National Post (National Edition)
ARRESTED DEVELOPMENT
Resistance to infrastructure projects has become the norm in Canada’s resource sectors. As part of a fourmonth investigation, the Financial Post identified 35 projects worth $129 billion in direct investment — mostly private money — that are struggling to move forward or have been sidelined altogether because of opposition from environmental, aboriginal and/or community groups. The downside is adding up: slower growth, lower Canadian oil prices, investment chill, less control over domestic resources, overreliance on the U.S. market, regulatory gridlock.
A $100-billion loss in direct investment is no drop in the bucket. It means an additional loss in value (roughly equivalent to the rate of return on the investment) of at least $8 billion to $12 billion a year for the life of the resource projects, generally 40 years, or $320 billion to $480 billion, estimated Jennifer Winter, energy economics professor at the University of Calgary’s School of Public Policy.
Bitumen pipelines from Alberta have dominated the headlines, but other projects have also come under attack, including the Muskrat Falls hydroelectric project in Newfoundland, a uranium mine in Quebec, a wind power project in Ontario, liquefied natural gas development in B.C. and fracking in New Brunswick. The list goes on.
The reasons for resistance vary widely: at a local level, NIMBYism, often linked to fears about water and air safety, impacts on properties from noise and traffic; at a broader level, concerns over climate change, impacts on the environment, overreliance on fossil fuels; on a legal level, disputes between aboriginals and government over territorial rights and benefits.
Major incidents such as the Deepwater Horizon blowout in the U.S. Gulf and the oil pipeline spill in the Kalamazoo River validated fears that infrastructure projects aren’t as safe as developers or regulators claim. Previous governments didn’t do themselves any favours by dragging their feet on climate-change policy, or by failing to properly consult with indigenous communities. Developers have been slow to react to growing grassroots concerns and empowerment.
Now the common refrain is that the projects don’t have a “social licence.”
By approving the $6.8-billion Trans Mountain expansion of the Edmonton-toBurnaby pipeline and the $7.8-billion replacement and expansion of Line 3 from Hardisty, Alta., to Wisconsin, and rejecting the $7.9-billion Northern Gateway pipeline from Edmonton to Kitimat on the B.C. coast and banning oil tankers in British Columbia’s northern coast, Canada’s Liberal government is attempting a middleof-the-road solution.
It will approve some projects to support its economic and trade agenda, while ratcheting up environmental protection to manage risks, including a national carbon tax.
But many in the anti-development movement have made it clear that they aren’t in the mood to compromise.
Even before Trudeau’s announcement, groups such as Stand, 350.org and Greenpeace had been in preparation mode, including organizing training sessions to master tactics such as ducking under police tape and holding sit-ins at politicians’ offices, said Sven Biggs, climate and energy campaigner at Stand, formerly known as ForestEthics.
“There has been demand from our supporters and the general public, especially here in Vancouver, to escalate the campaign for a while,” he said. “We are providing support for folks.” About 300 people showed up for the “non-violent direct action” training sessions, mostly seniors and students.
In Edmonton last week, Natural Resources Minister Jim Carr said he welcomes peaceful dissent, but the federal government would ensure safety is maintained through its defence and police forces.
“We have a history of peaceful dialogue and dissent in Canada. I’m certainly hopeful that that tradition will continue,” he said. “If people determine for their own reasons that that’s not the path they want to follow, then we live under the rule of law.”
Natural resources developers welcomed Trudeau’s efforts to take back the natural resources agenda. Many have been left empty handed and with their reputations in tatters after spending large sums of money to win regulatory approvals. Resourcefocused economies such as those in Alberta, Saskatchewan and the Northwest Territories have underperformed because they can’t get their products to customers.
The anti campaigns have also demolished trust in agencies such as the National Energy Board (NEB) and environmental review processes, and forced politicians to change the rules of economic development, promoting the perception that Canada is a can’t do nation.
Former NEB chair Roland Priddle said the dissent is bad news for Canada’s economic future.
“Natural resources have been the one consistent theme in Canadian economic development from the 16th century onwards,” he said. “The cod fishery, the square-timber trade, the wheat economy that built the Prairie provinces, minerals in Quebec, Ontario and interior British Columbia, and since 1947, oil and gas, (are) so important because they are one of the few sectors in which we have an international comparative advantage.”
