Environmental rules increasingly affecting energy development

For Alex MacWilliam, head of the Dentons Canada LLP’s Canadian Environment Group, environmental law developments have created both challenges and opportunities for Canadian energy companies. “Although it’s been almost 20 years since Kyoto, for the first time in Canada there’s real developments in terms of climate change and greenhouse gas regulations that are either directly impacting the energy sector in Canada or will be in the very near future,” says the Calgary-based lawyer.

Taking a national perspective, MacWilliam, who is also co-leader of the firm’s Canadian Climate Change Group, says increased government action to regulate greenhouse gas emissions, primarily at the provincial level, is occurring in a number of jurisdictions. For example, “Ontario has announced it will be implementing a cap and trade system and will be linking it with the existing emissions trading program currently involving Québec and California,” he says.

In MacWilliam’s home province of Alberta, “the new NDP government announced changes to the existing Greenhouse Gas (GHG) regulatory scheme, the first in North America, to increase the cost of credits and increase the rate at which large emitters of GHG will be required to reduce the intensity levels of their emissions,” he says.

Yet he suggests “what’s more critical is the Alberta government’s creation of a review panel to advise it on the development of a comprehensive climate change plan for Alberta with hopes to have a preliminary proposal ready to announce prior to the next United Nations Climate Change meeting in Paris in December. This proposal, and the legislation that will need to follow, will have the potential to significantly impact on the energy sector in Alberta, but also likely will have ripple effects outside of the province in other parts of the country.”

While there will be potential negative impacts to energy companies, he says, “primarily in the costs of compliance, if you couple that with low oil and gas prices there’s the potential for it to be a double-whammy.” But MacWilliam also sees enormous opportunity for energy companies to develop and benefit from new emerging technologies aimed at reducing GHG emissions that could not only be utilized domestically, but exported globally.

Jean Piette, senior partner at Norton Rose Fulbright Canada LLP in Québec City and chair of the firm’s environmental law team, has been working in the environmental field for 43 years, first as a regulator developing government policy and later “moving to [the] private practice side to see the other side of the coin as to the reality of the private sector living with new environmental policies and regulatory regimes.”

Piette says he’s seen a significant shift in the paradigms of economic development since he started his practice with government. Business has come to recognize that change is an inescapable reality, and that includes, today, facing environmental and climate change concerns.

As Québec continues to develop its new energy policy, “which has to take into account the cap and trade system that has been in place for several years, the government is calling upon all actors in society to directly express their opinions and concerns with respect to energy,” he says. “The fight against climate change is a cost that will have to be borne by society if we want to deal effectively with this issue.”

For Canadian companies, he continues, “one of the new realities is that carbon will have a price attached to it, it’s no longer going to be free; Europe is living with this, with a European-wide cap and trade system; China is establishing cap and trade systems in various parts of the country, so what we’re seeing is a global movement in this direction and this will be accentuated, I think, by the United Nations Climate Change Conference in Paris later this year.”

In assessing the impact of environmental law on energy, Aaron Atcheson, Co-Chair of Miller Thomson LLP’s Projects Group, which focuses on energy and infrastructure projects across Canada, highlights a pair of developments in the sector that can result, he says, in a significant increase in time and money necessary for energy projects to meet environmental law burdens.

 Both of these developments focus on “process,” he says, with the first involving a “flip” from decades past. “Years ago, those having environmental concerns about a project would have to fit their objections within a framework intended to address issues like the health of fisheries or navigation of waterways. Now that there’s mature environmental legislation across the country, the problem seems that, in many circumstances, only environmental concerns are addressed under permitting and other approval/assessment processes.”

For example, Atcheson, who is in Miller Thomson’s London, Ontario, office, says under the changes to various legislation enacted under Ontario’s Green Energy Act, once an environmental permit is secured a municipality no longer has the right to restrict the use of a property for the project through zoning by-law restrictions.

