PIPELINES, THE ENVIRONMENT AND THE ECONOMY: CANADA’S NEW IMPACT ASSESSMENT LAW

Introduction:

Is it possible for a private sector oil pipeline to be approved in Canada within a reasonable time and with finality? The short answer is “No!”. Only the government can accept the cost and risk of attempting to build a pipeline to an ocean port. The new law, C-69 (now before the Senate) will make pipeline approvals even less likely. If that is the government’s intention, it has succeeded; if that is not, the law must be amended.

As two recent court cases (Northern Gateway and Trans Mountain) have shown (NG, TMX), the years of debate at the National Energy Board (NEB) and the Cabinet have become just the slow road to the courthouse.  Whatever the government does, the court still gets the last word. The current score is: proponents = 0, opponents = 2.

Why does any of this matter to you and me?  If Canada’s impact assessment law is a barrier to project development, investment, both domestic and foreign, will leave Canada. Bankers and other private sector business leaders tell us this is already happening (Globe & Mail, November 17, page B1). With investment go jobs, new university graduates, entrepreneurs and other talent, to countries with a better business climate.  The likely long term result is a lower Canadian dollar, causing higher consumer prices for fresh vegetables, manufactured goods, computer software and other imports from the US and elsewhere, higher unemployment and less government revenue for social programs like health care.

It can easily cost a pipeline proponent $1 billion to develop and present a pipeline proposal through the years of the assessment process, with an uncertain outcome. A pipeline proponent has no control over the efforts of either the federal impact assessment agency or the Crown’s consultations with the First Nations (FNs).  However, if either of these government efforts fail to meet judicial approval, the proponent takes the hit.  

Bill C-69 replaced the Canadian Environmental Assessment Act (CEAA) with the new Impact Assessment Act (IAA), the stated goal being to improve the project assessment process. But reading the new Act itself (the Act), rather than how it is presented (Government’s description), shows that it is unlikely to achieve its stated purposes.  The IAA will greatly increase complexity and delay in project assessment, and also provide several new and improved litigation opportunities for pipeline opponents.  The underlying message to prospective investors, whose advisors will read the law behind the political salesmanship, is that Canada is now indifferent to, and perhaps actually opposed to any new pipeline projects.

For private sector proponents using private capital, the risk of losing a multi-billion-dollar pipeline proposal after years of assessment was already too great under the CEAA. That is why the Kinder Morgan investors in the Trans Mountain Pipeline Extension (TMX) stopped construction and, without waiting for the FCA’s decision, happily sold their project to the Canadian government. Only the government can take as long as it wants to succeed or fail at obtaining judicial approval. One can only hope that the Senate – the “chamber of sober second thought” – will speak truth to power about amending C-69.  

The Intended Results of the IAA Conflict with its Content 

The IAA explains its intended results in the Preamble to the Act, which lists certain government commitments:

Whereas the Government of Canada is committed to…..

  • achieving reconciliation with First Nations …. based on recognition of rights, respect, co-operation and partnership;
  • using transparent processes that are built on early engagement and inclusive participation and under which the best available scientific information and data and the Indigenous knowledge of the Indigenous peoples of Canada are taken into account in decision-making
  • assessing how groups of women, men and gender-diverse people may experience policies, programs and projects and to taking actions that contribute to an inclusive and democratic society and allow all Canadians to participate fully in all spheres of their lives;

However, the government is unlikely to achieve:

  • reconciliation with FNs via an adversarial hearing process in which one side has to be the winner and the other side the loser, particularly if some FNs support and others oppose the pipeline; 
  • transparency via a process in which those who decide the assessment do not hear the parties, while those who hear cannot decide
  • transparency when some parties are permitted by the Act to provide their evidence and opinions in confidence, as secret evidence is not transparent 
  • an inclusive and democratic society by assessing and taking unspecified “actions” against the impact of a pipeline on unspecified “groups of women, men and gender-diverse people”.

If the key intended results conflict with the Act itself, and thus, will not be achieved, honesty requires that either the description of the intended results be amended or the Act be amended to correct the conflict.

There Is No Win/Win Solution in Litigation

Natural Resources Minister Amarjeet Sohi recently told reporters (November 15, 2018, Globe & Mail) that the key to building pipelines is building trust in regulatory processes and engaging affected parties early on so that approvals aren’t overturned (as happened with TMX). Unfortunately, that is just wishful thinking.  An adversarial process inevitably creates winners and losers; and impact assessment is an adversarial process.  For parties unalterably opposed to the pipeline, the only win is to prevent it from being licensed. These opponents couldn’t care less whether the process itself is trustworthy so long as it achieves their desired outcome.

Similarly, whether one engages such parties early on or later will not change their determined opposition, or their court challenges if the Cabinet approves the project.

No hearing process is immune to court challenges, but some are more likely to be challenged successfully than others. An impact assessment process should not effectively hang a target on its back with a sign saying “sue me”.  An important goal of the IAA should be to minimize the likelihood of successful court challenges, thereby improving the likelihood that the Cabinet’s decision will be final. Unfortunately, the IAA increases the likelihood of successful court challenges by introducing several new litigation triggers. 

It is difficult to understand Minister Sohi’s optimism that his new law will be more successful in court with its added complexity and extraordinary adoption of secret evidence.

Three Basic Problems With Impact Assessment Not Addressed by C-69

  1. The CEAA and the NEB Act give the NEB conflicting duties. Is this supposed to be an assessment process or a licensing process? The two are not the same. The numerous upstream and downstream impacts the CEAA requires the NEB to assess (e.g. of tanker traffic in the ocean) are much broader than the conditions of licence that the NEB and the Cabinet can impose under the NEB Act. Downstream tanker traffic is not part of a pipeline proponent’s project. What happens in the ocean is not within the proponent’s control. Therefore, conditions of license cannot include anything about tanker traffic because the pipeline would have no way to comply with such conditions. While assessment of tanker traffic may be mandatory for CEAA purposes it is irrelevant for NEB Act pipeline licensing purposes. This conflicting mixture of two different processes in one proceeding needs to be resolved by amending C-69.
  2. The CEAA already required too many potential future environmental, social and economic impacts to be considered.  Several are of marginal relevance, and use vague language that encourages litigation. C-69 lengthens, rather than shortens the list of mandatory considerations.
  3. The persons who conduct the public hearings (the NEB or the new Impact Assessment Agency) have no authority to decide anything. On the other hand, the persons who decide everything (the Cabinet) do so in secret, with no public participation.  C-69 gives the Minister even greater political control over the hearing process, increasing politicization while reducing transparency.

Three Basic Problems With Consultation of First Nations

  1. The positions of FNs on a pipeline are often divided.  While many support pipelines that provide many FNs with jobs and income, a few FNs are unalterably opposed. The purpose of opposed FNs in participating in the Crown’s consultation process is not to arrive at an agreement to accept the pipeline but to collect evidence for a successful court challenge.   They have every right to do this, but the government has no duty to enact legislation that makes successful court challenges easier.
  2. Under our system of government the public service employees doing the consulting can have no authority to decide anything or make any commitments to FNs on behalf of the Cabinet.  
  3. The Cabinet cannot meet and consult repeatedly with 100+ FNs potentially affected by the pipeline. Thus, the people doing the consulting are necessarily just the conduits of FNs’ concerns to the Cabinet. However the FCA in TMX held that performing this role was inadequate. That decision should have been appealed, but was not.

