Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 34 - Evidence - May 8, 2018
OTTAWA, Tuesday, May 8, 2018
The Standing Senate Committee on Transport and Communications, to which was referred Bill S-245, An Act to declare the Trans Mountain Pipeline Project and related works to be for the general advantage of Canada, met this day at 9:30 a.m. to give consideration to the bill.
Senator Patricia Bovey (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Honourables senators, I call to order this meeting of the Standing Senate Committee on Transport and Communications.
[English]
I am Pat Bovey, deputy chair of the committee. Our chair is out of town today. The other deputy chair and I have been sharing the responsibilities when our chair is not here, so it fell to me today.
[Translation]
This morning, our committee is continuing its study of Bill S-245, the Trans Mountain Pipeline Project Act.
We have two panels of witnesses today. From our first panel, I would like to welcome Mr. Benjamin Dachis, Associate Director of Research at the C.D. Howe Institute.
[English]
We also have Dr. Jack Mintz, President’s Fellow at the University of Calgary’s School of Public Policy. We are having trouble connecting with him. He will be connecting with us by video. Dr. Mintz is a member of the Order of Canada since 2015 for his contributions as an adviser on fiscal and tax policy.
I will be asking Dr. Dachis to speak first. When Dr. Mintz is able to join us, we will hear from him, but he only has until 10:15 a.m. We will do a bit of dancing, if we may.
Before I ask Dr. Dachis to start, I will ask our committee members to introduce themselves. I will start from Senator MacDonald.
Senator MacDonald: Michael MacDonald, Nova Scotia.
[Translation]
Senator Boisvenu: Pierre-Hugues Boisvenu from Quebec.
Senator Galvez: Rosa Galvez from Quebec.
[English]
Senator Plett: Don Plett from Manitoba.
Senator D. Black: Douglas Black from Alberta.
[Translation]
Senator Dawson: Dennis Dawson from Quebec.
Senator Gagné: Raymonde Gagné from Manitoba.
[English]
Senator Sinclair: Murray Sinclair from Manitoba.
The Deputy Chair: Thank you all.
I will ask Mr. Dachis to commence, please.
Benjamin Dachis, Associate Director of Research, C.D. Howe Institute: Thank you so much for the invitation. It is always a pleasure to come here to speak with our important committees and, in particular, this one.
We all know the Trans Mountain saga by now with Kinder Morgan, the proposed pipeline operator of the pipeline from Alberta to the B.C. coast wanting certainty by May 31 or else it threatens to walk away from the project. The result would be stranding Alberta’s oil. Now there is talk of the federal government taking steps to ensure that it is built. Let us take a look at some of the options today.
Right now, we are discussing a bill from Senator Black that would open up some of those options. I want to put some meat on the bones of what such action should look like and, in particular, what will be necessary in terms of financial support from the government to get this built.
If you look back to the last great national pipeline debate in the 1950s, federal financial support was indeed decisive for building the cross-country natural gas pipeline that we have today.
The federal government has committed to making the project happen, but we don’t yet have legislation — at least coming from the house yet. There is just talk in the press so far. I will argue that federal support is the right idea and that Ottawa just happens to have just the shiny tool to make this happen, which is the Canada Infrastructure Bank, which I spoke about last time I was here before the committee. The government has approved construction of the pipeline and has said it will use all tools available to get the pipeline built. One of those tools should be the Canada Infrastructure Bank.
The Alberta government has even mused about buying the pipeline from Kinder Morgan to ensure it gets built. Both governments want to see the project built, for good reason. A pipeline to tidewater will increase the price that Canadian oil fetches because of the severe Alberta supply glut, and a new pipeline means a stronger Canadian economy and higher government revenues.
What is the case for the government itself stepping in to make sure the pipeline is built?
Kinder Morgan doesn’t care about the revenues that governments would forgo or the jobs that will be lost if its pipeline stalls. All that Kinder Morgan cares about is making money on its investments. With costs rising due to delays caused by the B.C. government, Kinder Morgan’s prospect of making money is starting to look pretty dicey. That creates a disconnect between the private incentive for a business and what’s best for society.
Governments step in to deal with negative costs to society all the time, like pollution, that businesses otherwise wouldn’t pay for. First, you see pipeline safety regulations that prevent spills and also a tax on emissions from polluters. These kinds of steps make society better off by adding costs on to businesses.
Governments should also step in to remove costs from business to increase the social benefit that a business wouldn’t see in their bottom line. That’s why the government should give some kind of support to Kinder Morgan. Remember, the federal government is best placed to reduce the cost of risk that Kinder Morgan faces because of the actions of the British Columbia government. The question now is how.
First, governments should not be in the pipeline business.
Senator Plett: Hear, hear.
Mr. Dachis: Adding a political lens to daily operating and building decisions will bog down the project. We don’t want that. Nor should government support be unlimited. If Kinder Morgan demands too much, then the government should walk away.
