Bob Rooney

The Im­por­tance of a Well-Timed Pause in Get­ting Bill C-69 Right for All

Policy - - In This Issue - Bob Rooney

Canada en­joys com­pet­i­tive ad­van­tage from democ­racy, the rule of law, well-trained work­ers, nat­u­ral re­sources and geo­graphic prox­im­ity to as well as trade agree­ments with the world’s ma­jor mar­kets. But En­bridge EVP Bob Rooney also notes that “ac­cord­ing to the World Bank’s Ease of Do­ing Busi­ness in­dex, Canada ranks 34th out of 36 coun­tries in av­er­age time to get reg­u­la­tory ap­proval for con­struc­tion projects.”

When work­ing to a tight dead­line, it’s easy to for­get the im­por­tance of a well­timed pause. Yet, it is the pause that al­lows us to step back and re­fo­cus on core ob­jec­tives to en­sure we are get­ting things right. There is a tight dead­line loom­ing as Canada’s fed­eral gov­ern­ment seeks to im­ple­ment a com­pre­hen­sive pol­icy pack­age de­signed to ad­vance core en­vi­ron­men-

tal, so­cial and eco­nomic goals. As can be ex­pected, there are many mov­ing parts as­so­ci­ated with at­tain­ing these ad­mirable and im­por­tant goals. Cana­di­ans would ben­e­fit if we all took a well-timed pause to re­fo­cus on what mat­ters most—get­ting the pol­icy frame­work right for Cana­di­ans.

The Pan Cana­dian Frame­work (PCF) sets out a com­pre­hen­sive emis­sion re­duc­tion plan, in­clud­ing car­bon pric­ing (out­put based pric­ing sys­tem), clean fuel stan­dard and meth­ane reg­u­la­tions. Bill C-69—a bill to re­peal and re­place both the Cana­dian En­vi­ron­men­tal As­sess­ment Act, 2012 and the Na­tional En­ergy Board Act––is de­signed to en­hance pub­lic con­fi­dence in the reg­u­la­tory sys­tem. While C-69 also seeks to “en­hance com­pet­i­tive­ness by de­vel­op­ing a sys­tem for timely and pre­dictable de­ci­sion-mak­ing, which pro­vides cer­tainty to in­vestors”, this ob­jec­tive has—un­til re­cently—taken a back seat to emis­sion re­duc­tion and Indige­nous en­gage­ment ef­forts. A re­cent joint gov­ern­ment-in­dus­try col­lab­o­ra­tion (Canada’s Eco­nomic Strat­egy Ta­ble on Re­sources of the Fu­ture) made strong rec­om­men­da­tions in sup­port of eco­nomic growth; these rec­om­men­da­tions still need to be in­te­grated into reg­u­la­tory and cli­mate pol­icy.

The sum of all the parts could add up to a health­ier in­vest­ment cli­mate and pub­lic con­fi­dence in Cana­dian in­sti­tu­tions—which, in turn, will al­low Canada to seize the op­por­tu­nity to meet global en­ergy de­mand while ma­te­ri­ally re­duc­ing global emis­sions and en­sur­ing that Indige­nous peo­ple and lo­cal com­mu­ni­ties ben­e­fit from en­ergy de­vel­op­ment.

Gov­ern­ments and in­dus­try ap­pear to be in­creas­ingly fo­cused on the right mix of things. The long-term com­pet­i­tive­ness of Canada’s en­ergy sec­tor de­pends on get­ting en­vi­ron­men­tal, di­ver­sity and Indige­nous pol­icy right—just as it de­pends on a glob­ally com­pet­i­tive fis­cal pol­icy en­vi­ron­ment. The ques­tion that lingers amid Canada’s highly po­lar­ized po­lit­i­cal de­bate is whether we are, in fact, get­ting the pol­icy frame­work right. That is, when all these mov­ing parts stop mov­ing will we have achieved our goals?

Let’s take a mo­ment to take stock.

These are un­cer­tain times. The postSe­cond World War global or­der is un­der se­ri­ous stress from pro­tec­tion­ist and na­tion­al­ist forces, while pub­lic con­fi­dence in in­sti­tu­tions is greatly di­min­ished. Ris­ing global debt—al­most $250 tril­lion in per­sonal, cor­po­rate and gov­ern­ment debt in March 2018—a strength­en­ing U.S. dol­lar and ris­ing in­ter­est rates threaten the sta­bil­ity of our global fi­nan­cial sys­tem. Mean­while, cli­mate change, dis­rup­tive in­no­va­tion and dig­i­tal tech­nolo­gies are re­shap­ing our world.