“While the attempt at an omnibus approval was appreciated by developers, the appeal rights on such an approval are so broad, and the applicable tribunal so willing to hear and re-hear arguments about the environment and human health, the end result has been disappointing. Opponents have been forced to fit their objections to a project within the environmental framework, and developers have been faced with no choice but to pay for expensive experts to explain how their projects will not cause serious impacts to human health or the environment.”

In another trend, Atcheson says “it appears that First Nations and environmental law has never been more closely intertwined.” The process to obtain an approval under environmental laws, he says, “generally includes assuming the obligations of the Crown to consult applicable First Nations, and First Nations are often involved within the environmental assessment process.”

His view is while there exists an opportunity for streamlining the environmental assessment process on projects that have both a federal and provincial “trigger,” through the federal government deferring to the provincial process, it may not make sense to seek such an agreement, if it will cause greater issues with First Nations consultations. And, he says, “While First Nations groups are more active than ever in developing or co-developing energy projects across the country, often they can cause significant delays and increases in costs for projects that have a greater environmental assessment burden.”

Overall, “from the outside, it may appear that environmental law is causing greater delays and increasing costs for energy projects to get to completion,” adds Atcheson, who believes that the current regulatory environment is funnelling various concerns into the environmental assessment and approval process. “Unfortunately, the delays and cost increases are not arguable, but part of the current reality.”

As to current, as well as upcoming impacts of environmental law on energy, Tony Crossman, a partner in the Environmental Group with Blake, Cassels & Graydon LLP in Vancouver, takes a cross-sector view. “The BC government recently developed a cumulative effects framework, which will look at resource development on a regional basis, as opposed to a sector-by-sector or project-by-project basis. This initiative includes policies to support the framework, which are to be completed in the fall of this year and procedures by spring 2016. This will likely have impacts on project development and permitting decisions, which will be under greater scrutiny and require more regulatory process,” he says.

Regulation, public scrutiny and current environmental conditions are all playing a part, or will have direct impact, on the energy sector in the future. Take “water” as an example, suggests Crossman, of the interconnected nature of both the environment and energy development.

“BC’s Water Sustainability Act, to be implemented in 2016, will include regulation of groundwater in the province for the first time, requiring licences and payment of fees for commercial use, along with very broad regulatory powers to restrict commercial water rights when there are environmental concerns, such as in drought conditions, etc.,” he says. “These changes will have implications for a wide range of operations including fracking. Discussion papers have just been released as to the government’s direction on the details of this new regime.”

BC has experienced drought-like conditions that affect businesses as well as individuals, continues Crossman, resulting in reductions in water use and availability through government orders. “Less water in rivers, streams and lakes means greater stress on fish, which has resulted in restrictions on fishing in some streams and may affect the amount of water taken for commercial use. This has led to greater public scrutiny of water use for industrial operations, agriculture and hydropower production. It may lead to more government orders restricting water use further for these commercial purposes.”

He adds that the BC government has just released a new framework to assess the risk to rivers and streams of the use of those waters for commercial operations. It is also more stringently evaluating minimum stream flows, which will have implications for small hydro projects that divert water from the main channel of a stream.

Certainly, Canadian energy companies will need to deal with increasing regulation and enforcement when it comes to environmental law and its impact on the energy sector. Yet public scrutiny of corporate social responsibility in the environment/energy sphere is growing more insistent, at home and abroad.

“More Canadian companies are embracing the concept of social responsibility,” says Crossman, “particularly in light of the attention given to the idea that companies require a social licence to operate. The Europeans have been the leaders in this area, but Canadian and US companies are seeing the need, or are being required to do so, in order to do business in Europe or with European-based companies.”

As both the energy sector and environmental law continue to evolve, often in tandem, “the challenge in Canada,” says Piette, “is striking the balance between what energy options are the ones that are profitable for business on the one side, and also socially acceptable on the other side. In effect, all economic actors that are involved in the energy area will be called upon to make ‘bold’ decisions on what direction to go and what the acceptable energy options are. Energy is not only a technical matter, but is very much a social matter, and very much a geo-political matter.”