By Alex Whalen
and Elmira Aliakbari
The Fraser Institute
Newfoundland and Labrador’s energy sector, already struggling from the downturn in world oil markets and the COVID-19 recession, has taken another blow – this time directly from the federal government.
The Liberal government of Prime Minister Justin Trudeau recently imposed new rules – known as the Strategic Assessment of Climate Change (SACC) – that requires certain projects (including mines, and oil and gas projects) to describe how the project will achieve net-zero emissions.
According to federal Environment Minister Jonathan Wilkinson, the plan will ensure Canada exceeds its Paris climate agreement targets by 2030 and 2050.
SACC rules will require project proponents to estimate and provide information on “GHG emissions, impact of the project on carbon sinks, impact of the project on federal emissions reduction efforts and on global GHG emissions, mitigation measures and climate change resilience” at each of the five phases of the assessment process.
There are many problems with these new rules.
First, the federal government expects firms to devise “a credible plan” to achieve net-zero emissions when the government hasn’t released details of its own plan. In fact, the government hasn’t even released a cost-benefit analysis demonstrating how reaching this target would be in the best interests of Canadians.
Given the lack of details from the federal government, it’s reasonable to question the economic and technical feasibility of reaching net-zero emissions by 2050.
And yet Ottawa wants firms to produce their own detailed plans to reach this target. If project proponents are unable to produce net-zero emission plans, projects won’t be approved.
To make matters worse, requiring companies to develop net-zero plans means Ottawa expects firms to commit to things they can’t possibly predict, such as potential technological breakthroughs and changes in input costs.
How can the government expect firms to take such risks?
Second, SACC requirements will increase regulatory compliance costs as firms must now calculate emissions-related information (such as net greenhouse gas emissions and emissions intensity) at every stage of the application process.
Firms will likely need to invest in monitoring equipment and hire experts (lawyers, consultants, engineers) to comply with the new regulations. Many oil and gas companies are struggling to stay afloat during the recession, which makes the new regulatory costs even more burdensome.
Finally, uncertainty – an investment killer – has increased since firms don’t know what the federal government considers an “adequate amount of emissions.”
The SACC requirements run counter to other recent regulatory changes announced by federal Natural Resources Minister Seamus O’Regan, which were said to improve regulatory efficiency in Newfoundland and Labrador and “make the province a more internationally competitive place to invest.”
Notwithstanding the present downturn, enormous economic potential exists for the oil and gas sector in the province. Studies indicate an undeveloped potential of at least 52.2 billion barrels of oil and nearly 200 trillion cubic feet of natural gas.
To put this in perspective, Newfoundland and Labrador has averaged between 80 million and 100 million barrels of production per year since the offshore industry ramped up in the early 2000s.
However, none of this potential will be realized without a competitive and understandable regulatory environment. The last thing the province needs under current challenging conditions is for the federal government to add unnecessary hurdles to the process.
As we’ve written previously, Bill C-69 has made the regulatory system more complex, uncertain and subjective. That’s on top of existing measures that have harmed Canada’s energy sector, including the federal carbon tax, Bill C-48 (the oil tanker ban) and proposed clean fuel standard regulations.
The federal government must acknowledge how its policies have – and continue to – hurt one of Canada’s most important sectors, which drives much of Newfoundland and Labrador’s economy.
The government must adopt a new approach to the energy sector. We simply can’t afford to continue down this destructive path.
Alex Whalen and Elmira Aliakbari are analysts at the Fraser Institute.