Litigation Triggers in the IAA

  1. Secret Evidence of “Indigenous Knowledge”

A pipeline company going through the IAA process will be concerned that some FN witnesses may present their “Indigenous knowledge” in confidence, attacking the proponent’s evidence.

The IAA has no definition of “Indigenous knowledge”.  The hearing is about possible impacts of the pipeline many years into the future.  There can be no “knowledge” of the future. There are only predictions.

This secret “knowledge” may cause project approval to be denied. As the law is written, the proponent will be denied an opportunity even to know the evidence against it, and therefore, denied a fair opportunity to challenge it. 

The IAA does permit someone to apply for disclosure of the secret evidence subject to certain conditions. However, no disclosure may be granted unless it is necessary for “procedural fairness”. When a proponent and an FN are disputing disclosure of secret evidence, the hearing will probably be suspended while the procedural fairness issue goes to the FCA, and perhaps also to the SCC.  In any event, the resolution of this issue may not be simple or quick.

2.  Unrealistic Statutory Time Limits

The TMX hearing had some 1,600 participants. The IAA emphasizes greater public participation.  To hear from an unlimited number of public participants presenting an unlimited volume of evidence would require unlimited time. Pipeline opponents will sometimes organize numerous individuals to make repetitive, scripted presentations, to maximize delay.  The Agency will have to impose time limits, at least on oral submissions, thereby potentially triggering court challenges.  To reduce the risk of successful court challenges, the Minister will probably have to grant one or more extensions of time beyond the statutory time limit for completing the hearing. 

3.  Problem Language

Vague, over-inclusive language in the IAA – of which there are numerous examples – will also be potential litigation triggers for one side or the other. Such language will not be helpful to anyone. I have seen an environmental group seeking support for the legislation on social media, encouraging Senators to approve C-69 quickly despite industry objections. However, if environmental advocates understood that the vague language and undefined action words in C-69 can be interpreted in ways that harm rather than help the environment, they, too, would want the legislation made more effective through better drafting.

The Mandatory Consideration of Abstract Issues in the IAA

The list of ‘must consider’ factors in the IAA tries to compel something it cannot compel. Considering anything is a mental activity. Mental activities are invisible. There is no practical way any legislation can compel anyone to think about anything. There is no way the government or the courts can detect whether that mandatory consideration has or has not been given. Such mandatory requirements only create a written document that has headings for each of the mandatory factors, and some verbiage to demonstrate that each factor was considered. This is checking the check boxes. 

However, what weight is actually given to any one of these factors may range from 0 to 100%. (The legislation does not require specific weights to be assigned to particular factors.) The main effect of such mandatory considerations is symbolic reassurance that anything and everything has been taken into account. In the real world of decision-making, however, the written reasons for decision may be quite different from the actual reasons for decision. Accordingly, to attempt to create a higher level of coincidence between written reasons and real reasons, legislators should minimize the number of mandatory considerations and eliminate any that are vague, speculative or essentially political in nature.

Under C-69, the Agency must consider – and therefore, receive evidence from numerous parties on – factors of an overly broad and highly speculative nature. Consider section 22 (1) (a):

22(1)The impact assessment of a designated project ….. must take into account the following factors:

(a)the changes to the environment or to health, social or economic conditions and the positive and negative consequences of these changes that are likely to be caused by the carrying out of the designated project, including …..

The word “environment” is defined in section 2 of the IAA as:

environmentmeans the components of the Earth, and includes

(a)land, water and air, including all layers of the atmosphere;

(b)all organic and inorganic matter and living organisms; and

(c)the interacting natural systems that include components referred to in paragraphs (a) and (b)

What the Agency must consider is not limited to the environment that may be directly affected by the project, or even to the environment of Canada. It must consider all layers of the atmosphere everywhere on the entire planet, and also, every living plant and animal, every rock, and the interaction of these on the Earth. That requires a rather ambitious agenda for a hearing with a short time limit.

Obviously, there is no practical way that any of the parties can present evidence on all of these issues, covering the entire planet. What the hearing agency must do, therefore, is to impose a practical limit on the physical, temporal and subject matter boundaries of the hearing. This is referred to in environmental assessment as “scoping”. That is what the NEB did in the TMX case when it decided to limit the scope of its recommendation to items that could be imposed on the proponent’s terms of licence. That was why it decided to exclude from its definition of the proponent’s project the issue of marine traffic and its potential impact on the orcas. That scoping was also why the FCA held that the NEB’s decision was so defective that it could not be relied upon by the Cabinet as the basis for its decision, and therefore, the FCA quashed the Cabinet’s TMX decision. For reasons I have discussed elsewhere (NEB Right) in my respectful opinion the NEB was right and the FCA was wrong, but the government decided not to appeal the decision so it remains as a precedent.

The impacts that must be considered under section 22 include health, social or economic conditions – again, without limits as to geography and time. The Act provides no definition of health, social or economic conditions, hence the scope of these mandatory considerations may ultimately be determined by a court.  Taken literally, in the context of the global definition of “environment”, they could be interpreted as covering health, social or economic conditions anywhere on the planet.

Following the precedent set by the TMX decision, an Agency or a Cabinet decision that fails to demonstrate full consideration of all of these mandatory factors in sufficient depth can be overturned by a reviewing court. Where statutory language is so completely open-ended, any future attempt to scope the hearing, or any lack of clarity in the written reasons for decision, is likely to produce the same negative litigation outcome.

(d)the purpose of and need for the designated project;

This requirement is not new, but it needlessly increases hearing costs and the risk of litigation. Why require evidence to assess the purpose of a pipeline?  Does anyone not know that the purpose of a proposed oil pipeline running from point A to point B is to carry oil from point A to point B?

In considering the need for the project, whose need is relevant? The proponent obviously needs the project or it would not be proposing it. The customers of the project, who will pay to transport, purchase and use the oil also need the project or they would not have entered into long-term purchase agreements with the proponent. Who else’s need should be considered? Alberta’s? Canada’s? FNs’ who will receive payment and employment from the project? FNs’ who oppose the project? The legislation doesn’t say whose needs must be considered, creating another opportunity for litigation.   

Whether a project is needed by anyone is irrelevant to whether the project’s likely effects are acceptable. Why not dispense with the question of the need and just get on with considering the pros and cons of the project itself?

(g)Indigenous knowledge provided with respect to the designated project;

I have already mentioned this issue above, but wanted to provide the actual wording of the Act demonstrating that this is also a mandatory consideration.

(This clause (g) should be considered together with section 119, which reads, in part:

Confidentiality

119(1)Any Indigenous knowledge that is provided to the Minister, the Agency, a committee referred to in section 92,93 or 95 or a review panel under this Act in confidence is confidential and must not knowingly be, or be permitted to be, disclosed without written consent.

The other requirements governing confidential evidence follow this subsection.)

(i)the extent to which the effects of the designated project hinder or contribute to the Government of Canada’s ability to meet its environmental obligations and its commitments in respect of climate change;

This is one of the most difficult mandatory considerations in the entire Act. 

The effects of the proposed project will be seen over many decades, requiring numerous assumptions about the future of Canadian government obligations and commitments in respect of climate change, and how these might be achieved.

