Daily Oil Bulletin | Sept. 21, 2017
Canada is approaching a crossroads when it comes to energy project development. This is a time for careful consideration of policies and legislation that truly reflect the national interest. The Daily Oil Bulletin has assembled a group of respected experts familiar with regulatory, legal, transport, economics and environmental protection issues associated with energy development to provide their individual reflections on a topic of material interest to the industry, affected public and legislators.
The Canadian oil and gas production and pipeline industry has been enveloped by a ‘perfect storm.’ Sophisticated interventions from national and international activist groups, aggressive regulatory agendas in Canada and the USA, investment uncertainties aggravated by political interventions and, not least, a significant drop in international oil prices have brought Canada to an “energy crossroad.” Regrettably, and for far too long, the National Energy Board has found itself at the center of a national debate on national energy policies. These fierce debates, accompanied by parallel international controversies, have involved First Nations, provinces, territories and municipalities and have, at times, appeared to present challenges not just regulatory processes but to the very maintenance of peace, order and good government — all cherished hallmarks of the Canadian political discourse.
Canada will now consider options for legislative amendments to CEAA 2012 and the NEB Act, based on recommendations from the Expert Panel Report, “Building Common Ground: A New Vision for Impact Assessment in Canada” and parallel recommendations of the Expert Panel on the Modernization of the National Energy Board, “Forward Together: Enabling Canada’s Clean, Safe, and Secure Energy Future” (referred to as the “NEB Modernization Report”). These reports and future legislation that may be based on them will have material consequences for Canada and its energy sector. There is more at stake than striking a “balanced approach” to the economy and the environment or to “enhancing public confidence” in Canadian assessment processes. The sweeping policy and legislative initiatives now under consideration risk an accelerated erosion of the competitiveness of the Canadian energy sector. The comment periods for the reports, including the Federal government’s response to them, have closed as Cabinet now turns to consider legislative changes. Canada is indeed at a crossroad. This is a time for careful consideration of policies that truly reflect the national interest.
Investors have clearly signaled and executed their intentions to reallocate capital outside of Canada as a direct result of recent energy regulations and policies. Recall that these recent initiatives also include a moratorium for oil tankers off the northern coastline of B.C. along with proposed national reductions for methane emissions. New provincial and federal GHG emissions regulations are pending and these initiatives combined with continuing uncertainties on Canada’s position on Aboriginal consultation under FPIC3 and UNDRIP further challenge the investment climate. Additionally, there has been an emergence of an increasingly fractious regulatory environment between the federal and provincial governments. Recent decisions by the NEB affecting the proposed $15.7 billion Energy East project led TransCanada Corporation to request a 30-day process suspension so the corporation could consider the effect of the decision on the projects’ “costs, schedules and viability.” This circumstance was described by Alberta’s energy minister as an “historic overreach” by the NEB.
Governments should not delude themselves into thinking that legislative amendments to the NEB Act will be sufficient to fix the functioning of that agency or be sufficient to resolve many of the present challenges facing the energy industry. The economics associated with energy production, transportation and marketing are so complex and compelling that no federal or provincial government can, or at least should, ignore the challenges that may result from proposed regulatory changes or the ongoing competitive realities of the international marketplace. National energy policies are not amenable to succinct sound-bites from leaders who may seek narrow political advantage. Canadians expect a quality lifestyle that embraces economic and social improvement and that preserves, or even enhances, environmental standards. High standards for environmental protection are generally not associated with poor nations.
How best then to address these issues and to embrace the broader ideals of the Canadian public? Ultimately, there can be no public confidence in government if the rule of law is eroded. Nor can there be consensus achieved within and between regional, political or governmental interests if the very basis for defining the national interest is lost.
