Analysis: Canadian Energy — Between An Economic Rock And A Progressive Hard Place

Last week’s Federal Court of Appeal decision struck another blow to the Trans Mountain pipeline expansion project. The court quashed Ottawa’s approval, finding that the government had not adequately consulted with Indigenous communities and had not sufficiently considered the marine impacts of increased tanker traffic.

While opponents celebrated, supporters grew ever-more frustrated with the seemingly endless string of delays to the project over social and environmental issues. Ottawa has stated it remains committed to the pipeline expansion — it owns it after all — while Alberta announced it is pulling out of the pan-Canadian framework on climate change.

For most Canadians, it was a pretty big week in Canadian energy. For seasoned energy observers, it’s just business as usual.

For a decade or more, Canadian energy has been caught between an economic rock and a progressive hard place, and governments aren’t doing a particularly good job of finding a way out of the jam.

Start with economics. The transformation of North American oil and gas markets from rapid increases in light tight oil and shale gas production in the United States means Canada needs to access new energy markets beyond North America. This is a game-changer for a country that has historically sold virtually all its oil and gas to the U.S. The rapid rise of liquids-rich natural gas plays in northern British Columbia and Alberta is also changing the nature of market opportunities for Canada. There is huge economic potential.

But market access — whether for oil, gas or liquids — means building new infrastructure, sometimes to places it hasn’t been before, sometimes using processes that may not be new but are new to Canada (e.g., LNG export facilities) and sometimes it means energy flowing in greater volumes using existing processes (e.g., increased tanker traffic).

Perhaps it’s little wonder then, that controversy over energy development has heated up — people have questions about the environmental and social impacts of all this.

The rise of environmental NGO, local community and Indigenous opposition to energy projects is transforming the political, policy and investment climate for all forms of energy. While oil and gas are key flashpoints for opposition, this isn’t just about oil and gas — think controversy over wind, hydro and nuclear energy, or electricity transmission lines. The list of concerns and the number and range of associated political constituencies seems ever on the upswing. This is the ‘progressive hard place’ facing Canadian energy. 

Governments have been struggling with where, exactly, to draw the boundaries in policy and regulation between economic and social/environmental issues. The result has been mounting uncertainty, unpredictability and project delays for private investors — and with the legal decision of last week, project delays for public investors as well.

That a government who’s stated its firm commitment to the environment and to reconciliation with Indigenous peoples finds itself on the losing end of a court challenge to its actions in these very areas is an unfortunate but telling sign of just how tough it has become. If those writing the rules can’t figure out how to follow them, how is anyone else supposed to?

An appeal of the decision may help blunt some of its sharpest edges — notably on tanker traffic, where the court does not seem to have considered the full scope of Ottawa’s actions on oceans protection — but Canadian energy as a whole remains stuck between an economic rock and a progressive hard place.

Unfortunately, it might get worse. Bill C-69, the federal government’s legislative proposals to address these issues, seems set to exacerbate them. The government has attended closely to progressive matters in the bill, expanding opportunities for consultation, broadening the range of impacts assessed in project evaluations, creating an early planning process to surface concerns about projects sooner rather than later, and the like.

But it remains a very open question whether these changes provide greater or less clarity, stability and certainty in decision-making. Who does what, when, and with what level of expertise and finality is quite unclear.

This raises a host of questions. Will it be possible for anyone to follow the rules when it’s not clear what they are? Will the new legislation lead to ever-more legal challenges to projects if proponents, opponents, governments and regulators lack a shared understanding of the rules? Will investors — whether in oil, gas or electricity — have the appetite to take on this level of uncertainty? If they do, will they be able to address an increasing number and range of impacts and still develop projects that are profitable and competitive?

The question of competitiveness is fundamental. Much has changed since the federal Liberals came to power. The election of Donald Trump as president of the United States has added a lot of weight to the economic rock squeezing the country: think tariffs on steel and the potential unravelling of NAFTA, reductions in American corporate income taxes, aggressive energy development and reversals on climate policy, for starters. These all propel Canadian competitiveness to the top of the economic agenda. 

In this context, striking a workable balance between economic and social/environmental issues couldn’t be more important. It’s the only way Canadian energy can rise above the economic rock and progressive hard place it’s in.

This is Monica Gattinger’s first analysis piece for the DOB. She will be writing about energy policy and regulation. Gattinger is director of the University of Ottawa’s Institute for Science, Society and Policy, and chair of Positive Energy.