process.  For parties unalterably opposed to the pipeline, the only win is to prevent it from being licensed. These opponents couldn’t care less whether the process itself is trustworthy so long as it achieves their desired outcome.

Similarly, whether one engages such parties early on or later will not change their determined opposition, or their court challenges if the Cabinet approves the project.

No hearing process is immune to court challenges, but some are more likely to be challenged successfully than others. An impact assessment process should not effectively hang a target on its back with a sign saying “sue me”.  An important goal of the IAA should be to minimize the likelihood of successful court challenges, thereby improving the likelihood that the Cabinet’s decision will be final. Unfortunately, the IAA increases the likelihood of successful court challenges by introducing several new litigation triggers.

It is difficult to understand Minister Sohi’s optimism that his new law will be more successful in court with its added complexity and extraordinary adoption of secret evidence.

Three Basic Problems With Impact Assessment Not Addressed by C-69

  1. The CEAA and the NEB Act give the NEB conflicting duties. Is this supposed to be an assessment process or a licensing process? The two are not the same. The numerous upstream and downstream impacts the CEAA requires the NEB to assess (e.g. of tanker traffic in the ocean) are much broader than the conditions of licence that the NEB and the Cabinet can impose under the NEB Act. Downstream tanker traffic is not part of a pipeline proponent’s project. What happens in the ocean is not within the proponent’s control. Therefore, conditions of license cannot include anything about tanker traffic because the pipeline would have no way to comply with such conditions. While assessment of tanker traffic may be mandatory for CEAA purposes it is irrelevant for NEB Act pipeline licensing purposes. This conflicting mixture of two different processes in one proceeding needs to be resolved by amending C-69.
  2. The CEAA already required too many potential future environmental, social and economic impacts to be considered. Several are of marginal relevance, and use vague language that encourages litigation. C-69 lengthens, rather than shortens the list of mandatory considerations.
  3. The persons who conduct the public hearings (the NEB or the new Impact Assessment Agency) have no authority to decide anything. On the other hand, the persons who decide everything (the Cabinet) do so in secret, with no public participation. C-69 gives the Minister even greater political control over the hearing process, increasing politicization while reducing transparency.

Three Basic Problems With Consultation of First Nations

  1. The positions of FNs on a pipeline are often divided. While many support pipelines that provide many FNs with jobs and income, a few FNs are unalterably opposed. The purpose of opposed FNs in participating in the Crown’s consultation process is not to arrive at an agreement to accept the pipeline but to collect evidence for a successful court challenge.   They have every right to do this, but the government has no duty to enact legislation that makes successful court challenges easier.
  2. Under our system of government the public service employees doing the consulting can have no authority to decide anything or make any commitments to FNs on behalf of the Cabinet.
  3. The Cabinet cannot meet and consult repeatedly with 100+ FNs potentially affected by the pipeline. Thus, the people doing the consulting are necessarily just the conduits of FNs’ concerns to the Cabinet. However the FCA in TMX held that performing this role was inadequate. That decision should have been appealed, but was not.

Litigation Triggers in the IAA

  1. Secret Evidence of “Indigenous Knowledge”

A pipeline company going through the IAA process will be concerned that some FN witnesses may present their “Indigenous knowledge” in confidence, attacking the proponent’s evidence.

The IAA has no definition of “Indigenous knowledge”.  The hearing is about possible impacts of the pipeline many years into the future.  There can be no “knowledge” of the future. There are only predictions.

This secret “knowledge” may cause project approval to be denied. As the law is written, the proponent will be denied an opportunity even to know the evidence against it, and therefore, denied a fair opportunity to challenge it.

The IAA does permit someone to apply for disclosure of the secret evidence subject to certain conditions. However, no disclosure may be granted unless it is necessary for “procedural fairness”. When a proponent and an FN are disputing disclosure of secret evidence, the hearing will probably be suspended while the procedural fairness issue goes to the FCA, and perhaps also to the SCC.  In any event, the resolution of this issue may not be simple or quick.

  1. Unrealistic Statutory Time Limits

The TMX hearing had some 1,600 participants. The IAA emphasizes greater public participation.  To hear from an unlimited number of public participants presenting an unlimited volume of evidence would require unlimited time. Pipeline opponents will sometimes organize numerous individuals to make repetitive, scripted presentations, to maximize delay.  The Agency will have to impose time limits, at least on oral submissions, thereby potentially triggering court challenges.  To reduce the risk of successful court challenges, the Minister will probably have to grant one or more extensions of time beyond the statutory time limit for completing the hearing.