Climate change is planetary, ongoing, inevitable and affected by many non-human factors such as El Nino, volcanic eruptions, the level of solar radiation, etc..  Canada cannot, literally, have made any commitments about climate change as such. It can only have made commitments about reducing Canada’s carbon dioxide emissions, for the purpose of reducing the rate of anthropogenic (human caused) climate change. The purpose of the commitment should not to be confused with the commitment itself.  To avoid confusion in interpretation, the words “climate change” should be replaced by “carbon dioxide emissions reduction”.

Like the commitments of all Paris Accord signatories, our government’s CO2 emission reduction commitments are not legally binding or enforceable by other countries. These commitments are nothing more than the political promises of a current government to use its best efforts to reduce CO2 emissions to specified levels by a certain time. Politics being the art of the possible, what is politically possible in Canada over time will determine what these best efforts can accomplish.

Project impact assessment of domestic projects should be based on empirically verifiable evidence of a project’s effects in the reasonably foreseeable future. Political promises which may or may not be possible to implement should not be part of this process. With the inclusion of such factors, impact assessment becomes unfocused, indeterminate and politically contentious.

Clause (i) mentions the government’s “ability” to meet its commitments. That raises an unanswerable question for impact assessment. The government’s ability to meet its commitments depends upon what means present and future governments will choose to meet whatever commitments will then exist.

The current federal government’s chosen means is a carbon tax. This tax is now strongly opposed by five provincial governments of different political parties, with constitutional litigation under way.  The US has no carbon tax, lower corporate income tax and a much larger market. Imposing Canadian carbon taxes at levels high enough to reduce CO2 emissions to the promised levels will encourage businesses to move to the US and other countries without such a tax. Global emissions would continue to rise from places outside Canada while many Canadian jobs would disappear. This is what economists have called “carbon leakage”. Feeling these pressures, our government is curtailing its plan to price emissions after hearing concerns from Canadian industry officials about how the tax would affect their ability to compete  (Carbon Tax). This has already reduced the government’s ability to lower CO2 emissions. 

How is any assessment hearing to know whether, over the lifetime of a pipeline, the carbon tax will be increased, decreased or abandoned entirely?  If the change in the US president from Democrat to Republican can result in termination of the US’ Paris commitments why could future elections not cause this to happen in Canada? Is the new Impact Assessment Agency required to assume that the current political party will remain in power and follow the same policies continuously for the 50 or more years that the pipeline would operate? Should it assume that Canada’s Paris Accord commitments will continue to make political sense indefinitely, even if the US stays out of it and major CO2 emitters like China and India continue to increase their emissions far more than Canada has promised to try to reduce its emissions? 

If tomorrow, or at any time over the lifetime of the proposed pipeline, there is a change in government party, or a change in government policy or practice related to CO2 emissions, as might well be the case, what should the Agency assume about the viability and length of this political promise? If it assumes that everything will remain the same for the lifetime of the project it is likely to be wrong. The no change assumption may well kill a pipeline that would probably have a trivial effect on Canada’s ability to achieve its CO2 emission reduction targets. On the other hand, if the Agency assumes that some factors will change it would be just as difficult to justify any such assumption about the future as it would the assumption of no change. In summary, this clause (i) requires an abstract debate with no useful result. It should be amended or deleted.

(n)comments received from the public; 

How can the Agency demonstrate that it took into account several thousand different comments from several thousand individual members of the public? It can say in its reasons for decisions that “we have considered all of the evidence”, but if the project is approved, such statements would not satisfy any opponent. Some comments from the public will be given some weight if they appear relevant, while many will not. 

 (s)the intersection of sex and gender with other identity factors; 

See my comments above. 

And, as if all of the foregoing it is not enough, a broad basket clause:

(t)any other matter relevant to the impact assessment that the Agency orif the impact assessment is referred to a review panelthe Minister requires to be taken into account.

 Every “must take into account” item added by the Minister is another box to be checked. Every item requires detailed discussion in the Agency’s written reasons, to prove to a court that it was taken into account.  Every such mandatory consideration provides another club for an opponent to use in court. Why make court challenges so easy?

It is an implied legal requirement of anyone who hears anything that they must consider all of the relevant evidence before them. Accordingly, providing long, detailed lists of what evidence must be considered creates more checkboxes for the Agency’s reasons for decision, lengthier and costlier hearings and increased opportunity for court challenges, while adding little clarity to the applicable law.

The Minister’s Extraordinary Powers

The IAA requires a proponent to submit to the Agency a complete application for a proposed pipeline. However, the Act also gives the Minister two extraordinary powers. The first of these is the power to grant any number of extensions of time for the assessment. The second is even more extraordinary, if not unique: it permits the Minister to prevent any project that has submitted an application from proceeding to an assessment, without any hearing, simply on the basis of the Minister’s opinion. All that is required is for the Minister to form an opinion that the proposed project would cause “unacceptable” environmental effects:

17 (1)If ….. the Minister is of the opinion that it is clear that the designated project would cause unacceptable environmental effects within federal jurisdiction, the Minister must provide the proponent with a written notice that he or she has been so advised or is of that opinion. The written notice must set out …. the basis for the Minister’s opinion.

The mandatory notice to the proponent merely requires the Minister to provide the “basis” for his or her opinion. This is not a requirement to provide any evidence to support that basis. The Minister is not required to provide a detailed analysis of how the environmental effects were estimated or the standard according to which such estimated effects were unacceptable. There is no specific legal or scientific test for what constitutes acceptable or unacceptable environmental effects. It is entirely subjective.

The power of the Minister to kill a pipeline proposal by preventing a hearing will obviously invite lobbying pressure on the government, by pipeline opponents to kill it and pipeline supporters to let the application go to a hearing. It is quite possible that such lobbying by pipeline opponents (provincial or municipal governments, environmental advocacy groups or opposed FNs) could be the reason for the Minister prohibiting the project’s assessment. Once the Minister has made a decision it is effectively final. Therefore, before a prospective proponent will spend potentially hundreds of millions of dollars in preparing a complete application to the Agency, it will want to consider the risk that the Minister will cause all this investment to be written off if the Minister considers it politically expedient. Such behind the scenes lobbying will do nothing to further the legislation’s professed goal of greater transparency.

Canada’s assessment process has survived perfectly well since the mid-1970s without giving the Minister such a draconian power. This power should be removed from the Act if the goal of transparency is to be taken seriously.

The Impact of the Impact Assessment Act

One of the most important impacts of the IAA will be invisible: the potential proposals not presented for assessment because they are deterred by the new law. If the unarticulated goal of the IAA is to make the TMX application Canada’s last pipeline application, there is no need for this IAA process.  Just pass a law prohibiting any further pipelines, or announce that the Cabinet will no longer approve any such applications. The negative outcomes of both NG and TMX in the courts will be remembered when potential investors’ lawyers review the IAA. These lawyers will see through the government’s unrealistic expectations, to realize that any new project is unlikely to be approved within a reasonable time, and with finality. Therefore, the main impact of the IAA will probably be to discourage private sector investment in Canadian energy resources.

This law will have to be fixed sooner or later. Why not now?

My Thoughts on Remembrance Day, 2018

I was born in Nazi-occupied Hungary in 1942, in the middle of WWII. It is unlikely that I — or any of my children or grandchildren — would be alive today if it hadn’t been for the many Allied troops who eventually drove the German army out of Hungary and the rest of Europe.  We owe our lives to them.