The Canadian energy sector has consistently demonstrated its ability to cope with, and adapt to, the vagaries of the competitive international marketplace. However, ongoing redefinitions of legislative mandates, combined with associated internal administrative dynamics, have brought the NEB and its regulated industries to a point of serious concern. In spite of the certain economic consequences it begins to appear that meeting Canada’s carbon emissions as set in the Paris climate accord is of paramount importance to this federal government. Notwithstanding that ideal, government cannot expect to delegate undefined and unaccountable policy objectives to regulators such as the NEB who have no statutory mandate to set energy, or carbon, policies.
The stakes are high for Canadians. Viable solutions for energy policy and regulation cannot be achieved by merely tinkering with legislation. What is urgently needed to secure Canada’s energy future is a transparent, clearly enunciated national vision to comprehensively address the national interest. Given the nature and magnitude of the challenges facing Canada the contributions in this series seek to provide a range of constructive individual thoughts and opinions to better inform pending legislative decisions.
Ron Wallace and Bonnie Gray Wallace, editors
An ‘independent’ National Energy Board
Rowland J. Harrison
The federal government’s initiative to “modernize” the National Energy Board (NEB) has been largely driven by a perception that the Board has, in the words of the Expert Panel Report, “fundamentally lost the confidence of many Canadians” and has been “captured” by the oil and gas industry — that the Board has, in other words, lost its independence.
What is generally overlooked, however, is the risk that the Board could, in effect, be captured instead by government and become a bit player in what would be an essentially political process — a risk that some have concluded has already materialized: “Pipeline dreams drying up amid political pressure.”
Final decisions to approve or reject major energy infrastructure projects are not a matter of determining right from wrong. Rather, such decisions require that a choice be made on behalf of society, based on a judgement as to whether a project is “in the public interest.”
Making such societal choices or judgements is the very function of elected, accountable representatives. It is appropriate, therefore, that the final decision to approve or reject any major energy infrastructure project be made by the Governor in Council (the federal cabinet), rather than by unelected technocrats.
The regulatory process leading up to that final decision, however, is a different matter. If, as we should all hope, every final decision is to be based on the best available information and on rigorous, expert analysis, that process must be fully independent of outside influence — whether from interest groups, industry or, indeed, government itself.
The challenge, then, is to design a regulatory process in which the role of the regulator is defined in the clearest possible terms and the independence of the regulator within that role is fully protected. No giving with one hand while taking with the other.
Unfortunately, the changes to the role of the NEB Act that were enacted in 2012 did just that. Several of those measures paid lip service to the independence of the Board while at the same time introducing mechanisms for the cabinet or Minister to interfere with the independence of the Board by giving certain directives to the Board. Some of these measures are best described as tools available to the government to lean on the Board to produce the outcome that the government desired — the very antithesis of an independent process.
The success (or otherwise) of the modernization project will very much depend on striking the right balance between entrenching the independence of the Board, on the one hand, and, on the other hand, maintaining the ultimate decision-making authority of the Governor in Council.
Having said that, it must also be noted that the independence of any particular regulatory agency ultimately depends on how that agency goes about performing its functions, as much as on its formal structure. Hopefully, in addition to having its institutional independence enshrined in legislation, a restructured NEB will be able to restore the de facto reputation and respect for its independence and expertise that was enjoyed by its predecessor for more than 50 years.
The need to maintain the independence of the National Energy Board within any redefined role — whatever that role might end up being — must be respected. No more half measures please!
Rowland J. Harrison, Q.C. has more than 45 years of experience in Canadian energy regulation. He was a member of the National Energy Board for 14 years, one of the longest serving members in the Board’s history.
Competence, capacity and independence in Canadian energy regulation
The current perception, fed by some politicians, special interest groups and a compliant press, is that the NEB is somehow ‘broken’ and needs modernization and restructuring to be an effective regulator in the 21st century. These views are based on the large scale ‘issues’ that are associated with recent major projects, not on an understanding of the critical, everyday work the NEB performs in overseeing the construction and safe operation of more than 70,000 km of major transmission pipelines in Canada that bring energy to the vast majority of Canadian homes and businesses. Addressing these broad issues through changes to the NEB’s structure and mandate is important but does nothing to enhance the competence of the Board to ensure that it continues to perform its primary job — regulating the safe operation of pipelines in Canada.
