The NEB loses it. Canada will lose.

The National Energy Board ( NEB) made a fateful decision by extravagantly widening the scope of its review of the Energy East pipeline project to include greenhouse gas ( GHG) emissions from the combustion of the oil it will transport. Extending that approach to its logical conclusion raises issues that will be exceptionally challenging to address.

The presumed rationale for calculating emissions from the end use of the product produced or transported is their potential impact Canada’s climate change commitments. But that is not nearly as simple as it sounds. Take, for example, Canada’s significant reserves of rare earths that are critical for green energy, telecommunications, medical science and missile guidance.

These “technology metals” or chemical elements can be used to generate wind power, develop artificial intelligence, diagnose diseases or pulverize ISIL. How can regulatory authorities be expected to calculate the emissions created or reduced by these diverse applications, some of which are inherently unpredictable? We are getting close to the butterfly effect in chaos theory, where a small cause can have an immense unpredictable effect, like a butterfly flapping its wings in New Mexico ultimately creating a hurricane in China. Let’s agree that metaphysics is outside a regulator’s purview.

Contrary to criticism from some environmental groups and politicians, the NEB has a long and respected history as a highly competent and objective regulator. Unfortunately, it has just undermined its effectiveness and perception of independence. Its expanded review will politicize the regulatory processes, intrude on provincial jurisdiction and put resource projects in considerable doubt, with severe economic implications for the country.

Specifically, the NEB announced it will assess both upstream and downstream GHG emissions to determine whether Energy East is in the public interest. There’s regu- latory creep and then there’s regulatory leap.

Upstream refers to industrial activities from oil or gas extraction to construction of the pipeline. Downstream encompasses activities from when the resource leaves the pipeline, including refining, processing, transportation and end- use combustion. However, because there is not a global fuel shortage, additional fuel from Canada will not increase worldwide transportation. Arguably, the NEB should exclude combustion from transportation because there will be no increase in global GHG emissions.

After all, net global emissions rather than gross national emissions are relevant to climate change. So the appropriate methodology would be to estimate the net increase or decrease from a product’s end- use. That has implications I doubt environmentalists had in mind when they praised the regulator’s overreach. Gas imported by India replaces coal. Since natural gas emits about half the GHG of coal, net downstream emissions should be reduced accordingly. Furthermore, Canadian oil and gas replace fuel from countries with poorer environmental standards, driving down worldwide emissions.

The U. S. set a precedent for this comprehensive approach when its State Department concluded that the Keystone XL pipeline would be safer and emit less greenhouse gas than alternate forms of transportation like rail. The NEB should follow this logic.

Another problematic change is that the NEB intends to examine the impact of Canada’s laws and policies mandating GHG emission reductions on the pipeline’s economic viability. The NEB has really lost its bearings if it feels more capable of making a business decision than TransCanada Corporation, a multi-billion enterprise willing to risk its own capital.

Bottom line, the new review process will be longer, costlier and more unpredictable, provide ammunition for intractable opponents to kill major resources projects and be subject to more preconditions were it recommended for approval. For these reasons, it has been characterized as a new gold standard by the usual suspects. The Canadian Environmental Assessment Agency is highly likely to follow suit and other regulators may be encouraged to adopt it.

Pipelines should only be built if they are safe for Canadians and safe for the environment. However, that determination should be based on an independent, scientific regulatory review whose scope is limited to the direct impact of the construction and operation of the pipeline. It should not extend to an open-ended and uncertain estimate of global GHG emissions from the end-use of the product it is transporting to market.

Consider what is at stake. The $ 16- billion Energy East pipeline would transport 1.1 million barrels of oil a day and generate 14,000 jobs, $55 billion of economic growth and $ 10 billion in government revenue. We urgently need to develop our natural resources, not throw road blocks at progress and prosperity.

Obviously, the federal government will not order the NEB to revert to its original mandate, since it doubtless had a hand in the change and is worried about reaction in vote- rich Ontario and Quebec. That makes it look like the Prime Minister wants to kill Energy East but prefers that the NEB provide cover. Not good. Joe Oliver is the former minister of natural resources and of finance

THERE’S REGULATORY CREEP — AND THEN THERE’S REGULATORY LEAP.