BLAK0834-FrameShop

This small WW I memorial is different from the many very large and imposing urban setting war memorials found in major Canadian cities, like the one in Ottawa. This modest memorial was erected in Woody Point, Newfoundland, with a current (2016) population of 282. In 1914-1918 the soldiers who volunteered to fight, and who died in the trenches of Europe, must have been a sizeable portion of the population of this small town.

The original memorial was from WW I, the metal plaque below is from WW II.

 

Trans Mountain Appeal Part 2:  The Crown’s Duty to Consult First Nations

TW
First Nations celebrate their court victory.
FCA
The Title and Location of the Court Decision.

Introduction

You can read a much shorter version of this post, published on October 10, 2018 by the CD Howe Institute, here:

CD Howe Institute.

On August 30, 2018, the Federal Court of Appeal (FCA) set aside the federal Cabinet’s approval of the Trans Mountain Pipeline Expansion (TMX) project. One of its two reasons for doing so was its finding that the Crown’s consultation with several First Nations (FNs) about the proposed projects had been inadequate.  The court criticized the government officials doing the consulting for seeing their roles as largely note-taking and communicating FNs’ concerns to the Cabinet, rather than engaging in a responsive two-way dialogue to “grapple with” their concerns.  To approve TMX again, the Crown will have to comply with the court’s requirement for further consultation. With respect, I think the court was wrong.  

A number of FN chiefs have made public statements that the government needs their permission to proceed with the pipeline, which permission they will deny.  That is incorrect. The SCC has held that the Crown’s duty of consultation does not give FNs a veto over project approval. Yet this FCA decision (as well as a similar FCA decision in the earlier Northern Gateway Pipeline case) has given FNs an effective veto.  The two decisions have now created two bad precedents.

A project proponent has no control over the Crown’s consultation process, yet suffers the consequences if the court finds it inadequate. The FCA’s TMX decision should have been appealed to the Supreme Court of Canada (SCC), but the Prime Minster decided against an appeal. The two FCA pipeline decisions are serious deterrents to any major project needing federal approval, suggesting to investors that Canada is not really open for business.

There is No Clear Rule on Consultation

Consultation with FNs is a Crown duty. But the SCC has held that the nature and extent of that duty varies with the circumstances of each case. This is judicial language for saying that there is no clear rule, so we will just have to make it up as we go along.  

Apart from saying that the two-way dialogue must “grapple with” FNs’ expressed concerns, the FCA offered no specific suggestion as to how this could work in our governmental system.  Nice-sounding language such as “two-way dialogue” does not explain what is supposed to go the other way, from the consulters to the FNs. The FCA commented that the additional consultation it required would not be onerous and could be conducted quickly. That is easy for the court to say when it does not have to figure out how to do it.

Consultation for What Purpose?

Compliance with this FCA decision will be a problem for any future consultation, for two reasons.  

First, the people doing the consulting (front-line public servants) are not the people doing the deciding (the Cabinet). The consulters cannot offer any personal opinions about an expressed concern because such opinions would be taken as binding the Crown. They also cannot make any commitments or offer any predictions about what the Cabinet may decide to do at a Cabinet meeting that has not yet been held.  

Given how our government actually works, it is unclear how the Crown could ever avoid the FCA’s criticisms unless the entire Cabinet met in person, several times, with each FN. The Cabinet cannot meet repeatedly with numerous FNs while still trying to run the Canadian government.  However, the SCC held in the 2017 Clyde River case (para 22) that a Minister had no such duty.  Whatever “grappling” the FCA expected the consulters to provide, it offered no explanation as to how this could work under our system of government. 

The second reason is that some FNs are unalterably opposed to the construction of the proposed project.  Their purpose in participating in the consultation process was not to have their concerns satisfactorily addressed, but to prevent the project’s approval. Why should they ever agree that the consultation was adequate when their strategy is to make it appear inadequate in their future court action? And their strategy succeeded.

Gaming the Consultation Process to Veto the TMX

The FCA’s reasons for decision show no awareness that some of the FNs were gaming the system, for example, through: 

  • creating meeting agendas with so many items that the agendas could never be completed; 
  • proliferating numerous “concerns” of questionable relevance to their Aboriginal rights and interests; 
  • asking for scientific and other studies to be conducted that might take years to complete; and 
  • asking for extensions of time to respond to information the consulters had provided. 

The FCA was critical that, among other alleged consultation deficiencies, “Canada” had failed to

  • complete more than 12 items of a 20 item meeting agenda;
  • provide adequate responses to some expressed concerns, regardless of their relevance to Aboriginal issues;
  • respond to some requests for information specifically, rather than generically; and
  • grant some 11th hour extension of time requests.

The court gave the impression that it considered almost every FN’s demand for almost anything as critically important, while completing an extensive project assessment within a statutory deadline was unimportant.

Some of the most time-consuming responses to FN requests for information, such as on greenhouse gases, had no clear connection to any asserted Aboriginal right.  Another prime example was challenging the economic need for the project.  

Below are some excerpts from the FCA decision (with respective paragraph numbers).  I have deleted some words if unnecessary to convey what the court was saying):  

[623]  …… Upper Nicola [a FN band from BC] expressed its concern with the Board’s economic analysis. …

[624]  No dialogue ensued about the legitimacy of Upper Nicola’s concern about the Board’s economic analysis, although Canada acknowledged “a strong view ‘out there’ that runs contrary to the [Board’s] determination.”

[625]  Matters were left that if Upper Nicola could provide more information about what it said was an incorrect characterization of the economic rationale and Indigenous interests, this information would be put before the Ministers.

[626]  Put another way, Canada was relying on the Board’s findings. If Upper Nicola could produce information contradicting the Board that would be put before the Governor in Council; it would not be the subject of dialogue between Upper Nicola and Canada’s representatives. Canada did not grapple with Upper Nicola’s concerns, did not discuss with Upper Nicola whether the Board should be asked to reconsider its conclusion about the economics of the Project and did not explain why Upper Nicola’s concern was found to lack sufficient merit to require Canada to address it meaningfully.

The consulters acknowledged the forecasts of a few economists supporting pipeline opponents’ positions that the pipeline would be uneconomic.  These economists asserted that the pipeline’s Asian customers could buy better product for less money elsewhere, hence there was no economic case for the pipeline.  But these are not facts. These are merely unverifiable predictions about the future.  Other economists presented different predictions, which were more persuasive to the National Energy Board (NEB).  

The Cabinet decided that the pipeline had a valid economic case. Unlike the FCA, I see nothing wrong with the consulters either refusing to ask the NEB to reopen the long, costly economic predictions debate, or saying to Upper Nicola that they would convey any new information from Upper Nicola to the decision-makers.  

The FCA decision does not say that Upper Nicola offered any new information for consideration.  The extensive evidence of all parties was available for anyone to read in the NEB record. The duty of consultation has to have a limit.  It should not be extended to the repetition of already thoroughly debated issues.

Theoretically, the consulters could have asked the NEB to reconsider its recommendation to Cabinet. However, there is no benefit in doing it all over again just for the sake of doing it all over again. The FNs requesting this reconsideration would have known the request would be refused. This request was made to create another ground for judicial review.