Perrin Beatty, chief executive of the Canadian Chamber of Commerce, said Canada has in just a few years morphed from a nation of builders that saw great national projects as a means to improve the welfare of every Canadian, to an aggregation of individual interests that only allows projects no one objects to, which has led to a development standstill.
In Prince Rupert, a city on the northern B.C. coast that is home to four LNG proposals, uncertainty over the community’s growth has pit supporters and opponents against each other. In Quebec, a uranium mining industry has been prevented from developing. In the North, the potential for economic self-sufficiency from oil and gas has been destroyed. And the Ring of Fire, a massive mining development in Ontario that could transform the province’s northern economy, has been indefinitely delayed.
In Alberta, the absence of the Keystone XL and Northern Gateway pipeline projects is being blamed for exacerbating a harsh recession. Both were designed to be in operation today and would have contributed billions in additional revenue by reducing discounts on Canadian oil prices and higher-cost transportation for western Canadian crude oil by rail.
The U.S. has experienced similar resistance, but the movement against infrastructure there started about 20 years ago, according to the U.S. Chamber of Commerce. Canadian opposition only started escalating in 2010.
The game plan used by opponents in both Canada and the U.S. is similar, with co-ordinated efforts by major environmental groups to recruit people with roots in communities. They use the court system, regulatory system, protests and social media to delay and create anxiety over the potential impacts, said William Kovacs, senior vice-president for environment, technology and regulatory affairs at the U.S. chamber.
“They have the ability to use the courts to sue and delay a project for so long that they bleed the financing out of (it),” he said.
Ian Anderson, the president of Kinder Morgan
Canada who’s overseeing the Trans Mountain pipeline expansion, has noticed a shift in public sentiment between the time the expansion was proposed internally in 2006 and today.
In a recent speech, Anderson compared the new requirements for approvals to a radio dial that has lost a signal, and proponents are still struggling to find it. Kinder Morgan added tens of millions in costs to alter the right of way of the Trans Mountain pipeline to meet local demands. Anderson said he plans to start building the expansion in the second half of 2017, regardless of “obstacles.”
The situation in Canada has also been complicated by an alliance between activists and some aboriginal communities, which have unique legal rights and have leveraged resistance to resource projects to resolve disputes with Ottawa.
That alliance has not been without difficulties, and many aboriginal leaders are concerned about losing work and wealth if projects keep getting scrapped or delayed. They even held a conference in Calgary in October to improve the dialogue on pipelines and look for ways to support approvals.
Jim Boucher, chief of the Fort McKay First Nation in Alberta, which has become one of Canada’s wealthiest by providing services to the oilsands industry, said natural resources projects can alleviate poverty among First Nations because they are largely based where they live, in Northern Canada.
But many are angry that the federal government has failed to meet its obligations to protect them, their environment and their rights by handing off their duties to consult to project developers.
“They have completely ignored their constitutional obligations and the people are upset and if they don’t come out and respond to what people have been asking, then they will not find an accommodation to their projects,” Boucher said.
It’s not just aboriginal communities that are stepping up opposition to infrastructure projects. Peter Tertzakian, chief energy economist and managing director of ARC Financial Corp., said any community can now install itself as a rogue regulator, and, with the aid of social media, distribute all sorts of information to support its point of view.
“The broad issue in the western world is the erosion of trust in our democratic institutions that regulate the development of these things,” he said. “The reality is that these (regulators) work very hard, have a lot of technical expertise, and come up with a judgment on whether or not projects should get built, and then all that effort becomes trivialized by somebody with a Twitter account and a regional rally cry.”
Tertzakian said there is a low probability that any company will propose a resources mega-project in Canada again since it faces 15 to 20 years of financial exposure due to extended years of planning, regulatory review and investment recovery.
“Why would I do that when I have all this aboveground uncertainty?” he asked.
In addition to the loss of investment and related economic activity, Tertzakian said there are other indirect effects on the economy: energy security risk; being hostage to U.S. economic/ environmental policies; and potentially debilitating consequences of not having more control over resources from coast-to-coast.
“I am hoping that the average Canadian will realize that all this stuff is leading to gridlock and stalemate and very little is getting built,” he said. “There has to be a wake-up call of some sort. I don’t want to see my democratic institutions eroded. There are capable people in government that can make good decisions, and they should be final and should be respected.”
Experience has shown that few shelved projects are ever revived. In the case of the oil industry, only 25 per cent are resumed. Once teams are disbanded and expertise lost, it’s hard and costly to regroup, Tertzakian said, especially when there are faster development alternatives elsewhere.
