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Ottawa's murky environmental rules are parking foreign investment in Canadian resource projects, says analyst

Overreaching, unconstitutional Impact Assessment Act has Ontario on the offensive to expedite project approvals
Webequie Supply Road
(Webequie Supply Road photo)

Quiet quitting became a cultural buzzword during the pandemic for workplace passivity and resignation.  That lethargy now extends to investment in Canada’s natural resources sectors too, said Heather Exner-Pirot.

The mere mention of the federal Impact Assessment Act (IAA) to U.S. firms with Canadian projects can trigger mocking comments like the “Don’t Invest in Canada Act” and “banana republic,” said Exner-Pirot, director of natural resources, energy and environment with the Macdonald-Laurier Institute, a national public policy think tank.

“There is quiet quitting. People are walking away from investing in Canada,” said Exner-Pirot. 

And it’s happening, she said, at a crucial time when the country should be doubling and tripling down on critical minerals mine development for electric vehicle battery manufacturing. 

That’s the feedback and the overall feeling of uncertainty she’s fielding from companies she’s spoken with outside of Canada. Many proponents of big resource projects in Canada are waiting for the outcome of the next federal election in 2025.

“The point is, a lot of people are considering this a lame duck government.”

Exner-Pirot was responding to the recent Supreme Court of Canada’s opinion that a large chunk of the controversial federal assessment legislation, which became law in 2019, went beyond the scope of Ottawa’s decision-making power, and is mostly unconstitutional. 

“If you’re a company, you’re not now making an investment decision today, you’re still waiting to see how the dust settles,” said Exner-Pirot. 

“Industry has been caught in the crosshairs of this federal-provincial fight for four years."

While Canadians might regard the decision as Alberta winning a reprieve for its oil and gas industry, Exner-Pirot emphasizes Canadian mining as being the most affected by the IAA, just for the sheer volume of projects that are assessed.

With the IAA being “so broad and so vague,” Exner-Pirot said, it effectively allowed federal Environment and Climate Change Minister Steven Guilbeault to veto any project that Ottawa designates based on social, health and environmental impact grounds, such as greenhouse gas emissions, without providing any thresholds. That’s what a majority of the court zeroed in on. 

Third party groups, like environmental NGOs, she added, can weigh in and request project designations that can lengthen an assessment process by many months.

Then factor in the impacts on water, fisheries and Indigenous territory and Exner-Pirot said that pretty much covers all projects and all activity in every part of Canada.

While the court’s opinion was a “big win,” Exner-Pirot reminds all that the majority 5-2 decision is not a traditional court decision, but only offers guidance to Ottawa. Minister Guilbeault accepted the opinion, saying they’ll make some amendments to improve the legislation.

Guilbeault’s response didn’t sit well with the Ontario government.

Ontario Attorney General Doug Downey said last week despite the act being mostly unconstitutional, Ottawa’s reaction to the court’s opinion is that the IAA still remains in effect.

“They’re completely ignoring what the Supreme Court said,” he said in a media conference at Queen’s Park. “And we need to be clear, it’s holding up infrastructure.”

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In calling the IAA “redundant” legislation, Downey said “several” projects in Ontario are being held up by federal intervention and the province is filing for a judicial review to the Supreme Court to declare most of the act of no force or effect.

His ministry mentioned the proposed roads into the Ring of Fire mineral belt in the James Bay region among the many delayed projects. But there are two critical projects in the Toronto area, namely the Highway 413 construction and renovations to Ontario Place, as having particularly tight timelines, he said.

“We have imminent decisions being held up on both of those,” Downey said.

“We need to get certainty, so we can move the projects forward.”

Downey placed no timelines on when a judicial review might be heard. Ontario has asked for an expedited, “sooner-than-later”hearing date in order to proceed with these projects.

With hundreds of thousands of newcomers arriving in the province every year, Downey said Ontario is playing catch-up on building more houses and highways.

“At the core of this is about who gets to decide what goes forward? Who drives the process? The federal government says that they want to. Well, the Supreme Court said it's not your job and…and you don't need to be slowing things down.”

Downey maintains Ontario has a “very robust” assessment process that involves First Nations and Ottawa has been weighing into areas that the court has advised they don’t have a right to occupy.

“Really what industry wants is one project, one assessment. No one wants that duplication and double process,” said Exner-Pirot.

The court’s opinion, she said provides the provinces with a “lot of ammunition” to fend off federal invention on natural resources issues, at least until the next federal election in two years.

“I think they’re (the province’s) hands are strengthened now, there’s more precedence,” said Exner-Pirot.

In a response to Canadian Press, a spokesperson in Guilbeault’s office said the IAA has delivered better rules to protect the environment and Indigenous rights. Since it came into force, the spokesperson said, major projects have advanced on an expedited timeframe.

Exner-Pirot disputes that, counting only one project - the Haisla Nation’s Cedar LNG facility in Kitimat, B.C. – that’s been approved through the IAA process. 

Others that were approved – like the Port of Vancouver container facility expansion and the Marathon palladium project in northwestern Ontario – were evaluated under the old environmental assessment regime. There still remains a lengthy backlog of projects still in the queue, she said.

“That in itself is unacceptable to me, that four years is not enough lead time for projects to start to move through.”

For proof that investment interest in Canada is declining, she points to Natural Resources Canada’s inventory of major projects. In 2015, the combined potential capital value was estimated at $711 billion. It’s since plunged to $520 billion last year.

Federal Natural Resources Minister Jonathan Wilkinson has often evoked the spirit of intergovernmental collaboration when it came to Ottawa’s critical minerals strategy.  

He said Ottawa and the provinces can cooperate to avoid unnecessary regulatory duplication and get more mines into production, quicker. 

But the wide-ranging application of the IAA only added to the confusion and it was frustrating the provinces. Alberta’s and Ontario’s legal challenges to strike down the act proves that their patience has run out. 

“The provinces have finally had enough,” said Exner-Pirot, “and they’re going to start playing offense a bit more.”