Federal Government Releases Draft Legislation to Reform Federal Regulatory System

Apr 27, 2012

On April 26, 2012, the Federal Government introduced Bill C-38, the 2012 Budget Bill. Part 3 of Bill C-38 contains the Federal Government’s proposed legislative changes to the federal regulatory system. The most significant change is the complete repeal and replacement of the Canadian Environmental Assessment Act (CEAA), the central piece of federal environmental legislation. Its replacement, the Canadian Environmental Assessment Act, 2012, includes fundamental changes to the current Act that are intended to address the uncertainties and inefficiencies associated with the current legislation. Bill C-38 also proposes significant changes to the National Energy Board Act, the Canadian Oil and Gas Operations Act, the Nuclear Safety and Control Act, the Fisheries Act, the Canadian Environmental Protection Act and the Species at Risk Act. Many of these changes are consistent with the government’s previous announcements that we discussed on March 15 and March 30. However, Bill C-38 sheds much more light on the details of the Federal Government’s regulatory reform agenda and contains many proposed legislative changes that will have significant, and largely positive, implications for resource developers.

Key Reforms in Bill C-38

The following are, in our view, the most significant aspects of Bill C-38 for project proponents in Canada:

Canadian Environmental Assessment Act

  • “Environmental effects” under the new CEAA will be limited to effects on areas of federal jurisdiction: fish, aquatic species under the Species at Risk Act, migratory birds, federal lands, Aboriginals, and changes to the environment that are “directly linked or necessarily incidental” to a federal approval. This definition will confine assessments under the CEAA to narrow matters of federal jurisdiction.
  • The current “trigger”-based approach to determining whether a CEAA review is required for a particular project will be replaced with a project list approach set out in a regulation. The Minister of Environment will also have the power to require a CEAA assessment for non-listed projects. This change will eliminate the uncertainty associated with “triggering” under section 5 of the current legislation.
  • Most of the factors that are currently required to be considered in an assessment under the CEAA will remain the same under the new CEAA, such as the significance of environmental effects and cumulative effects, but “need for” and “alternatives to” a project will no longer need to be considered.
  • Public participation in CEAA assessments that are undertaken by the National Energy Board (NEB) or review panels will be limited to “interested parties,” defined as parties that are directly affected by the application or persons that have relevant information or experience. This reform will limit the number and type of interveners in NEB hearings and review panel assessments under the CEAA.
  • All assessments under the CEAA will be subject to fixed timelines: 365 days for standard assessments, 18 months for reviews by the NEB and 24 months for assessments by a review panel. These timelines may be extended by the Minister and/or Federal Cabinet. In addition, if the project proponent is asked to provide additional information or studies for the assessment, the “clock” for the environmental assessment stops running.
  • The Minister of Environment may substitute the process of a province for an assessment of a project under the CEAA (except for assessments under the jurisdiction of the Canadian Nuclear Safety Commission or the NEB), so long as all of the mandatory factors to be considered in a CEAA assessment are met. These substitutions may be made for a particular project or a class of projects. This amendment will reduce the overlap between federal and provincial environmental assessments.
  • At the conclusion of the environmental assessment, the responsible authority must conclude whether the project is likely to result in significant adverse environmental effects. If so, the project is referred to the Federal Cabinet to determine if those effects are justified in the circumstances. This section clarifies that justification of significant environmental effects is a political decision that is made by government, not the responsible authority under the CEAA.
  • If a project is approved under the CEAA, a decision statement must be released including the conditions that the responsible authority deems necessary. These conditions must be directly linked or necessarily incidental to the federal authority and must relate to the environmental effects of the project. The project proponent is then required to comply with the decision statement and non-compliance results in offences and fines of up to $400,000 for a single offence.
  • Environmental assessments that are currently being carried out under the existing Act will be continued as if that Act had not been repealed, but will be subject to firm timelines. Review panel assessments will be continued under the new CEAA, subject to the fact that the timelines may be extended (to a maximum of 24 months from the date that the new CEAA comes into force). The latter provision may provide considerable benefits to projects currently undergoing review panel assessments under the CEAA.

National Energy Board Act

  • The NEB will be required to provide a report to the Federal Cabinet respecting whether or not it recommends the granting of a certificate of public convenience and necessity (CPCN) for a pipeline project proposal, but the Cabinet will ultimately make the decision whether or not to grant the CPCN.
  • Pipelines that have been granted a CPCN or a section 58 order will be exempt from the requirements of the Navigable Waters Protection Act. This amendment will reduce duplication, timelines and regulatory uncertainty for pipeline proponents.
  • Additional powers will be added to the Act to allow for enforcement of violations of the Act and penalties for non-compliance.
  • Applications that are currently being considered by the NEB will be continued under the existing rules, except that the Chair of the NEB will be required to create firm timelines for these reviews upon the coming into force of the amendments.

Fisheries Act

  • Section 35 of the Act will be amended; rather than prohibiting harmful alteration, disruption or destruction of fish habitat (HADD), there will be a prohibition against carrying out works or activities that result in “serious harm” to fish (defined as the “death of fish or any permanent alteration to, or destruction of, fish habitat”). There will also be broad powers under s. 35 to create regulations exempting classes of works or activities from the s. 35 “serious harm” prohibition. This amendment will considerably reduce the number of s. 35(2) authorizations that are required for resource developments.
  • Fines under section 40 of the Act are increased to a minimum of $1 million per offence and a maximum of $12 million per offence. The size of these fines is unprecedented.

Implications of Bill C-38

Bill C-38, if implemented as currently proposed, would significantly affect the federal regulatory system in Canada. Environmental assessments for most projects would become the responsibility of provinces and the Federal Government would limit its reviews to discrete areas of federal jurisdiction. These assessments would be carried out more quickly than current CEAA assessments and in a much more efficient manner. Bill C-38 would ensure that ultimate decision-making for major projects is done by the government, not regulatory bodies. Bill C-38 would also considerably reduce the overlap between regulators for major projects and consolidate most authorizations with the best-placed regulator, such as the NEB. Therefore, the majority of these reforms should be viewed very positively by project proponents.

At the same time, however, the additional enforcement provisions and penalties in the legislative reforms reflect the government’s desire to place the onus on industry to ensure that the new rules are being complied with. Non-compliance will be heavily penalized. Similarly, the fixed timelines that will be introduced into the CEAA and NEB hearings will only be useful if the project proponent assembles a complete application. To the extent that the responsible authority requires additional information from the proponent, that will add to the length of the regulatory review process.

Bill C-38 may still undergo significant changes before it becomes law. Many of the specific reforms in the Bill also provide for the creation of regulations, which themselves have not yet been released. Therefore, the final changes to the regulatory system are still far from complete. It will thus be important for resource developers to closely monitor the specific legislative reforms that are proposed in the coming weeks and months to assess how these changes will affect their particular businesses.

If you have any questions on the implications of the subject matter of this Osler Update, or you wish to discuss further, please contact Shawn Denstedt or Sander Duncanson.