Many larger investors such as endowment funds and universities would rather not get in the middle of controversy, which has meant less capital for smaller companies, said Glen Schmidt, chief executive of junior oilsands company Laracina Energy Ltd.
Other investors are putting their money to work in other jurisdictions. Foreign investors with projects already under way complain about regulatory paralysis and that they would have never invested in Canada if they had known from the outset about the hostility they’d be up against.
“An unelected judicial system is interfering in things” and increasing the risk of deploying capital, said Seymour Schulich, the billionaire investor in oil and gas and mining. “All the regulations they have put in have slowed things down to a crawl. I am a Canadian and I hate to see what is going on in this country.”
Residents of the small town of Inuvik in Canada’s Arctic know what it’s like to be left empty handed. They heavily invested in infrastructure and skills development anticipating the Mackenzie gas pipeline project would go ahead, which would have promoted gas production and attracted other industries. Today, a number of underutilized new hotels and rows of idle heavy machinery are evidence of the high expectations never met.
The pipeline was the first, high-profile Canadian project to be sidelined — not once, but twice — following drawn-out, expensive regulatory processes rattled by aboriginal and environmental opposition. By the time the latest version was approved, U.S. shale had emerged as a more attractive alternative and the pipeline along with development of massive gas fields was put on the shelf.
Former Northwest Territories premier Floyd Roland, a member of the Inuvialuit nation, blames the project’s failure on interest groups based in “skyscrapers in Vancouver and Toronto” who “had no place in the Northwest Territories trying to dictate to us and to the rest of Canadians that this project shouldn’t happen.”
But it was Keystone XL that elevated activism to a new level.
Dennis McConaghy was the senior executive in charge of the project at Calgary-based TransCanada Corp. when he recognized in 2010 that the rules of the game were changing.
Until then, approval of a project was based on a commonly accepted process of having national, non-partisan regulators adjudicate the costs and benefits of resource infrastructure projects. KXL introduced the politicization of that process in response to targeted activism, he said.
McConaghy, now retired, has written a book on the KXL debacle that will hit store shelves in January. He highlighted three major events that contributed to Keystone’s initial demise.
The first was the demand by U.S. President Barack Obama’s administration that KXL take into account upstream carbon effects. In so doing, the president channelled and legitimized demands by the environmental movement, which had made little progress advancing its climate-change agenda following the failure of the 1997 Kyoto Accord, the failure of the 2009 Copenhagen Accord, the failure to implement carbon pricing in the U.S., plus growing frustration with the growth of Alberta’s oilsands industry, which NASA scientist James Hansen singled out as a “carbon bomb.”
The second was pressure from Bill McKibbon, the green provocateur and founder of 350.org, who “issued a clarion call for widespread demonstrations, even civil disobedience, against Keystone XL,” and was able to cast the project as a test of Obama’s climatechange credentials, McConaghy said.
The third factor was a rapid succession of devastating oil and gas industry accidents in 2010: BP PLC’s Deepwater Horizon blowout in the Gulf of Mexico in April, Enbridge Inc.’s oil spill in the Kalamazoo River in July, and a Pacific & Electric Gas pipeline explosion in St. Bruno, a suburb of San Francisco, in September.
Obama rejected KXL’s application in November 2015 after a seven-year review that cost TransCanada $3 billion. President-elect Donald Trump has promised to revive it when he takes over the White House in January.
But a how-to playbook for activists to command the attention of politicians at the highest level was written, and it has become a “template” for other campaigns, McConaghy said.
With the authority of nonpartisan regulators diminished — if not entirely undermined — by legal obstruction, outright civil disobedience and a lack of political will, dysfunction results, McConaghy writes in his book.
Politicians in both Canada and the U.S., on both the left and right, “have been acquiescent and have been capitulating,” he said, even as projects’ “technocratic assessments would have told them that these are rational choices well within the expected norms of safety along with significant economic value.”
If the two pipelines permitted by Trudeau actually get built, the prime minister may break the pattern. Still, he rejected Enbridge’s Northern Gateway pipeline, which has already been approved. “The Great Bear rain forest is no place for a pipeline and the Douglas Channel is no place for oil tanker traffic,” he said.