Problem Language

Vague, over-inclusive language in the IAA – of which there are numerous examples – will also be potential litigation triggers for one side or the other. Such language will not be helpful to anyone. I have seen an environmental group seeking support for the legislation on social media, encouraging Senators to approve C-69 quickly despite industry objections. However, if environmental advocates understood that the vague language and undefined action words in C-69 can be interpreted in ways that harm rather than help the environment, they, too, would want the legislation made more effective through better drafting.

The Mandatory Consideration of Abstract Issues in the IAA

The list of ‘must consider’ factors in the IAA tries to compel something it cannot compel. Considering anything is a mental activity. Mental activities are invisible. There is no practical way any legislation can compel anyone to think about anything. There is no way the government or the courts can detect whether that mandatory consideration has or has not been given. Such mandatory requirements only create a written document that has headings for each of the mandatory factors, and some verbiage to demonstrate that each factor was considered. This is checking the check boxes.

However, what weight is actually given to any one of these factors may range from 0 to 100%. (The legislation does not require specific weights to be assigned to particular factors.) The main effect of such mandatory considerations is symbolic reassurance that anything and everything has been taken into account. In the real world of decision-making, however, the written reasons for decision may be quite different from the actual reasons for decision. Accordingly, to attempt to create a higher level of coincidence between written reasons and real reasons, legislators should minimize the number of mandatory considerations and eliminate any that are vague, speculative or essentially political in nature.

Under C-69, the Agency must consider – and therefore, receive evidence from numerous parties on – factors of an overly broad and highly speculative nature. Consider section 22 (1) (a):

22 (1) The impact assessment of a designated project ….. must take into account the following factors:

(a) the changes to the environment or to health, social or economic conditions and the positive and negative consequences of these changes that are likely to be caused by the carrying out of the designated project, including …..

The word “environment” is defined in section 2 of the IAA as:

environment means the components of the Earth, and includes

(a) land, water and air, including all layers of the atmosphere;

(b) all organic and inorganic matter and living organisms; and

(c) the interacting natural systems that include components referred to in paragraphs (a) and (b)

What the Agency must consider is not limited to the environment that may be directly affected by the project, or even to the environment of Canada. It must consider all layers of the atmosphere everywhere on the entire planet, and also, every living plant and animal, every rock, and the interaction of these on the Earth. That requires a rather ambitious agenda for a hearing with a short time limit.

Obviously, there is no practical way that any of the parties can present evidence on all of these issues, covering the entire planet. What the hearing agency must do, therefore, is to impose a practical limit on the physical, temporal and subject matter boundaries of the hearing. This is referred to in environmental assessment as “scoping”. That is what the NEB did in the TMX case when it decided to limit the scope of its recommendation to items that could be imposed on the proponent’s terms of licence. That was why it decided to exclude from its definition of the proponent’s project the issue of marine traffic and its potential impact on the orcas. That scoping was also why the FCA held that the NEB’s decision was so defective that it could not be relied upon by the Cabinet as the basis for its decision, and therefore, the FCA quashed the Cabinet’s TMX decision. For reasons I have discussed elsewhere (NEB Right) in my respectful opinion the NEB was right and the FCA was wrong, but the government decided not to appeal the decision so it remains as a precedent.

The impacts that must be considered under section 22 include health, social or economic conditions – again, without limits as to geography and time. The Act provides no definition of health, social or economic conditions, hence the scope of these mandatory considerations may ultimately be determined by a court.  Taken literally, in the context of the global definition of “environment”, they could be interpreted as covering health, social or economic conditions anywhere on the planet.

Following the precedent set by the TMX decision, an Agency or a Cabinet decision that fails to demonstrate full consideration of all of these mandatory factors in sufficient depth can be overturned by a reviewing court. Where statutory language is so completely open-ended, any future attempt to scope the hearing, or any lack of clarity in the written reasons for decision, is likely to produce the same negative litigation outcome.

(d) the purpose of and need for the designated project;

This requirement is not new, but it needlessly increases hearing costs and the risk of litigation. Why require evidence to assess the purpose of a pipeline?  Does anyone not know that the purpose of a proposed oil pipeline running from point A to point B is to carry oil from point A to point B?