If the NEB had been asked, and had agreed to reconsider the economics of the pipeline, it would have had to comply with procedural fairness requirements. This meant re-opening the hearing, and giving all parties a full and fair opportunity to present further evidence and argument.  That would add at least another 6-12 months for hearings, then a further delay for the NEB to make, write and translate its report. This would require new consultations with FNs about that report, then back to the Cabinet. Yet everyone knew, and the FCA acknowledged, that there was a statutory Cabinet decision deadline of December 19, 2016.  A reopening of the NEB’s hearing for reconsideration of the economic case for the pipeline could never have been completed within that deadline. Yet the FCA, in its paragraph 626, gave this alleged failure of consultation as a reason for quashing the Cabinet’s decision.

In the first week of November, 2016 the Crown gave six FNs copies of its second Draft Consultation Report.  It sought their comments within two weeks (its first draft had previously been circulated for comment). The statutory deadline for the Cabinet decision was December 19, 2016, just six weeks away.  The FCA held that allowing only 2 of those weeks for comments was inadequate.  Why?  The time needed to comment on a revised report is just a matter of opinion.  There is no law that says how long is long enough.  It was the Cabinet, not the court, that had to make the difficult approve/deny decision, in the national interest, and within a short deadline. The court had no way of knowing how long it would take for the Cabinet to review and consider all the evidence before it, and then to make, write and translate its decision.  The longer the response time given to FNs, the less time would remain for the Cabinet to do its job. The FCA gave no explanation as to why its opinion on how to divide the short time available before December 19 between the FNs and the Cabinet should over-rule that of  the Cabinet.

The FCA Created A New Duty To Consult FNs On Non-FN Issues

FNs’ interests in broad public policy issues such as greenhouse gases and the economics of a project are no different from, and no greater than that of the general Canadian public.  These are not about Aboriginal rights based on treaties, land claims or other recognized Aboriginal interests.  For example, Canada’s Paris accord commitments on GHG emission reductions were made on behalf of all Canadians, not just FNs.  Yet the FCA struck down the Cabinet’s approval decision in part because the court held that Crown consultation of FNs on these non-FN issues had been inadequate.

If any other Canadian person (or a provincial or municipal or government) had applied to the FCA to quash the Cabinet decision on the ground that it was legally invalid because  it failed to consider adequately the project’s impact on greenhouse gases or its economic viability the court would have summarily dismissed the application.  The reason for dismissal would have been because these are generic policy issues that only the elected representatives can determine, not legal issues for the court.

The FCA has given FNs a new, unique right, unavailable to anyone else in Canada, to challenge the federal Cabinet’s project assessment decisions on broad public policy grounds. The court did this through a major expansion of the Crown’s constitutional duty of consultation, from Aboriginal rights issues to virtually any issue a FN says is of concern to it. Because consultation is a constitutional duty it cannot be amended or restricted by legislation, so the Canadian government is helpless to correct this situation unless and until it succeeds in having this part of the decision reversed by the SCC.

Approval Delayed Is Approval Denied

The FCA’s approval of unrealistic consultation demands could create risks of delay and uncertainty fatal to this and future major projects.   TMX had filed for project approval with the NEB in December 2013, to begin construction in 2017, with oil to flow through the pipeline by December 2019. But now,  five years later, the FCA decision has left the project in limbo. With the further consultation required, it is unlikely that there can be a Cabinet decision in less than another year.  And that decision may be attacked in court again.

A proposed project like this can only tolerate so much uncertainty and delay. As we saw, TMX investors didn’t wait for the court’s August 30, 2018 decision. Facing the uncertain outcome of this court challenge, and having seen the FCA’s decision against the Northern Gateway pipeline, they stopped work on their Cabinet-approved project. TMX investors happily sold the entire project to the federal government. But for the government purchasing the project, the court challenge would have killed it. The FCA gave the FNs an effective veto.

Conclusion

The government recently hired the distinguished former SCC justice, Mr. Frank Iacobucci, to head the renewed TMX consultation. But even he cannot fix a broken law.

Compliance with a court decision is essential in a democracy, but when the court requires the virtually impossible, compliance will be very difficult.  Indeed, the First Nations leadership is already saying that the NEB, in its court-required reassessment of marine traffic, is doing it all wrong again; and that the Crown, in its court-required attempt at further consultation, is again failing to consult as required. 

As reported in the National Observer, “Representatives of former and current litigants, environmental groups, and affected First Nations held the press conference to raise red flags around a limited assessment of increased tanker traffic and what they see as a hasty rushed process that prevents meaningful consultation with affected First Nations.”

None of this is surprising given that the government will not appeal this unworkable court decision, and that some FNs’ objective is to make the revised consultation fail. I expect a second round of judicial challenges in this case.

What is unclear is whether the government itself hopes this pipeline approval process will fail. That way the controversial pipeline will not have to be constructed. The government can blame the existing law, which it says it is fixing, and write off its investment in the pipeline.  The proposed amended law, Bill C-69, will not fix these problems.  It will make the assessment process slower, even less certain, and even more weighted against proponents.  The government may not understand the assessment process well enough to understand why Bill C-69 will make matters worse.  On the other hand, if the government understands what it is doing with Bill C-69, its real intention is to make the TMX Canada’s last pipeline project application.

Appealing the Trans Mountain Pipeline Decision Part 1: The National Energy Board Issues

I took the three photos below on a trip to Vancouver in 2016.

BLAK0021
Orcas travelling through the Vancouver harbour
BLAK9172
Bulk carrier moving slowly.
BLAK9203
Bulk carrier at anchor.

Background

Part 1 of this analysis discusses the issues around the National Energy Board recommendation to Cabinet, and Cabinet’s acceptance of it to approve the pipeline’s construction licensing. Part 2 will discuss the issues around the Crown’s consultation of several First Nations.

The CD Howe Institute recently published my brief (500 word limit) analysis of the Federal Court of Appeal’s (FCA’s) decision to overturn the Cabinet’s approval of the Trans Mountain Pipeline expansion.  I recommended that the federal government should appeal the decision to the Supreme Court of Canada (SCC). You can read that here, and continue to read my fuller analysis below.

Click here to read my short analysis on the CD Howe Institute website.

One of the reasons the Court gave for its ruling was that the Cabinet approved a  National Energy Board (NEB) environmental assessment (EA) report recommending approval.  The NEB report was so fatally flawed, the court held, that the Cabinet could not reasonably have approved it.  The NEB had discussed, but not included in its formal EA, future increases in tanker traffic to and from the pipeline’s marine terminal in Burnaby, a Vancouver suburb.  That additional traffic might have harmful impacts on the Southern Resident Orcas, an endangered species.

Federal law requires an EA to consider not just the physical activities of the project, but also “any physical activity that is incidental to those physical activities”.  The Court held that by not treating potential tanker traffic as an incidental physical activity the NEB failed to conduct the EA required by law.  Therefore, its report could not form the basis of a reasonable Cabinet approval of the pipeline.

At paragraph 449 of its reasons for decision the court wrote:

“[449]  I have found that the Board unjustifiably excluded Project-related marine shipping from the Project’s description.”

With respect, I think the Court got this wrong, for two reasons.