The Canadian pipeline industry has made an exceptional contribution to the economy and wellbeing of our country. The industry has a remarkable safety record and is a world leader in technological innovation. Led by two corporate superpowers in the global pipeline industry, Canadian pipeline companies are committed to ‘0’ incidents and routinely collaborate with regulators and pubic interests in an overarching drive to advance safety, technical standards and performance to achieve that outcome.
To regulate this industry, achieve the goal of ‘0’ incidents, and to ensure that energy is delivered safely to Canadians, the NEB, in overseeing an extremely technically complex industry, must be competent, innovative, and committed. To achieve this, the Board must attract and retain exceptional leaders, and high caliber Board Members and expert technical staff who are knowledgeable and experienced, understand the pipeline industry, and bring a range of expertise and experiences that enable them to make fair and independent decisions.
Knowledge of the pipeline industry does not curdle or taint the ability of Board Members and staff to make fair, independent and impartial decisions on important matters. Au contraire, can you imagine a Supreme Court Justice with no experience in judiciary matters; or can you imagine the Supreme Court of Canada Chief Justice being hired with no prior experience on any Court in the land? Clear competencies and experience must be set out for the Board members, and for technical and legal staff, and personnel must be sufficient in numbers to meet the demands of a progressive, expert regulator. The depth and breadth of these competencies and the means to acquire and sustain them must be considered in any structural changes that the government makes or the national regulator will remain sub-optimized at best.
Currently, about 90% of the NEB’s costs are recovered from industry. Industry has been an advocate of increasing budgets for the NEB to enhance capacity to oversee, inspect, and audit new projects and operating systems, and to share these results with the public. Industry has supported these budgetary increases because it knows Canada is best served by a competent, independent, full life cycle regulator whose actions and decisions are based on fair, transparent and accountable principles founded on science and fact.
Some interpret, incorrectly, that cost-recovery means the NEB is in the ‘pocket’ of industry. Annually, the NEB budget is presented to the Minister of NRCan, approved by the government of Canada, and ultimately recovered by the government (not the NEB) from industry based on an agreed formula.
The Board must be wholly apart from both government and the industry it regulates with the ability to attract and retain the high caliber of managerial, legal, technical and environmental expertise it requires, independent of government personnel processes. The regulatory leaders (Chair / CEO / COO and Executive) must be held accountable to our nation for the effectiveness (or lack thereof) of regulatory processes and the manner in which the institution is led and run. Recent examples of regulatory panels being forced to recuse, decisions being set aside and self-determined expansion of mandate point to a loss of focus by the NEB on its fundamental mandate and time-proven procedures as it tries to adapt to changing societal expectations. Canada’s ability to oversee a highly complex technical industry is being brought into question and will most assuredly impact any future investment and subsequent returns to our nation. Through the modernization process, government should clarify, reconfirm, and support the role and mandate of the Board as a truly independent, expert regulator. Government must also ensure the Board can acquire and sustain the expertise it requires to focus on the execution of its responsibilities in the interests of Canadians.
Jim Donihee, OMM, CD is a decorated military leader with extensive board experience who has led international operations, served as a change leader in industry and has served as the Chief Operating Officer for both the National Energy Board and the Canadian Energy Pipeline Association.
