Canada’s permitting delays and regulatory uncertainty is a cooler when it comes to attracting investment in major infrastructure projects.
“Canada’s current regulatory permitting system is slow, subject to seemingly random process and policy changes and deters potential investors,” summarized a new report from the C.D. Howe Institute entitled, “Smoothing the Path: How Canada Can Make Faster Major Project Decisions,” co-authored by Charles DeLand and Brad Gilmour.
The paper indicates this country is lagging behind to complete large infrastructure projects cheaply and quickly because of an ambiguous and random regulatory approvals regime that casts doubt for potential investors. It’s driving up costs for investors and preventing major projects from getting built.
Roads, pipelines, hydroelectric dams, power lines, natural resources and manufacturing projects are complex, expensive and sometimes contentious projects. Creating an uncertain regulatory process at Ottawa hasn’t helped matters and it's stymied business investment for years. As a result, productivity growth in Canada has suffered, the report said.
“Canada is struggling to complete large infrastructure projects in a reasonable time frame and at a reasonable price and the proposed amendments to the Impact Assessment Act (IAA) are insufficient,” said the report’s co-author Brad Gilmour in a news release.
Reducing the costs of the regulatory process and speeding up approval times will go a long way to reducing project risks and raise the chance of investment.
Despite having a massive endowment of natural resources, Canada is trailing the rest of the world in its relative share of resource investment.
Things have been trended the wrong way for a while when it comes to development in Canada. Global mining investment plans have increased substantially in the last two years, but investment in Canada has been relatively stagnant since 2016.
Among the numbers the report’s authors pulled were from another study that shows new investment per worker in Canada was only 57 cents per U.S. worker in 2022.
Natural Resources Canada’s Major Projects Inventory tracks projects currently under construction or planned for the next decade, a measure that can indicate future investment. There was a post-pandemic bounce in activity but, even with adjustments for inflation, energy and mining project spending remains far below a 2015 peak.
That’s a disturbing trend, since oil and gas, and mining have historically been the backbone of Canadian industry, delivering well-paying jobs, providing spinoff benefits, and generating considerable tax and royalty revenue for governments, the authors said.
Government regulation of major projects can cost proponents “hundreds of million of dollars for complex major projects.”
And the longer the approvals process takes, the higher the profitability bar will be to offset the costs of moving a project forward before revenue can be generated. For those proponents considering an investment, the uncertainty of “whether a project will receive approval at all, it is less likely to even start the approvals process.”
Those costs can be driven up further when a federal project approval can come with 137 conditions tacked on, as was the case with Ottawa greenlighting the Bay du Nord Newfoundland-Labrador offshore oil project in 2022.
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While Ottawa has been promoting greater federal-provincial co-operation on resource projects and avoiding duplication when it comes to regulatory overlap, it’s often strayed into provincial areas of authority.
That resulted in the federal government’s hand being slapped a few months ago with Supreme Court of Canada opinion declaring its Impact Assessment Act was ruled unconstitutional.
Ottawa has developed an “expansive interpretation” as to what falls under its authority, reaching into an area of provincial jurisdiction that has become constitutionally questionable and creates enormous uncertainty. The Impact Assessment Act has allowed decision-makers to “regulate on the fly and impose conditions” on activities on a case-by-case basis into areas not within its authority.
Instead of leaving the responsibility of how a mine is developed, operated and closed in the hands of the provinces, the feds need only to weigh into these matters where it actually has jurisdictional powers, such as protecting fish habitat, the report said, and not drift into matters of greenhouse gas emissions.
While Ottawa is encouraging the mining of more critical minerals to support manufacturers of electric vehicles, wind and solar generation, and battery storage —at least on paper through its federal Critical Minerals Strategy — the feds also acknowledged in their 2023 budget that it has a ways to go when it comes to the efficiency of the permitting and impact assessment process for major projects.
On matters of public interest in major projects, the authors propose legislation be drafted on who can participate in the regulatory review process.
They suggest stakeholder participation be “limited to those with legitimate interests at stake,” meaning individuals who own or occupy lands near where the proposed activity would take place and would be most impacted, instead of outside groups.
“Having unlimited participatory rights invites objections that contribute little to the process, creates unnecessary delay, and effectively dilutes attention away from the concerns of those who are truly affected.”
Among their recommendations, the authors suggest leaving decision-making responsibilities on potential harmful impacts of project activity in the hands of the experts, suggesting politically independent tribunals that can best determine what’s in the interest of the public.
The paper said governments can best serve the regulatory process by respecting the division of power, staying within its jurisdictional lanes, and working “harmoniously, in the spirit of co-operative federalism.”