In a world awash in un­cer­tainty, cap­i­tal is seek­ing safe havens and Canada should be high on the list. We have so many ad­van­tages—from strong demo­cratic tra­di­tions and the rule of law to a gen­er­ous nat­u­ral re­sources en­dow­ment, well-trained peo­ple and rel­a­tive prox­im­ity to the world’s ma­jor con­sumer mar­kets, in­clud­ing the U.S. and Asia. It is also worth not­ing that Canada is ranked fourth out of OECD coun­tries for en­vi­ron­men­tal pol­icy strin­gency. Yet, ac­cord­ing to the World Bank’s Ease of Do­ing Busi­ness in­dex, Canada ranks 34th out of 36 OECD coun­tries in av­er­age time to get reg­u­la­tory ap­proval for con­struc­tion projects. We have cer­tainly seen ev­i­dence of this in the con­text of pipe­line ap­provals. This rank­ing goes part of the way to ex­plain­ing why out­bound for­eign di­rect in­vest­ment by Cana­dian com­pa­nies in­creased from ap­prox­i­mately $60 bil­lion in 2013 to $100 bil­lion in 2017, while in­bound FDI fell by nearly half to $30 bil­lion.

Nev­er­the­less, re­cent de­vel­op­ments point to green shoots of op­ti­mism in the Cana­dian en­ergy sec­tor. LNG Canada an­nounced in Oc­to­ber that it will pro­ceed with a $40 bil­lion ex­port fa­cil­ity in Kiti­mat, B.C.; the en­ergy pro­vi­sions of the United States Mex­ico Canada Agree­ment (USMCA) sig­nal that North Amer­ica is likely to main­tain its deeply in­te­grated en­ergy market and sup­ply chains; En­bridge’s Line 3 Re­place­ment Project is on track for com­ple­tion in Canada by the end of the year; and the Tran­sMoun­tain ex­pan­sion project has a po­ten­tial (al­beit chal­leng­ing) path to com­ple­tion. Not only do projects have a path to ap­proval un­der the ex­ist­ing reg­u­la­tory frame­work, they’ve pro­gressed while ad­vanc­ing core en­vi­ron­men­tal and so­cial goals.

Cap­i­tal is seek­ing safe havens and Canada should be high on the list. We have so many ad­van­tages— from strong demo­cratic tra­di­tions and the rule of law to a gen­er­ous nat­u­ral re­sources en­dow­ment, well-trained peo­ple and rel­a­tive prox­im­ity to the world’s ma­jor con­sumer mar­kets.

Even as pol­icy de­bates con­tinue to be waged, sig­nif­i­cant forces are driv­ing the en­ergy sec­tor to take ac­tion to en­hance its eco­nomic com­pet­i­tive­ness, and to align with broader en­vi­ron­men­tal and so­cial pol­icy goals.

Even as pol­icy de­bates con­tinue to be waged, sig­nif­i­cant forces are driv­ing the en­ergy sec­tor to

take ac­tion to en­hance its eco­nomic com­pet­i­tive­ness, and to align with broader en­vi­ron­men­tal and so­cial pol­icy goals. Most notably, as global en­ergy sup­ply moves from scarcity to abun­dance, con­sumers are free to choose en­ergy that, in ad­di­tion to be­ing safe and re­li­able, is also cheaper, cleaner and more con­ve­nient. Sim­i­larly, Indige­nous peo­ple and lo­cal com­mu­ni­ties—backed by so­cial norms and court de­ci­sions— are as­sert­ing greater in­flu­ence on the fu­ture of en­ergy pro­duc­tion and in­fra­struc­ture.

These forces—of­ten but not al­ways sup­ported by gov­ern­ment pol­icy in Canada—have al­ready had ma­jor im­pacts on en­ergy sys­tems here and abroad. Three ex­am­ples are in­struc­tive:

1) Com­pet­i­tive re­new­ables and in­te­grated so­lu­tions

Re­new­able en­ergy costs have fallen dra­mat­i­cally—to the point that they can now com­pete for cap­i­tal with fos­sil fuel projects. For in­stance, so­lar pho­to­voltaic (PV) costs dropped more than 70 per cent be­tween 2010 and 2017. Over the same pe­riod, the cost of on­shore wind dropped ap­prox­i­mately 23 per cent while the av­er­age cost of off­shore wind dropped 13 per­cent to $0.14/kWh.

While the com­pet­i­tive­ness of re­new­ables will con­tinue to im­prove, rel­a­tively low av­er­age ca­pac­ity fac­tors (un­der 25 per cent for so­lar and less than 40 per cent for wind) mean that con­ven­tional fuels will play a sig­nif­i­cant role well into the fu­ture.