Governance, regulation and independence in the Canadian energy sector
“Efforts to modernize the NEB will deal with a focussed set of issues related to the Board’s structure, role and mandate pursuant to the NEB Act. Specifically, these efforts will aim to position the NEB as a modern, efficient, and effective energy regulator and regain public trust.” Expert Panel Terms of Reference – Scope of Review
The public comments and the advice tendered to government by the Expert Panel on the Modernization tended to focus on the key structural and governance issues including considerations of the location, composition and responsibilities of its NEB. Presumably, the Expert Panel thought that such factors, if changed and improved, would result in the NEB “regaining public trust.” Fortunately, the Federal response to the Expert Panel report appears to favour amending the NEB Act, rather than following the Expert Panel’s recommended strategy of creating a wholly new Canadian Energy Transportation Commission (CETC). Notably, the government’s Discussion Paper was not responsive to the recommended two-step decision-making process for projects that could have provided much needed regulatory certainty for proponents and investors before proceeding to hugely expensive hearings and assessment processes. Hence, a fundamental dysfunction of the Canadian energy review process would appear to be unresolved. This omission is sure to continue to undermine investor confidence in the Canadian energy regulatory process because government appears in favour of rendering, by political fiat, final decisions made at the end of lengthy, increasingly complex and expensive regulatory processes.
A further question is whether a “modernized” NEB will be viewed as an independent, quasi-judicial decision-maker that employs defined regulatory processes insulated from potential political interference. These factors combined with an erosion of morale and technical/legal capacity at the NEB, have led to concerns that its history as an independent expert tribunal may potentially be at risk. The raison d’etre of the NEB is to be an independent expert tribunal designed to ensure the regulation of safe, environmentally responsible and economic pipelines. The Expert Panel that regrettably omitted any consultations with current or past Members of the NEB recommended a separation of the role of the Chairman and CEO which is consistent with governance practices increasingly favoured across North America. The additional recommendation to appoint a distant, as yet undefined Executive Board would effectively demote Permanent Members to the role of Hearing Commissioners. These changes could limit the purpose and functioning of the current, diverse expert tribunal Members. Since all executive appointments constitute a fundamentally political act, there needs to be clarity as to the process, qualifications, mandate and accountabilities for the new, proposed Board. Hence, consistent with many other federal agencies, legislators should first consider and develop a formal Board Charter for the NEB to offset potential criticisms that the NEB is being converted from an independent regulator into a policy implementation vehicle for government. In short, the “modernization” of the NEB should not be done merely to incorporate politically correct ideals which, divorced from established principles of corporate governance, could dilute the established technical, legal and enforcement capabilities of the NEB. Idealistic, distractive goals for “engagement” have already led the NEB into l’affaire Charest, an event that significantly impacted the credibility of the NEB.
Ideally, clearly defined national policies for energy would provide a context within which the NEB could make regulatory decisions that accord with political definitions of “national interest.” This reality is, unfortunately, a mirror-image to the existing policy environment whereby the NEB must anticipate and reach regulatory determinations in a near policy vacuum. Government had previously expressed interest in the governance model provided in the Alberta Energy Regulator (AER). These directions would confer enormous discretionary powers to the NEB Chair and CEO. This would risk a degradation of the independence of expert tribunal members while according greater responsibilities to a distant Board. These are not trivial governance issues and arrive at a time when the NEB is under heightened scrutiny by the public, governments, industry and the press all of whom appear to be expecting enhanced, not diminished, accountabilities from the regulator and its executive.
The principal challenge for government in seeking to ‘modernize’ the NEB is to not blunder into unintended consequences associated with laudable high ideals for diversity, inclusion, participation and engagement but which may ultimately compromise pipeline safety, economic viability and environmental protections. Sober second thoughts specifically focussed on governance may well be warranted before significant legislative changes are made to the NEB Act.
Ron Wallace, Ph.D. is a former scientist, Chief Executive Officer and corporate Vice Chairman. He has served on Federal, Provincial and Territorial energy and environmental regulators and several senior governmental advisory boards. He has written extensively on issues of the environment, national defense, Inuit and Inuvialuit economic development and other matters in the Canadian and Russian circumpolar Arctic.
Canadian energy policies and regulation – dysfunctional and getting worse
What is the current federal government’s real agenda for hydrocarbons in Canada?
The federal government is seemingly indifferent to the emerging reality that the existing regulatory process for major hydrocarbon infrastructure projects is now so risky that going forward no private sector capital will take on the risk of the process, regardless of the inherent value of such potential projects to Canada?