How will we know if the government is going to get a good deal? This is where the Canada Infrastructure Bank can potentially play a valuable role. It was established in June 2017, and it is a:
Crown corporation that uses federal support to attract private-sector and institutional investment to new revenue-generating infrastructure projects in, or partly within, Canada that are in the public interest.
First, is the pipeline in the public interest? Absolutely. The federal government approval made that clear. A revenue-generating project? Absolutely. The pipeline will clearly be self-financing and not require any kind of long-term ongoing government support once built.
As Trevor Tombe has argued in an opinion article a few weeks ago, the best option would be a short-term loan just during the construction phase, not an equity investment, a loan that would be repaid at the end of the construction and would offer support during the most politically risky periods of the pipeline project. After that, the bank can and should cash out.
The bank has the legislative power as well to offer Kinder Morgan the kinds of support that make the most economic sense. It should be the bank instead of politicians that negotiates with Kinder Morgan to make sure taxpayers get a good deal.
Tasking the bank with this project can also help solve another problem, which has been the painfully slow appointment of leadership at the bank. It has been nearly a year since the legislation that created it passed, and there is still no CEO in place. Tasking the Canada Infrastructure Bank with structuring an agreement with Kinder Morgan will help light a fire under both the government and the board to get on with setting it up.
In conclusion, we must remember that the dilemma Kinder Morgan is facing is a good example of why the Canada Infrastructure Bank was a good idea. It is a socially worthwhile infrastructure project that got bogged down by risks that only a government, particularly the federal government, can step in to solve. The government can kill two birds with one stone by ramping up the bank quickly to support the construction of the Trans Mountain pipeline.
With that, I can turn it over to Jack, if he is with us, or take questions.
The Deputy Chair: Thank you very much. He is not with us, so I will move on to questions.
Senator Plett: Thank you for being here this morning, Mr. Dachis.
I read with interest this morning that although the B.C. government is doing everything they can to oppose this, they certainly know where to invest their pension funds. They are investing them in Kinder Morgan and a number of other related industries. Even though they want to oppose certain pipelines coming across, they know that Kinder Morgan is a pretty good company to invest money in. However, that is a comment, not a question.
The Canadian Centre for Policy Alternatives has disputed the idea of the Trans Mountain expansion project being in the national interest and has suggested that the economic benefits of the project accrue disproportionately in Alberta. In your view, why is this project in the national interest?
Mr. Dachis: It’s the fact that the project is going to be mainly in B.C. and the project benefits will be in another province. By its nature, that’s an interprovincial benefit, which automatically makes it a federal project. When you have this kind of cross-border interprovincial policy or interprovincial transportation link, right from the very foundation of this country, the federal government has had clear authority over these kinds of projects because these kinds of interjurisdictional issues can only be solved by the federal government when it has gone through proper approval and channels for it to be seen through that lens as being in the national interest. It has gone through that lens. We are now at the point where it is about enforcing the law of the land of a project that the government has deemed to be in the national interest.
Senator Plett: I may or may not have understood your presentation entirely correctly, so I will ask a question that you may have answered in your remarks. You commented that Kinder Morgan’s main objective is to make money for their shareholders, and any organization should rightly want to make money for their shareholders. Did you suggest in your comments that the government, instead of Kinder Morgan, should be building this pipeline?
Mr. Dachis: No. Far from it. We do not want the government owning and operating a pipeline. That is not at all the best option.
What does make sense is limited forms of financial support. When there is a risk that a company is facing because of, say, expropriation, effectively, by the British Columbia government, only the federal government can step in with the proper jurisdiction to support that company, both through legal remedies and financial support. We have seen it before with loans, for example. A loan would be by far the best option rather than some kind of equity investment.
Senator Plett: I see that Mr. Mintz is with us now, so I may have a question for him later.
The Deputy Chair: Dr. Mintz, welcome. I am glad you were able to connect with us. I introduced you before you were here, so I will ask you to make your presentation now and then we will continue with questions.
Jack Mintz, President’s Fellow at the University of Calgary’s School of Public Policy, as an individual: Thank you very much. First, my apologies, but those were the technical issues of the day.
The Deputy Chair: We understand those.
Mr. Mintz: I want to remind you that, unfortunately, I have a hard stop at 10:15. From here, I must run off to something at 11 o’clock, so I am afraid I have to stop at that point.
The Deputy Chair: We appreciate that, and everyone is aware of it.
Mr. Mintz: Thank you. I will be brief.
I am not quite sure what my colleague Ben Dachis said, but I will reiterate three points that a number of people have said but which I have also written about myself. The building of the Trans Mountain pipeline raises three very important issues.