1.  Interpreting “Incidental” too broadly in the Pipeline Licensing Context

The term “Project-related’ is, or leads to, the conclusion that marine shipping is required to be part of the EA because it is related to the project in some undefined manner. But these words are not found anywhere in the applicable EA legislation. This vague language has, unfortunately, crept into the NEB’s and the court’s vocabulary, but its meaning is not the same as “incidental to” (discussed below), which is the language actually used in the law.  “Project-related” begs the question “related how?” Directly related and within the proponent’s control?  Or related only as an indirect result, caused by third parties, over which the proponent has no control?

There is no definition of “incidental” in Canada’s  EA law.  It can be interpreted as broadly or narrowly as may be reasonable.   The FCA interpreted it as requiring marine activity to be included in a pipeline EA.

The Supreme Court of Canada (SCC) has stated in numerous cases that a court interpreting the law should not just read the words literally as written. It should should interpret the language of the statute in light of the purpose of the law, in the context of the entire statute.  So let’s look at it that way.

In fairness to the FCA, the NEB’s reasons for excluding marine activities from its EA   were few, short and not well written.  The NEB said that it did not have regulatory authority over marine effects (which is true, but does not legally prohibit it from assessing such effects).  The FCA’s decision underlined that statement and focused on it. However, the NEB also said that these physical activities were regulated by various other federal departments and agencies, a statement which the Court quoted but did not consider further.  It should have, because the answer lies there.

In essence, the NEB was saying, first, that there were more qualified agencies, also reporting to Cabinet, whose job it was to regulate marine activities, who could better assess them; and second, because conditions of license regulating marine activities (outside the proponent’s control) could not be imposed on the pipeline, it would serve no statutory purpose for the NEB to treat marine activities as incidental to the pipeline.  That is a reasonable explanation, to which the FCA should have shown the required deference.

The purpose of an NEB project assessment is to conduct public hearings and to recommend to Cabinet whether the proposed project should be granted a licence, subject to such conditions as the NEB considers to be in the public interest.  The NEB has no decision making power over approval, it only recommends to Cabinet. Among other options, the Cabinet can decide whether to approve the pipeline, either with the NEB’s recommended conditions,  or with such other conditions as the Cabinet considers reasonable.

Pipeline licences normally contain numerous conditions with which the pipeline owner/operator must comply.  Failure to comply would be a breach of the licence conditions, which could result in suspension or even revocation of the licence.  But all of the conditions of a pipeline’s licence have to be within the licensee’s control.  No one can be required to comply with a condition of licence over which they have no control.  How could the NEB recommend, or the Cabinet impose, marine traffic conditions on a pipeline that begins and ends on land? The pipeline could have no effective control over tanker traffic, while various government agencies and departments have full regulatory control.  What would be the statutory purpose of requiring the NEB to interpret “incidental” for its assessment of a land-based pipeline as including marine activities over which the project proponent can have no control, and over which no marine licensing conditions can be imposed?

The FCA took a somewhat technical, literal approach to statutory interpretation, thereby losing sight of the purpose of the NEB’s role and the context in which it operates.  It seems just as reasonable, if not more reasonable, to interpret “incidental to” in this legal context as meaning incidental to physical activities on land, over which the pipeline has control, and over which the NEB could recommend and the Cabinet could impose conditions of licence.

2.   A Flawed NEB Report Does Not Prevent the Cabinet from Making a Decision.

In another recent decision [Gitxaala Nation v. Canada, 2016 FCA 187, [2016] 4 F.C.R. 418,], the FCA held that applications for judicial review  by that court cannot be brought against reports of the NEB recommending whether a licence should issue for a pipeline.  In the Trans Mountain case the court had to find a way around its earlier decision to be able to set this new one aside.  It did this by setting aside the Cabinet decision, not the NEB report, but doing so on the finding that the Cabinet relied on a fundamentally flawed NEB report. That is how it indirectly reviewed the NEN report.

In its reasoning, the FCA implicitly assumed that the NEB report was the only information that the Cabinet had available to rely on, and that it relied entirely on the NEB, in deciding to approve the project.  If the NEB report was lacking some necessary assessment (marine traffic), the FCA assumed the Cabinet could not and did not get this missing assessment  anywhere else, and therefore, could make no reasonable decision on the pipeline.  That may be an unwarranted assumption.

The NEB has no monopoly on Cabinet information about the assessment of marine traffic.  The NEB’s expertise is in regulating pipelines on land.  It does not extend to regulating shipping in harbours and oceans. Even if we assume, for the sake of argument, that the NEB decision was flawed for excluding the potential effects of tanker traffic and how to mitigate these effects, where could the NEB have obtained the required expert evidence on the Canadian regulation of tanker traffic? Only from the experts in other federal departments and agencies that routinely regulate such traffic. The routes and speeds of the tankers in the Vancouver harbour area are regulated by the Port of Vancouver (an agent of the Federal Crown), with ships being controlled by pilots licensed and employed by the Canadian Government, and regulated by Transport Canada in Canada’s waters outside the harbour.  These would be the same people that would advise Cabinet, upon receiving the NEB report, about whether the NEB provided the right assessment on tanker traffic.

The concern about the protection of the iconic orcas was a widely publicized, hot button issue in the Canadian media. If the NEB did not specifically include the activity of tankers in the formal assessment part of its report, one would still expect the Cabinet, prior to making a decision, to ask the responsible Ministers to obtain full assessments about how these several agencies and departments would protect the orcas.  It is demanding too much from the NEB to insist that they do this assessment.  The federal government must comply with the FCA’s decision, but while doing so, should appeal it to the SCC.

Looking Ahead

Tanker traffic was, quite rightly, a central concern of the First Nations, the Cities of Burnaby and Vancouver, and the environmental advocacy groups that challenged the pipeline approval in the FCA. The Canadian government must develop a better method of assessing these potential secondary effects of a pipeline in a transparent and effective manner, with public participation. But that is not a job for the NEB, which has neither the expertise nor the regulatory basis for doing so.

Unfortunately, there is no better assessment method now.  The potential effects of marine activities downstream from a pipeline are being assessed and mitigated by various agencies and departments that report to Cabinet, but they have no mechanism for public hearings or other forms of public participation. On the contrary, their reports to Cabinet are covered by Cabinet secrecy.  That is a gap in Canada’s EA system.

The pending reforms of EA law under Bill C-69 will make the situation even more complex, costly, slow and uncertain.  This will lead to more court challenges, more federal-provincial disputes and eventually, fewer — if any — proposed projects.  Indeed, reading through the hundreds of sections of Bill C-69, I found that anyone who might oppose a pipeline had been given every weapon to do so, but there was nothing in it for the proponent’s benefit.  The sceptic in me made me wonder whether the government wasn’t trying to prohibit, or at least severely discourage, any future pipeline projects, without actually saying so in. public.

PS.  The FCA gave another reason for ruling against the Cabinet: that the Crown’s duty to consult with potentially affected First Nations was not done properly.  I may write about this second issue in future.