A recently released discussion paper by the Natural Resources Canada signals potential changes that will only worsen this risk, typified by more open ended engagement requirements, lack of clarification of key policy issues and increased ambiguity on the future role of National Energy Board, the long standing national regulator for major hydrocarbon infrastructure. https://www.canada.ca/en/natural-resources-canada/news/2017/06/discussion_paperreleasedonreviewofenvironmentalandregulatoryproc.html
It is ridiculous to expect that private sector capital will invest literally hundreds of millions of dollars and be engaged in multi-year regulatory approval processes to face potentially ultimate rejection, especially if the basis of rejection is on purely political considerations that should have been clarified very early in the approval process.
Review the disposition of Enbridge’s Northern Gateway project as the classic case in point. Dismissed after almost six years of approval process, based on an entirely political judgement on the part of the Prime Minister on the capacity of the “Great Bear Rainforest” to accept any spill risk, notwithstanding the recommendations of the National Energy Board to the contrary and foregoing substantial national benefit — all with no apparent substantiation as to why the competent, independent NEB should be ignored. http://www.cbc.ca/news/politics/federal-cabinet-trudeau-pipeline-decisions-1.3872828
In 2016, the Trudeau government created a new entity the NEB Modernization Panel to specifically address what constructive process changes could be implemented to improve existing NEB practice for major hydrocarbon infrastructure projects. http://www.nrcan.gc.ca/19667 This Panel, after nearly a year of consultation and deliberation, proposed serious consideration of a “two step” process — an initial phase for the basic determination of whether a project was in the national interest or not by the politicians and a potential second phase to set specific conditions on the construction and operations of the project would be carried out solely by the regulators, with no further reference to politicians. That first phase was constrained with a cycle time no longer than one year, dealing with basic public policy questions related to the project, such as:
Does it conform or not with national carbon policy?;
- Acceptability of the proposed parameters of accommodation to impacted stakeholders;
- Defer to regulators to establish mitigated risk standards for potential spills or ruptures;
- Consistent with global standards or not?;
- Sufficiently demonstrable national economic benefits.
This concept was vigorously supported by industry and other Canadians with direct professional experience with the existing regulatory process for major hydrocarbon infrastructure projects.
If implemented, a basic sanction for a major national project as consistent with the national interest would be provided within one year of initial filing. With that in hand the more costly second phase could be carried with a much higher level of confidence by private sector proponents. Sadly, instead of seizing on this basic concept and committing itself to working it into specific regulatory process guidelines, the government has dismissed it out of hand offering instead proposals that will only ensure into the future that no major hydrocarbon infrastructure projects will be undertaken.
Is that a result that this government actually wants?
If the Canadian government does not want any incremental hydrocarbon production all in the cause of meeting Canada’s carbon emissions targets resulting from its ratification of the Paris climate accord, then it should say so explicitly. But it should not have that determination devolve to a regulatory process that has no statutory mandate to make fundamental energy or carbon policy for Canada.
Similarly, if the Canadian government wants to extend vetoes on major infrastructure projects to certain segments of Canadian society then it should do so explicitly, not implicitly by creating a regulatory process where open ended engagement de facto becomes such a veto. Or as a purely political judgement, a Canadian government insists on zero spill risk for certain geographies, regardless of comparable global standards for risk tolerance, then make that explicit as early as possible and not be disingenuous with proponents and the public.
Ultimately, the Trudeau government needs to appreciate it is not in Canada’s fundamental interest to treat private capital so contemptuously or expect that it will not have consequences, especially in a sector that has made such manifest economic contributions historically and with the capacity to do so on into the future.