Northern Gateway was KXL’s first Canadian-only analog. Its situation was even more complex due to the added opposition by some aboriginal communities along the proposed right of way that worried about preserving their traditional way of life, longstanding disputes over land claims, and B.C. Premier Christy Clark’s unprecedented demands for provincial benefits.
In the U.S., activists targeted TransCanada as well as its executives. In Canada, they expanded their circle of targets to include regulators, thrashing their judgment and their process.
Gaetan Caron was NEB chairman when it ran the Northern Gateway review. Now an executive fellow at the University of Calgary’s School of Public Policy, he said it was the first Canadian instance of politicization.
The NDP and the Green party fired the first salvos by accusing the NEB of being “in the back pocket of industry,” and Trudeau compounded the damage by telling Canadians that “you are justified having a lack of trust in your institutions, like the NEB, without defining the problem,” Caron said.
The Trudeau government has implemented interim measures to bolster regulatory reviews and appointed a panel to restore trust in the NEB that is expected to produce a report by the end of March 2017. He’s also instructed the panel to determine whether the NEB should evaluate a project’s carbon emissions in its assessments.
Martha Hall Findlay, president of the Canada West Foundation, said the NEB has become a forum to debate larger questions about global climate change, even though it was never set up to handle those questions.
“As they came to the fore, the NEB was the only place to go,” she said.
So far, Trudeau’s NEB reform effort has failed to impress project opponents.
“It is troubling that the federal government’s press release on the NEB’s modernization begins with a reference to “developing our resources and getting them to market,” said Environmental Defense, which is leading the charge against TransCanada’s Energy East pipeline project, in a news release.
The group argues that in a low-carbon future, where the world limits warming to 1.5 C as promised in the Paris accord, there will be a diminishing market for Canada’s fossil fuels and that sinking billions of dollars into new infrastructure may be a bad decision for the economy and the environment.
But Caron rejects the notion that regulators should do the bidding of activists.
“The NEB should have, like it has had since 1959, a thick skin, as a judge,” he said. “A judge is not supposed to be concerned about how well he or she will be liked after the ruling. A judge’s concern is justice. A regulatory agency’s concern is fair and balanced consideration of all the relevant facts based on evidence and analysis.”
Until the discrediting of regulators, Caron said decisions were guided by whether a project met the public interest, which in the NEB’s case is inclusive of all Canadians and takes into consideration the evolving balance of economic, social and environmental dimensions.
In place of those metrics, opponents have successfully dictated a new set of values, typically defined as “social licence.”
The idea of a social licence took off after being proposed by a Canadian mining executive, Jim Cooney, in 1997, while working at Placer Dome. His initial intent was to acknowledge a practical reality: that a resource company needed a degree of public support for its projects so they don’t face problems down the road, wrote Dwight Newman, a professor of law and the Canada Research Chair in indigenous rights in constitutional and international Law at the University of Saskatchewan, in a November 2014 paper for the Macdonald-Laurier Institute (MLI).
But activists picked a different interpretation. They “envision using the idea as a means of undermining the influence of resource development companies,” Newman writes. “If they can peddle successfully the idea that companies need a social licence in order to operate legally and legitimately, then they succeed in transforming the concept into a new source of power for activists like environmental extremists.”
Trudeau during his election campaign talked about embracing social licence as the new test for project approvals, but the pushback has been so ferocious that he didn’t mention the words a single time in his pipeline announcement.
Newman, for one, argues that a social licence test would be “a rejection of the rule of law.”
Brian Lee Crowley, the head of the MLI, has equated it to mob rule.
“Vital national projects cannot be held hostage to every grasping local interest,” he wrote in a 2014 paper for the MLI and the University of Calgary. “The Saint Lawrence Seaway benefits some communities hugely, others not at all, for yet others it is a nuisance, and some communities were even submerged to make way for it. Railways pass through hundreds of communities in Canada where they never stop, and yet those communities run the risk of noise pollution, collisions, and catastrophic spills of chemicals and other toxic substances. People who live next to airports are surely inconvenienced by the noise and traffic.”
Yet these projects went ahead, ordered by a national government elected to represent all Canadians and make decisions in the national interest.
The Trans Mountain pipeline expansion is not a casualty of activism yet, though its review took far longer, was costlier, and was far more explosive than anyone could have imagined. Kinder Morgan’s Anderson is aware that “getting approval is one thing, building it is another thing,” and he fully anticipates protests will disrupt construction. “I would be naive to expect otherwise.”