 

 

 

Ontario’s Doomed Legal Challenge to Ottawa’s Carbon Tax

Introduction
The Ontario government recently announced that it will be challenging the federal government’s carbon tax in court.  Ontario will most probably lose.  To understand why, we need to consider four issues:
1.  The Ontario Court of Appeal cannot hear any of the political arguments the Ontario government has against the tax.  What can it hear?
2.   What taxes is Ottawa allowed to impose under our constitution?
3.   What does the so-called carbon tax actually tax, and who gets to keep the money it collects?
4.   Ontario (like Saskatchewan) has said the tax is unconstitutional because it treats different provinces unequally.  Is that true?
1.   What a Court Can and Cannot Consider
There has been much public debate about the environmental issues that led to this tax.   If the US, China and some other major CO2 emitting countries do not have a carbon taxes why should Canada do so?   Is this just another “tax grab”?  Can this tax can reduce emissions enough without undue harm to the Canadian economy?
Although Ontario may try to present some of these political issues to the court, none of is legally relevant.  They are environmental issues, not constitutional law issues.  Judges are not here to judge whether this is a good law or a bad law, but only whether Ottawa has the constitutional authority to impose the tax.
2.   What Taxes Can the Government of Canada Impose?
The short answer is pretty much any tax it wishes.
Our constitution gives the Canadian Parliament the exclusive authority to raise money “by any Mode or System of Taxation”. (The provinces can also raise money by taxation, but only under a limited list of types of taxes.)
It would be difficult to find a broader authority to tax than the word “any”. The constitution does not say “other than a carbon tax”. It also does not say that all provinces have to be treated equally, and that is not what actually happens.
In the 2018-2019 year, the federal government will pay close to $19 billion of tax revenue in “equalization payments” to the provinces.  The provinces are divided into the two categories based on how much they earn through taxes such as on natural resource, income and property.  In the 2018-2019 year, provinces receiving equalization payments will be: Quebec, Manitoba, Nova Scotia, New Brunswick, Ontario and Prince Edward Island.  Alberta, Saskatchewan, Newfoundland and Labrador and British Columbia will not be receiving this money, even though federal taxes from these provinces contribute to the total equalization pot.  The result is a transfer of income from the “have” provinces to the “have nots”. Yet Ontario has not protested or taken Ottawa to court over the unequal tax treatment of provinces that will cause Ontario to receive payments.
3.   What’s in the Name of a Tax?
The “carbon tax” is not a tax on carbon.  Although it aims to reduce the emissions of carbon dioxide, it is not even a tax on carbon dioxide.  Rather, it is a type of consumption tax imposed on the consumption of carbon-based fuels (such as coal, oil, gasoline, or natural gas), based on the tonnage of CO2 emitted when such fuels are burned.  Whatever its purpose, and whatever its name, a tax is a tax. 
Every consumption tax imposes some degree of economic cost on the consumed goods or services, and is therefore a burden on the people and businesses consuming them.    As a practical matter, governments must balance the benefits of the level of taxes against the economic burden they create.  However, the Canadian constitution makes no mention of this, because such balancing is not a legal or constitutional issue, it is purely political.  
A “carbon” tax may be a new name, but in essence it is just another way of Ottawa “raising money”, as the constitution says.  A carbon tax on fossil fuels does not need to be different from other taxes with well known names.  For example, Canada has had both federal and provincial taxes on gasoline for decades.

British Columbia and Alberta both have a “carbon tax” on gasoline.  What is the difference between British Columbia’s gasoline tax and its carbon tax?   An additional 7.78 cents/litre on gasoline and 8.95 cents on diesel (with different levels on other fuels).  Alberta’s carbon tax on gasoline is 6.73 cents per litre; on diesel, 8.03 cents. Alberta’s tax is also in effect on other fuels, everything from jet fuel and kerosene to coal.  If a carbon tax on fossil fuels is unconstitutional then all federal and provincial gasoline taxes would also be be unconstitutional.  Neither Ontario nor Saskatchewan have advocated that.

These taxes may be labelled “carbon tax”,  but, despite the label, they are essentially an additional consumption tax on commodities already taxed by both levels of government.  There is nothing new and unprecedented about taxing these items, despite the name “carbon tax”.  As there is nothing new, there is no need to look to the constitution for approval.
The federal plan does call for new taxes on industrial CO2 emissions, but very recently the Minster announced that their level would be significantly reduced.  The result will be significant reduction in the amount of money at stake, so it will have minimal impact on the industries concerned.  As the Trump plan for “America first” and the tariff wars take effect on employment and consumer prices in Canada, it is safe to predict that the federal plan will be diluted even further, or abandoned entirely as unfeasible.
4.   Does the Federal Carbon Tax Treat Provinces Unequally?
Saskatchewan’s argument is that the federal government cannot impose a tax on one province but not others just because the federal government does not approve of Saskatchewan’s climate change plan.  Ontario’s argument is substantially similar. This argument has no merit, and is unlikely to succeed.
The federal response has three strong arguments against these provinces.
1.   Environmental issues such as harmful air emissions cannot be contained within provincial borders. Unless all provinces can agree on an effective climate policy, which is not the case, the federal government can, and must, act on a national scale.  This principle has been recognized in previous decisions of the Supreme Court of Canada.
But global CO2 emission levels raise environmental concerns that are even broader than just Canada; this is an issue for the entire planet.  That is why Canada joined so many other nations in the Paris Accord, by agreeing to reduce this country’s future CO2 emissions.  There is nothing in the Canadian constitution that would make unconstitutional Canada’s fulfilment of this commitment through a carbon tax.
In substance the Saskatchewan and Ontario arguments seek the right of a province to prevent Canada from honouring its Paris Accord environmental commitments made on behalf of the entire country.  There is nothing in the Canadian constitution that would grant any province the right to do so.
2.  It is not true that the federal plan treats provinces unequally.  The federal carbon tax sets a “floor price” per tonne, increasing each year.  If any province wishes to create its own price on carbon, whether through a cap and trade system or a carbon tax, it must meet or exceed the federal government’s floor price.  This flexibility allows any province with an equal or better plan to put it in place.  The federal tax will be imposed if and only if a province puts no plan in place that will impose a cost on CO2 emissions at the same level as the federal tax.  All provinces that have a federal-equivalent plan in place pay no carbon tax to Ottawa; all provinces that do not will have to have their residents pay the federal carbon tax.  The federal carbon tax, therefore, treats all provinces equally, discriminating against none of them.
The federal flexibility in allowing each province to work towards the national target in its own way is a positive feature of this legislation.  This allows each province to exercise its discretion to set the least cost way of achieving its share of the national emissions reduction target.  It is ironic that the two provinces in this case have tried to turn this positive benefit into a constitutional argument against the entire federal climate plan.  They would not have been able to make this argument at all if the federal law had been a uniform federal carbon tax applicable to all provinces, with no room for provincial variation.  Bringing this case with these arguments simply discourages such federal flexibility in future legislation.
3.  The federal government will keep none of the money from a carbon tax, so the people in all provinces will be no worse off.  Any province which imposes a carbon levy equivalent to the federal requirement will keep all of the revenue.  Any province which does not will have its residents and businesses pay the federal tax, but all the money the federal government collects from this tax will be paid back, either to the province or directly to the residents of that province.  Thus, regardless of who levies the tax, the provincial governments or their residents will receive all the new revenue. Whether some provinces receive the carbon tax revenue directly from their own residents or indirectly from the federal government imposing the tax, the revenue to the province or its residents will be approximately the same. In that respect also, the federal government is treating all provinces equally because the federal government will keep no carbon tax revenue from any of them.
My Bottom Line
Ontario’s court challenge is legally a non-starter, and the Provincial government must know it.  So why is it doing this? It is using the courts for PR purposes rather than legal purposes.  If a private citizen or business brought this same challenge the court would throw it out without a hearing, calling the claims merely “frivolous and vexatious”.  Because it is brought by a provincial government, however, it will be treated as a real constitutional issue to be resolved.  It is a waste of taxpayers’ money, done for the purpose of trying to make the Provincial government look good in the eyes of those who oppose a carbon tax.
My personal opinion is that a Canadian carbon tax would be acceptable only if all or almost all developed nations did the same, particularly China and the US, the world’s two largest emitters of CO2. However, Canada cannot do this alone.  If we persist, we will be shifting business investment and employment to countries that do not have such a tax.  If Canada persists in a carbon tax this will move the emitters to the US and elsewhere, with the same level of emissions, or even higher emissions than before.  Thus we will be taxing Canadians and damaging the economy, without achieving any global reduction in CO2 emissions  This makes no sense as a policy.
Despite the economic disadvantages of a carbon tax, that is not a constitutional law argument.  It is not an issue the court can consider.