In considering the need for the project, whose need is relevant? The proponent obviously needs the project or it would not be proposing it. The customers of the project, who will pay to transport, purchase and use the oil also need the project or they would not have entered into long-term purchase agreements with the proponent. Who else’s need should be considered? Alberta’s? Canada’s? FNs’ who will receive payment and employment from the project? FNs’ who oppose the project? The legislation doesn’t say whose needs must be considered, creating another opportunity for litigation.

Whether a project is needed by anyone is irrelevant to whether the project’s likely effects are acceptable. Why not dispense with the question of the need and just get on with considering the pros and cons of the project itself?

(g) Indigenous knowledge provided with respect to the designated project;

I have already mentioned this issue above, but wanted to provide the actual wording of the Act demonstrating that this is also a mandatory consideration.

(This clause (g) should be considered together with section 119, which reads, in part:

Confidentiality

119 (1) Any Indigenous knowledge that is provided to the Minister, the Agency, a committee referred to in section 92,93 or 95 or a review panel under this Act in confidence is confidential and must not knowingly be, or be permitted to be, disclosed without written consent.

The other requirements governing confidential evidence follow this subsection.)

(i) the extent to which the effects of the designated project hinder or contribute to the Government of Canada’s ability to meet its environmental obligations and its commitments in respect of climate change;

This is one of the most difficult mandatory considerations in the entire Act.

The effects of the proposed project will be seen over many decades, requiring numerous assumptions about the future of Canadian government obligations and commitments in respect of climate change, and how these might be achieved.

Climate change is planetary, ongoing, inevitable and affected by many non-human factors such as El Nino, volcanic eruptions, the level of solar radiation, etc..  Canada cannot, literally, have made any commitments about climate change as such. It can only have made commitments about reducing Canada’s carbon dioxide emissions, for the purpose of reducing the rate of anthropogenic (human caused) climate change. The purpose of the commitment should not to be confused with the commitment itself.  To avoid confusion in interpretation, the words “climate change” should be replaced by “carbon dioxide emissions reduction”.

Like the commitments of all Paris Accord signatories, our government’s CO2 emission reduction commitments are not legally binding or enforceable by other countries. These commitments are nothing more than the political promises of a current government to use its best efforts to reduce CO2 emissions to specified levels by a certain time. Politics being the art of the possible, what is politically possible in Canada over time will determine what these best efforts can accomplish.

Project impact assessment of domestic projects should be based on empirically verifiable evidence of a project’s effects in the reasonably foreseeable future. Political promises which may or may not be possible to implement should not be part of this process. With the inclusion of such factors, impact assessment becomes unfocused, indeterminate and politically contentious.

Clause (i) mentions the government’s “ability” to meet its commitments. That raises an unanswerable question for impact assessment. The government’s ability to meet its commitments depends upon what means present and future governments will choose to meet whatever commitments will then exist.

The current federal government’s chosen means is a carbon tax. This tax is now strongly opposed by five provincial governments of different political parties, with constitutional litigation under way.  The US has no carbon tax, lower corporate income tax and a much larger market. Imposing Canadian carbon taxes at levels high enough to reduce CO2 emissions to the promised levels will encourage businesses to move to the US and other countries without such a tax. Global emissions would continue to rise from places outside Canada while many Canadian jobs would disappear. This is what economists have called “carbon leakage”. Feeling these pressures, our government is curtailing its plan to price emissions after hearing concerns from Canadian industry officials about how the tax would affect their ability to compete  (Carbon Tax). This has already reduced the government’s ability to lower CO2 emissions.

How is any assessment hearing to know whether, over the lifetime of a pipeline, the carbon tax will be increased, decreased or abandoned entirely?  If the change in the US president from Democrat to Republican can result in termination of the US’ Paris commitments why could future elections not cause this to happen in Canada? Is the new Impact Assessment Agency required to assume that the current political party will remain in power and follow the same policies continuously for the 50 or more years that the pipeline would operate? Should it assume that Canada’s Paris Accord commitments will continue to make political sense indefinitely, even if the US stays out of it and major CO2 emitters like China and India continue to increase their emissions far more than Canada has promised to try to reduce its emissions?

If tomorrow, or at any time over the lifetime of the proposed pipeline, there is a change in government party, or a change in government policy or practice related to CO2 emissions, as might well be the case, what should the Agency assume about the viability and length of this political promise? If it assumes that everything will remain the same for the lifetime of the project it is likely to be wrong. The no change assumption may well kill a pipeline that would probably have a trivial effect on Canada’s ability to achieve its CO2 emission reduction targets. On the other hand, if the Agency assumes that some factors will change it would be just as difficult to justify any such assumption about the future as it would the assumption of no change. In summary, this clause (i) requires an abstract debate with no useful result. It should be amended or deleted.

