From the Fraser Institute

By Alex Whalen and Matthew D. Mitchell

In a nod to the importance of the energy industry, both the Liberals and Conservatives made promises in the recent election to cut red tape and speed the approval of major energy projects. To that end, the Carney government recently enacted Bill C-5, which gives the prime minister sweeping powers to override existing laws and regulations that might stand in the way of new projects.

While Prime Minister Carney, who continues to say he wants Canada to become an “energy superpower,” has properly diagnosed the problem (i.e. red tape in the approval process), but Bill C-5 is not the solution.

Let’s begin with the problem. In terms of living standards, despite its abundant natural resources and well-educated workforce, Canada has failed to keep up with its peer countries, in part because business investment has collapsed over the past decade due to bad policy including high regulatory burdens in the energy sector.

These regulatory burdens are steep because too many entities have the power to say no to new projects. It’s a tragedy of the anticommons. (The more familiar “tragedy of the commons” arises when too many people can access a commonly owned resource such as a fishery or a forest. Too much access to common resources can lead to overexploitation.)

In contrast, a tragedy of the anticommons arises when too many people can stop others from accessing a resource such as a market. With too many people wielding veto power, resources may be underutilized.

Across Canada, a long list of natural resource projects remain stalled or cancelled. They include pipelines headed west and east, natural gas developments, export terminals and mining opportunities. Again, the problem is that too many groups can say no and scuttle any one project.

For example, the Energy East pipeline. The idea of a west-east pipeline rose to prominence in the early 2010s after the U.S. government put the Keystone XL pipeline on hold. Rather than selling oil at a discount to the Americans, the thought was that oil-producing western provinces could ship oil across the country by pipeline to refineries on the east coast, which are currently forced to import most of their oil from foreign countries due to a lack of pipeline and rail capacity in that part of Canada. But while a west-east pipeline seemed like a no-brainer, several opponents including First Nations and environmental groups urged the federal government and several provincial governments to kill the project. In the midst of this uncertainty, the TransCanada Corporation cancelled the project in 2017.

Fast-forward to today. As Trump’s trade war threatens Canada’s ability to rely on U.S. energy products including oil, the idea of reviving Energy East may be gaining steam. But proponents must first eliminate the tragedy of the anticommons that killed the project eight years ago.

Here’s how the tragedy unfolds. For starters, the project’s proponents must satisfy conditions of the Impact Assessment Agency of Canada, the federal government’s energy regulator, unless the government uses Bill C-5 to override those conditions. The last time around (under the former National Energy Board), the process was fraught with setbacks.

Second, assuming the project gets past the federal review, it may or may not need the approval of many Indigenous groups. While the Supreme Court has repeatedly said the “duty to consult” these groups does not give them a veto, leading scholars such as Tom Flanagan argue that the power conferred on these groups to delay and create uncertainty creates an effective veto. With Energy East set to cross the traditional territories of approximately 180 different Indigenous groups, any approval process requiring unanimity will kill the project. The Trudeau government’s decision to enshrine the United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) into Canadian law in 2021 (and a later federal court decision to apply UNDRIP to the interpretation of Indigenous rights vis-a-vis the Charter of Rights and Freedoms) further complicate the matter.

Third, in addition to the official federal regulatory process and Indigenous consultation, provinces, municipalities and vocal environmental groups can each apply their own brakes.

Writing in the industry publication Energy Regulation Quarterly, researcher Ron Wallace summarized the situation: “When a federation dissolves into narrow definitions of federal, provincial and local government interests, the number of hands in the pot increases the complexity of issues for everyone… The result is a complex, often contradictory and competing web of legislative and regulatory tools whose resolution cannot reasonably be achieved by continuous references to federal courts.”

In a free and democratic society, each of these stakeholders has the right to voice their concerns. But to the extent that these voices become vetoes, they represent an impossible burden for any project to overcome.

Unfortunately, Bill C-5 doesn’t address this problem. Instead of eliminating all veto points, it allows the prime minister to pick and choose which veto points to override and which to enforce. This level of unilateral power courts favouritism and corruption.

If Canada is to truly become an energy superpower it must solve the tragedy of the anticommons. And to do that, it must eliminate all overlapping veto points for all projects. This will be a massive task requiring stern political will. But Canada’s future relies on its ability to produce and transport its own energy.

Alex Whalen

Director, Atlantic Canada Prosperity, Fraser Institute

Matthew D. Mitchell

Senior Fellow in the Centre for Human Freedom, Fraser Institute