The recent suspension by TransCanada of its Energy East project is a direct consequence of this regulatory dysfunction and the federal government’s apparent tacit acceptance of it. https://www.transcanada.com/en/announcements/2017-09-07-transcanada-seeks-30-day-suspension-of-energy-east-pipeline-and-eastern-mainline-project-applications/
A newly installed and inexperienced NEB Panel, specifically chosen by the Trudeau government for the Energy East approval process after insisting on the recusal of the original NEB panel decided to fundamentally “re-scope” the issues that it would consider in respect of the project, inconsistent with past NEB practice. Specifically, it would now consider potential upstream and downstream carbon emission impacts attributed to the Energy East pipeline or, to be clear, impacts not directly generated by the project. This fundamental change occurred after TransCanada has already spent an estimated $800 million in pursuit of regulatory approval for this project.
Even if the NEB were to attempt the difficult exercise of trying to determine what incremental upstream and downstream carbon emissions could be reasonably attributed to Energy East, it would likely generate a conclusion not unlike what the Department of State under the Obama administration concluded in Keystone XL, namely that any potentially incremental upstream emissions were immaterial to the world’s current atmospheric inventory.
It is unclear if the NEB would take such a global perspective, or rather consider any incremental emissions solely in a Canadian context. If the NEB attributed incremental Canadian carbon emissions to the advent of the Energy East pipeline, then what next? Have those emissions paid all requisite carbon taxes? Do explicit limits exist on carbon emissions from the oil sands sector? Is meeting Canada’s Paris climate targets the greatest public policy priority in Canada such that no incremental carbon emissions in the oil sands can be countenanced let alone only those attributed to Energy East? Does paying a carbon tax represent a right to emit, or not? Again these are not questions for regulators to deal with, rather duly elected governments.
The reality is that this unanticipated additional risk and ambiguity has caused TransCanada to suspend the project for 30 days to perhaps abandon it outright if no change from the federal government occurs.
Doubtless some will have argued within the federal government that the loss of Energy East can be accepted without undue prejudice to the Canadian hydrocarbon sector. Such logic would rely on Keystone XL, the Trans Mountain expansion and Enbridge Line 3 expansion all proceeding to construction and operation, coupled with growth in the oil sands production not to exceed 4.0 million barrels by 2030.
Of course this logic does justify providing reasonable regulatory approval for Energy East. If the project demonstrates, that if built, it will generate demonstrable economic benefits from both the construction and operations, and its environmental impacts and risks are imminently mitigatable consistent with global standards, why would the regulatory process not provide an approval even if not used until some point in the next decade? Ultimately, the decision to proceed would lie with TransCanada and its shippers. They are the parties that ultimately bear the financial obligations in respect of the project, inclusive of the cost of sustaining the option to proceed. They are the parties that ultimately are best positioned to determine if the project will proceed next decade.
The loss of Energy East is not a trivial event, despite some of initial inane comments from Minister Carr to the contrary. Its abandonment would validate that an already dysfunctional regulatory approval process cannot be made worse without negative economic consequences for Canada.
The Trudeau government needs to step up. At a minimum it needs to clarify where priorities for growth in the Canadian hydrocarbon industry stands relative to national carbon policy: Does the national interest actually mean anything or do select interest groups and jurisdictions have vetoes on economic development that is manifestly in the national interest. If hydrocarbon development is part of Canada’s economic future then we need to ensure a regulatory approval system that is efficient, fair to both capital and legitimately impacted stakeholders. And in the short run, fix this blunder on the re-scoping by the Energy East NEB panel.
Dennis McConaghy has 30 years of experience in the Canadian energy industry in prominent commercial executive positions that included the commercial development of the Keystone XL pipeline systems within TransCanada Pipelines from its conception in 2006 to the finalization of commercial agreements in 2008. He is currently a visiting fellow at the public policy and energy studies schools at the Ivey Business School at the University of Western Ontario and an adjunct fellow at the Niskanen Center, a DC based think tank focused on carbon and energy policy.