2) Cleaner oil and gas

We hear less about com­pet­i­tive­ness gains made within the Cana­dian oil and gas sec­tor. Ac­cord­ing to IHS Markit, op­er­at­ing costs in the oil sands have fallen—on av­er­age—by 40 per cent since 2014, while emis­sions in­ten­sity dropped 21 per cent be­tween 2009 and 2017. Some new oil sands pro­duc­tion is ex­pected to have an emis­sions pro­file be­low that of the av­er­age bar­rel re­fined in North Amer­ica. Sun­cor, for ex­am­ple, re­ports that the emis­sions pro­file of its Fort Hills fa­cil­ity will be four per cent lower than the av­er­age bar­rel re­fined on this con­ti­nent.

Sim­i­larly, LNG Canada—which will re­ceive a sig­nif­i­cant amount of power from hy­dro sources—is billed as the clean­est LNG ex­port fa­cil­ity in the world. There will be glob­ally sig­nif­i­cant emis­sion re­duc­tions if Cana­dian LNG dis­places coal use in China. As Cana­di­ans, we should be proud of these ef­forts. We should also be ad­vo­cat­ing for the use of Ar­ti­cle 6 of the Paris Agree­ment, which would give Canada credit for help­ing to re­duce global emis­sions.

3) Im­proved Indige­nous en­gage­ment and eco­nomic op­por­tu­nity

Just as Canada’s en­ergy sec­tor is poised to com­pete glob­ally on cost and car­bon, the sec­tor is fo­cused on im­prov­ing both di­ver­sity and Indige­nous en­gage­ment. At En­bridge, we’ve come to un­der­stand—vis­cer­ally—that ex­pec­ta­tions of pipe­line com­pa­nies have changed dra­mat­i­cally. We’ve learned that al­though what we do to im­prove pipe­line safety and en­vi­ron­men­tal pro­tec­tion is es­sen­tial, how we do it is equally im­por­tant. In our busi­ness the how is all about re­la­tion­ships.

As a lin­ear in­fra­struc­ture com­pany with as­sets across North Amer­ica, main­tain­ing strong re­la­tion­ships with Indige­nous na­tions and groups is no easy task. We work reg­u­larly with more than 200 Indige­nous na­tions and groups in Canada and 30 fed­er­ally rec­og­nized tribes in the U.S. Our Line 3 Re­place­ment Project—which re­places 1,031 miles of ex­ist­ing pipe with state of the art pipe—is com­mit­ted to de­liver ap­prox­i­mately $350 mil­lion in eco­nomic op­por­tu­nity for Indige­nous na­tions and groups dur­ing the project phase, with more op­por­tu­nity avail­able over the life­cy­cle of the as­set. This re­sult il­lus­trates just how im­por­tant en­ergy in­fra­struc­ture com­pa­nies are in con­tribut­ing to Indige­nous eco­nomic rec­on­cil­i­a­tion ef­forts.

Much has changed re­cently to bet­ter align the in­ter­ests of the Cana­dian en­ergy sec­tor with the gov­ern­ment’s key pol­icy ob­jec­tives. De­spite what we tend to hear in the news, Canada’s en­ergy in­dus­try is in­creas­ingly aligned with the fed­eral gov­ern­ment’s core pol­icy ob­jec­tives: en­sur­ing com­pet­i­tive­ness, di­ver­sity, emis­sion re­duc­tions and Indige­nous eco­nomic rec­on­cil­i­a­tion. If, as it should, Canada is go­ing to help meet global en­ergy de­mand while ma­te­ri­ally re­duc­ing global emis­sions and en­sur­ing that Indige­nous peo­ple and lo­cal com­mu­ni­ties ben­e­fit ma­te­ri­ally from en­ergy de­vel­op­ment, then we need to make sure we get the pol­icy frame­work right.

A well-timed pause on Bill C-69 will pro­vide the op­por­tu­nity to en­sure align­ment among the bill, the PanCana­dian Frame­work and the Re­sources of the Fu­ture re­port. If we take the time to do this right, then we’ll end up with a con­sis­tent pol­icy frame­work that ef­fec­tively in­te­grates gov­ern­ment and in­dus­try’s core ob­jec­tives. It is worth the ef­fort.

Bob Rooney is Ex­ec­u­tive Vice Pres­i­dent and Chief Le­gal Of­fi­cer of En­bridge Inc. in Cal­gary.

En­bridge photo

Con­struc­tion on En­bridge’s Line 3 Re­place­ment Pro­gram in Al­berta and Saskatchewan in 2017. When com­pleted be­tween Al­berta and Wis­con­sin in 2019, the project will come in at $5.3 bil­lion, cre­at­ing thou­sands of jobs.

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