Jack Mintz: How Bill C-69 could escalate regulatory costs until projects become unworkable

As the Senate continues its hearings on Bill C-69, it might be useful to focus on what is claimed to be the objective of the new environmental and regulatory approval act: A fairer, faster regulatory system. Calgary’s National Energy Board will become a less-powerful Canadian Energy Regulator while an Ottawa-based body, the Impact Assessment Agency, will provide final advice to the government to determine whether a project is in the “public interest.”

The new legislation is ostensibly intended to reduce delays for federal approval of resource projects while providing greater political acceptability. It is hard to see how that will be case.

Three phases of review are mind-boggling in scope: planning, assessment and decision-making. The planning phase provides early consultation with public and Indigenous groups about proposed projects. The list of exactly which kinds of projects those will be is yet to be determined. The Impact Assessment Agency will then need to make a determination — supposedly within 180 days — whether to proceed with the further assessment.

The next phase undertaken by the agency takes into account 20 factors, including economic, environmental, health and social impacts. Some mandatory items include considering “alternatives to the project,” the project’s environmental and economic sustainability, gender considerations and the extent to which the project hinders or contributes to the government’s climate-change commitments. The proponent has up to three years to provide this information. Only after that, following panel hearings and a report, the assessment is meant to be wound up in 600 days, just short of another two years.

If the federal government reduces regulatory approval times, that would be an accomplishment. There is reason to fear it won’t happen. The process Bill C-69 proposes is laborious and open-ended in terms of potential consultations. Opponents, especially the energy industry, argue that it gives the minister of environment too much of a free hand to stall and reject projects.

According to data from Stikeman Elliott, the average federal approval time for 14 recent energy projects (pipelines, oilsands production plants, LNG plants, and electrical transmission and generation infrastructure) is pathetic, at 56 months, or six and two-thirds years. The shortest approval — for the Maritime Link (transmitting hydro power from Nova Scotia to Newfoundland) — took 19 months. The longest — for the Northern Gateway pipeline — took 104 months. That was before the Harper government considered its approval. After all that, the Trudeau government killed the project entirely.

Such delays impose a significant cost and risk on project developments. One way to measure the impact is to calculate the extra profitability needed to cover economic, tax and regulatory-delay costs. Businesses will move ahead with projects if the rate of return on capital is at least as high as a “hurdle” rate. Regulatory-delay costs increase the hurdle rate, making some projects infeasible.

Based on work I’ve done with Phil Bazel, I have estimated the impact of regulatory-delay costs on hurdle rates, using the Stikeman data mentioned above, for low, medium and high regulatory delays. If oil projects take seven years for approval, the regulatory-delay cost increases the hurdle rate, adding an additional investment cost of $127 million onto a $1 billion project. For mining, seven years is $144 million in added costs to a $1 billion project.

Regulatory-delay costs can thus have a large impact on the projected profitability of projects and, as a result, the decision whether to proceed. The estimates I provide underestimate the overall impact by not taking into account the substantial cost of preparing application proposals and the perceived risk associated with failure to get approval. So if resource projects are going to be profitable in Canada, it will be important for Bill C-69 to reduce timelines and uncertainties.

And that is where the debate lies. Will Bill C-69 make the regulatory process more efficient and certain? Or will it discourage resource projects in the future? The Alberta government has criticized its regulatory overreach and Saskatchewan’s Premier Scott Moe and Alberta’s United Conservative Party leader and premier designate Jason Kenney call it the “no more pipelines bill.” The Senate can suggest significant amendments to reduce the scope and create more clarity in the proposed process. However, if it pushes Bill C-69 through without thorough revision, it could well stoke Western grievances that are already boiling over.

There are better options. Australia is viewed as having an efficient, fair and timely regulatory system helped by having a clear focus on project-specific impacts separated from more general economic, social and environmental policies. Their corridor-approval process provides upfront approval, efficient in dealing with Indigenous and other general issues, allowing the regulator and project proponents to focus on project-specific impacts after the first phase of approvals. Neither the previous Harper government’s process nor the Trudeau government’s Bill C-69 are first-class regulatory approaches. Both are inferior to the way projects are handled in Australia, the EU and the U.S.

The government needs a rethink. If it pushes through Bill C-69, it will create irreversible economic damage to attracting investments to Canada’s resource sector. Even worse, it will further heighten interregional conflict. It needs to be seriously revamped — or withdrawn.

Jack Mintz is president’s fellow at the University of Calgary’s School of Public Policy.

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