Climate change commitments, the National Energy Board and the rule of law
Most nations recognize that energy polices and commitments to reduce greenhouse gas (GHG) emissions are intimately connected. A climate change policy is inevitably an energy policy and vice versa. For example, the European Union’s “Energy 2020: A strategy for competitive, sustainable and secure energy” aims to reduce the EU’s greenhouse gas emissions by at least 20%, increase the share of renewable energy to at least 20% of consumption, and achieve energy savings of 20% or more, all by 2020.
Canada has made various commitments (“climate promises”) under international law to reduce our GHG emissions. Our Kyoto commitment required us to reduce our emission from the 1990 level of 589 Mt, by 6% by 2012. That commitment went by the wayside when successive federal governments failed to take any serious steps to implement those obligations. Ultimately, Canada cynically withdrew from the Protocol just before it started to bite. Our current commitment under the Paris Agreement (also a binding international treaty) is to reduce our GHG emissions by 30% of 2005 levels by 2030. This translates to a target of 524 Mt. The principal federal policy vehicle to achieve this commitment is the Pan-Canadian Framework of December 2016 and the adoption of an economy wide price for carbon under the terms of that agreement. Much of the heavy lifting will be done by the provinces although the federal government is also committed to adopting backstop legislation (yet to be introduced) to deal with recalcitrant provinces (such as Saskatchewan) and to ensure full coverage.
But how does all of this affect the mandate of the National Energy Board; and how should it affect its mandate? Until a couple of weeks ago one could conclude that it had very little impact on the NEB. The NEB Act was never amended to refer to Canada’s climate promises. The NEB itself, supported by the Federal Court of Appeal and amendments to the NEB Act introduced by the Harper Government, resisted considering the so-called upstream and downstream GHG emissions effects of new pipeline capacity. Furthermore, the energy policy work of the Board did not take Canada’s climate promises seriously. For example, the most recent supply\demand projections of the Board indicate that “Canada’s target of reducing GHG emissions by 30 per cent from 2005 levels by 2030 is not explicitly modelled in this analysis.”
The result therefore is a significant disconnect in Canadian law and policy which should be rectified as part of the modernization of the NEB if we are to recognize the intimate connection between climate promises and energy policy. The current NEB panel hearing TransCanada Energy East application undertook to achieve a reconnection between climate promises and energy policy unilaterally. While I sympathize with the goal I don’t believe that the panel or the Board has the authority to do so, and that the terms of reference, if challenged, will prove to be an unreasonable exercise of the Board’s discretion.
I think that we need to make this reconnection through a systematic amendment of the NEB Act. These amendments would include a preamble in the Act that referenced Canada’s climate promises as they evolve over time. There might be a substantive provision obliging the Board to take account of Canada’s climate promises in the discharge of its policy responsibilities, including the preparation of supply\demand forecasts. In addition, the Board should be directed to assess (to the extent possible and in accordance with generally accepted methodologies) the upstream and downstream emissions of GHGs associated with proposed new pipeline capacity in light of Canada’s climate promises. The Board would make this assessment as part of developing recommendations as to whether a proposed pipeline meets the test of public convenience and necessity (or, more generally, is in the public interest). The Board could also be directed to assess these emissions in light of any requirements of provincial law such as Alberta’s oil sands emissions cap. The Board’s findings would be included in the overall report on the project presented to the Governor in Council for its review and decision.
Nigel Bankes is professor and chair of Natural Resources Law at the University of Calgary. He posts regularly on oil and gas law and energy law issues at <http://ablawg.ca/>
Public interest in national energy project decision making
For fifty years, the National Energy Board (NEB) was a highly regarded quasi-judicial expert tribunal. It was rarely in the public eye. Hydrocarbon transmission markets functioned and there were few ruptures from the thousands of kilometers of this type of Canadian linear infrastructure. In the past ten years, the National Energy Board (NEB) has become very much in the public eye, principally due to proposed new hydrocarbon transmission projects.