 

 

Hydro One Doesn’t Matter

Hydro One Doesn’t Matter

HYDRO ONE DOESN’T MATTER.  WHY ARE POLITICAL PARTIES AND THE MEDIA TRYING TO FIX IT?

Consider a typical family ordering food for delivery to their home. Assume that the restaurant used to charge $40 five years ago but is now charging $80 for the same food. Assume the delivery service used to charge $10, but is now charging $11. Thus, in five years, the total cost of the delivered food has increased from $50 to $91. Would it make sense to blame the delivery service’s $1 fare increase for the entire price increase when the restaurant has doubled its prices? Of course not. Yet that is what the political parties and some media critics have been doing with Hydro One. The only reason I can think of for this mistake is that they are confusing Hydro One with the old Ontario Hydro, which used to generate and deliver electricity but was broken up years ago. 

Like the food delivery service, Hydro One is just a wires delivery system. It doesn’t make the product, which represents the majority of the price we pay. To roughly three quarters of Ontario’s electricity customers Hydro One only provides the high voltage transmission lines between the electricity generators and the local distribution companies (like Toronto Hydro or Ottawa Hydro) that provide the connection to the customers. To the other one quarter of (largely rural) customers, Hydro One provides both transmission and distribution, but still only delivery. 

For a typical Toronto Hydro customer’s 2018 electricity bill of $123 a month, Hydro One would represent no more than 8% of that total bill, around $10.31. Why is everyone obsessed with “fixing” the 8% while ignoring the remaining 92%, which is truly broken?

The NDP have tried to imply that the privatization of Hydro One is responsible for rapidly escalating electricity prices in Ontario. Regardless of who owns the wires, the rates charged by Hydro One are regulated by the Ontario Energy Board. The price of electricity itself is unregulated. In fact, Hydro One price increases since privatization have been very small, in line with what they were prior to privatization. Buying back Hydro One would be costly, but would accomplish nothing to lower electricity rates.  Where is the NDP’s plan for reducing the 92% of electricity costs?

Incidentally, the NDP have also promised to “aggressively renegotiate” very costly power contracts the Province entered into under premiers McGuinty and Wynne. Negotiation can’t work, because anyone who has a contract is under no obligation to accept a less profitable contract.  There are only two ways to get rid of these legally binding contracts: buy them out or legislate to nullify them.  

Buying them out means spending more public money to pay these electricity generators the profit they would have earned if their contracts had been taken to their expiry date. Then electricity consumers would have to pay someone else to generate the electricity that the bought out generators are no longer generating.  Paying twice makes no economic sense.  It is highly unlikely that any government would do that.

Legislation to nullify the contracts and to prohibit any payment for lost profit could be enacted.  But this would result in lawsuits by the contract holders.  Legal opinions are divided on whether such legislation would be upheld or struck down by the courts.  However, most of the over-priced contracts are for solar and wind power, contracts entered into for “green energy”.  This would remove most of Ontario’s renewable generation. It would be a huge political embarrassment to renege on green power contracts encouraged by the McGuinty government as part of making Ontario a leader in renewable sources of electricity.  

The Progressive Conservatives have promised to fire the Hydro One CEO and the entire Board. What would that accomplish when the wires company bears no responsibility for rapidly escalating electricity rates? Undoubtedly, this would cost electricity consumers more money rather than less. The CEO cannot be fired by anyone other than the Hydro One Board because he is not an Ontario Government employee. Theoretically, the government could replace Board members in accordance with its percentage of shareholding (47.4% of the common shares) – which may not be enough to control the Board and fire the CEO. But he has a legally binding contract which includes a generous severance payment upon termination for any reason. He will therefore have to be paid between $6-10 million not to work. His replacement will also want to be paid (probably several million) to run a company of that size (about 6 billion annual revenue). Thus, the total payment for the current CEO and the future CEO will undoubtedly exceed the payment for just the current CEO, and with no material effect on electricity prices.  The political axing of the CEO and Board would make it difficult to attract competent replacements, so board membership would be used as a reward for friends of the party in power.

It is also unclear whether the government could simply fire the Hydro One Board members for political reasons and without cause. The last time a government tried that was in 1996, under former PC Premier Mike Harris. The fired Board members took the government to court and won (Murphy v. Ontario (Attorney General), 1996 CanLII 7968 (ON SC)). They were subsequently paid compensation for the Board fees they would have earned had they not been unlawfully dismissed. This could happen again, which would cost more money than it would save. 

And in any event, these firings would do nothing for 92% of the price of electricity in Ontario.  Where is the PC’s plan for reducing the 92% of electricity costs?

The governing Liberal Party has said very little about electricity prices – understandably, because electricity rates have risen rapidly under their government, and are projected to rise even more rapidly in the future. However, Premier Wynne has correctly pointed out that Hydro One has not increased its rates substantially.

Marcus Gee, an excellent Globe and Mail columnist, recently criticized all three political parties for failing to offer an effective cure for the ills of Hydro One. (Globe and Mail, May 15, 2018, “When it comes to proposed Hydro One solutions, voters must choose between three poor options”). It is concerning that a journalist of his calibre would also focus on a futile debate about “fixing” 8% of the cost. It is time to switch the focus to the 92%.  A lot of the price increase of Ontario’s electricity over the next 30 years has already been baked into the debt repayment schedules set by the current government. Doing something to fix this will not be easy. Indeed, it may be impossible. Electricity prices are escalating to levels that will cause manufacturing plants to close and move elsewhere.  As well, many people with low incomes will be unable to pay their electricity bills and still cover their rent and food expenses. 

Politicians deciding what generation to build, how much to pay for renewables, and how much to charge consumers have brought about the mess we are in.  Politicians make these decisions based on what is politically rational for the next election, not what is economically rational now and for future generations of consumers.   Ontario has to get the politics out of electricity plant construction and pricing.  We need to let markets work to set prices for generation, and let the Ontario Energy Board regulate the monopoly wires part.  Do any of the political parties want to discuss this?

Are Old Polluters Better Than New Polluters?

Carbon dioxide emissions will become a scarce and valuable commodity in Canada soon. Who will be permitted to emit how much CO2? The answer should not depend upon whether someone has been emitting for a long time or  is just starting a new facility.  I have covered this topic in a recent publication of the C.D. Howe Institute that you can read here:

https://www.cdhowe.org/intelligence-memos/andrew-roman-are-old-polluters-better-new-polluters