(n) comments received from the public;

How can the Agency demonstrate that it took into account several thousand different comments from several thousand individual members of the public? It can say in its reasons for decisions that “we have considered all of the evidence”, but if the project is approved, such statements would not satisfy any opponent. Some comments from the public will be given some weight if they appear relevant, while many will not.

(s) the intersection of sex and gender with other identity factors;

See my comments above.

And, as if all of the foregoing it is not enough, a broad basket clause:

(t) any other matter relevant to the impact assessment that the Agency or — if the impact assessment is referred to a review panel — the Minister requires to be taken into account.

Every “must take into account” item added by the Minister is another box to be checked. Every item requires detailed discussion in the Agency’s written reasons, to prove to a court that it was taken into account.  Every such mandatory consideration provides another club for an opponent to use in court. Why make court challenges so easy?

It is an implied legal requirement of anyone who hears anything that they must consider all of the relevant evidence before them. Accordingly, providing long, detailed lists of what evidence must be considered creates more checkboxes for the Agency’s reasons for decision, lengthier and costlier hearings and increased opportunity for court challenges, while adding little clarity to the applicable law.

The Minister’s Extraordinary Powers

The IAA requires a proponent to submit to the Agency a complete application for a proposed pipeline. However, the Act also gives the Minister two extraordinary powers. The first of these is the power to grant any number of extensions of time for the assessment. The second is even more extraordinary, if not unique: it permits the Minister to prevent any project that has submitted an application from proceeding to an assessment, without any hearing, simply on the basis of the Minister’s opinion. All that is required is for the Minister to form an opinion that the proposed project would cause “unacceptable” environmental effects:

17  (1) If ….. the Minister is of the opinion that it is clear that the designated project would cause unacceptable environmental effects within federal jurisdiction, the Minister must provide the proponent with a written notice that he or she has been so advised or is of that opinion. The written notice must set out …. the basis for the Minister’s opinion.

The mandatory notice to the proponent merely requires the Minister to provide the “basis” for his or her opinion. This is not a requirement to provide any evidence to support that basis. The Minister is not required to provide a detailed analysis of how the environmental effects were estimated or the standard according to which such estimated effects were unacceptable. There is no specific legal or scientific test for what constitutes acceptable or unacceptable environmental effects. It is entirely subjective.

The power of the Minister to kill a pipeline proposal by preventing a hearing will obviously invite lobbying pressure on the government, by pipeline opponents to kill it and pipeline supporters to let the application go to a hearing. It is quite possible that such lobbying by pipeline opponents (provincial or municipal governments, environmental advocacy groups or opposed FNs) could be the reason for the Minister prohibiting the project’s assessment. Once the Minister has made a decision it is effectively final. Therefore, before a prospective proponent will spend potentially hundreds of millions of dollars in preparing a complete application to the Agency, it will want to consider the risk that the Minister will cause all this investment to be written off if the Minister considers it politically expedient. Such behind the scenes lobbying will do nothing to further the legislation’s professed goal of greater transparency.

Canada’s assessment process has survived perfectly well since the mid-1970s without giving the Minister such a draconian power. This power should be removed from the Act if the goal of transparency is to be taken seriously.

The Impact of the Impact Assessment Act

One of the most important impacts of the IAA will be invisible: the potential proposals not presented for assessment because they are deterred by the new law. If the unarticulated goal of the IAA is to make the TMX application Canada’s last pipeline application, there is no need for this IAA process.  Just pass a law prohibiting any further pipelines, or announce that the Cabinet will no longer approve any such applications. The negative outcomes of both NG and TMX in the courts will be remembered when potential investors’ lawyers review the IAA. These lawyers will see through the government’s unrealistic expectations, to realize that any new project is unlikely to be approved within a reasonable time, and with finality. Therefore, the main impact of the IAA will probably be to discourage private sector investment in Canadian energy resources.

This law will have to be fixed sooner or later. Why not now?

Andrew Roman has been an Energy Probe Board member since the organization began.

Further Reading

Appealing the Trans Mountain decision (Part One)

Trans Mountain appeal: The Crown’s duty to consult First Nations (Part Two)

For more by Andrew Roman: https://andrewromanviews.blog/

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