The legislation establishing the NEB remained largely unchanged for the first 50 years of the existence of this independent, federal expert regulatory tribunal. Some would suggest this was an oversight and that the legislation did not keep up with society’s changing times and values. In the case of the original NEB Act, the direction within it to consider the public interest when evaluating projects was visionary and in retrospect, decades ahead of its time.
Our Federal Government has committed to changing the Act. Over the past six months, it has received a report from the Expert Panel on the Modernization of the National Energy Board and has also issued a discussion paper that covers all Federal environmental and regulatory reviews.
In its report, the Expert Panel chose to use the term “national interest” and defined it as being broader than public interest. It suggested a two-stage process where Cabinet would first make a national interest determination prior to a more in depth review of the project by an independent regulatory authority. The Government of Canada’s discussion paper didn’t refer to national interest and proposed that a Minister or Cabinet would make the decision as to whether or not projects are in the public interest. Public interest was not defined.
In the Report of the Joint Review Panel for the Enbridge Northern Gateway Project, we defined public interest as “the interests of all Canadians.” We said that the public interest “includes environmental, social and economic considerations.” We further articulated that in determining the public interest of that proposed project, we asked ourselves: “Would Canada and Canadians be better off or worse off if the project were approved?”
The Panel is of the view that the consideration of a project by an independent expert tribunal process is in itself a component of the public interest. Having an independent expert tribunal take the time to collect, digest and understand all aspects of a complex application results in thorough, reasoned recommendations and conditions. This provides the decision maker with expert views, based on tested evidence, on which to base a decision.
The Panel sought to create a transparent, fair and respectful process that gained a broad perspective on all aspects of the project. We reviewed tens of thousands of pages of written evidence and comments and held 180 days of hearings. The audio from the hearings was broadcast live. Seventy-two of these days were for oral evidence and oral statements. The majority of the oral evidence was oral traditional knowledge from Aboriginal communities.
Without this type of rigorous process, how will the Minister or Cabinet make the ultimate decision as to whether or not a project under the NEB mandate should proceed? Because the public interest is intricately related to all social, economic and environmental aspects of a proposed project, comprehensive hearing processes are required to examine all aspects of a project prior to a public interest determination. Who better to do that than an independent expert regulatory tribunal? How would Cabinet be in a position to make a public interest determination before a thorough review of all aspects of a proposed project has been completed?
The NEB’s mandate extends far beyond regulatory hearings. It is responsible for ensuring that infrastructure under its regulation is operated in a safe and secure manner that takes into account social, economic and environmental considerations. Looking at these aspects of every day pipeline operations, I think we can all agree that these aspects of the NEB regulatory framework are in the public interest. For example, the NEB’s track record in protecting the Canadian public from pipeline accidents and malfunctions is exemplary when compared to its global peers. Having safe, secure and reliable hydrocarbon transmission infrastructure that is market driven is in our public interest.
Why would we not also look to this organization to continue to recommend to our elected officials if a proposed project is in the public interest? Assuming, amongst other important factors, that a rigorous merit based process is in place for the appointment of Board members, that conflicts of interest policies are meticulously administered and that the role of the Board in internal policy setting and hearing adjudication is defined and observed. With a strong governance system in place, this organization has all of the tools and expertise to continue to include a comprehensive evaluation of the public interest as part of its project review process? In my view, it would be contrary to the public interest to do otherwise.
As the Federal government determines how it will modernize the NEB this fall, I hope it considers the merits of having an independent, expert tribunal regulate all aspects of Canadian linear energy infrastructure. This approach ensures accountability for all Canadians and is in the public interest.
Sheila Leggett, ICD.D, M.Sc. is an environmental biologist by training who served as a Board Member and Vice Chair of the National Energy Board. During part of her seven year term, she chaired the Joint Review Panel for the proposed Enbridge Northern Gateway Project. Sheila has held senior executive and board positions in both private industry and with provincial and federal regulatory organizations. She currently sits on the Board of the Alberta Electric System Operator and is the Chair-elect for the International Standards Organization Technical Committee for Environmental Management Standards (ISO 14000).