The first is an economic issue, one in which more pipeline capacity would allow us to shrink the discount that is currently going on. That discount is costing the Canadian economy now $13 billion, as estimated by Kent Fellows at the School of Public Policy at the University of Calgary. Of that, $7 billion goes to the provincial government in Alberta, although there is also a cost to the Saskatchewan government. There is also a loss of almost $1 billion to the federal government, as well as roughly a bit more than $4 billion to private producers.
Of course, it is not the corporations that are producing. Some are foreign, like Imperial Oil, of which I am a member, but many others are involved and invested in the oil and gas industry, including pension funds. Interestingly, in terms of pension funds, that includes the B.C. government itself. They lose money as well, as do workers and other people. This is a huge economic cost, and it is ongoing if we continue what we are doing in terms of pipeline capacity.
The second issue is that our international reputation of being able to get things done is being harmed right now by our inability to achieve a regulatory system in which resource development can take place in this country while, at the same time, we deal with the environmental issues, as we have been doing through various other policies. I am concerned that our inability on the regulatory side to get things done is a huge cost that will make it more difficult for businesses to raise capital here in Canada in later years.
The third point is that this issue is creating immense regional conflict, with potential impacts on the development of Canada over the next several years, in which a region may feel alienated from the rest. We know from experience that when regions feel alienated and one region is fighting another region in this country, that can have a difficult and problematic impact on the Canadian economy and on the politics of this country. We must make sure we get these issues resolved soon.
For that reason, the federal bill or some major bill taken by the government that would ensure that this pipeline gets built and follows through with the constitutional responsibility of the federal government over interprovincial transportation is essential.
The Deputy Chair: Thank you. Senator Plett, you said you had one more question for Mr. Mintz, and then we will move on.
Senator Plett: Yes, a brief one for Mr. Mintz.
In a short version, please give me an answer as to — and you talked about some of this — regional interest. We have Energy East being stopped by Quebec in moving Alberta oil to the eastern shores, and we have British Columbia stopping it from moving to the west. At what point does the federal government just simply say, “Listen, provinces, this is our jurisdiction. Step aside. We’re going to do what’s best for the entire country”?
Mr. Mintz: This is a difficult area of federalism, as we have known for many years, but the federal government does have certain constitutional responsibility under section 91. It was given the right over canals, which was transportation, and other things. We know the federal government has that responsibility. Of course, there is shared responsibility with the provinces over environmental issues, but at some point the federal government has to exert its authority. As Dwight Newman has expressed — and I understand you will be seeing him — there is a certain paramountcy the federal government can at times push in terms of its responsibility that can override provincial legislation.
Senator Plett: Thank you.
Senator Galvez: Thank you very much, Dr. Mintz, for being with us today. Those were interesting statements.
I am not a lawyer. I don’t understand all the bills and the laws that will make a project in the interest of Canada. However, I do understand the mediation concept and getting to reconciliation because of human resources issues and environmental negotiation. When you want to look for success in reconciliation and conciliation, you do things privately instead of publicly, and offer incentives rather than coercion. When you want a negotiation to succeed, you have to do it in private and you have to offer incentives. We all agree that we have to come to a resolution. We all know we want to find conciliation, but the problem is how. By putting this bill out, it’s public and coercive. How can we ensure the success of our debate and good terms for everyone?
Mr. Mintz: I would agree with you that it would be better to have some sort of agreement where all parties will stand down. In fact, I think that is a way that we have solved issues in the past. This is kind of like a game theory issue, and when you are having negotiations, sometimes you have to have a credible threat. Perhaps this bill would make it very clear that if the federal government had to move to a coercive situation, it has that ability to do that. That might be the one argument for the bill itself.
In my experience working during the Chrétien/Martin years at Finance, I have seen deals made where we have been able to get cooperation between federal and provincial governments on an issue. There are usually a number of things that have to be developed.
You are absolutely right; these are things done through mediation, quietly and in the background. This probably should have been done a year ago when it came to this issue. It is unfortunate that Kinder Morgan had to finally pull the plug because of the costs involved with delay after delay and the fact that protesters could be so close to the fence where they were trying to move ahead with the construction that has already been approved.
The B.C. government certainly has not helped here, but I think perhaps there is an opportunity for negotiation to get a deal. Unfortunately, B.C. has put itself in a position where it is more difficult now to get a deal because it has been so public in its approach. Hopefully, we can still get a deal made where B.C. will get some things that will be helpful to them, including, for example, the clear type of processes that are needed to ensure there isn’t a spill or there is full coverage by the federal government of any cost of that spill. That would be the preferable thing to do at this point, and for Trans Mountain to go ahead with its construction.
Senator Gagné: I was wondering, Mr. Mintz, what would be the consequences of the federal government using the declaratory power? As you said, you see it as coercive in nature. What would be the consequences of using that declaratory power?
Mr. Mintz: It would be very negative because you are forcing an issue, if it was invoked and followed through without any further consultation. Again, this is a question of whether we want to use this as part of a tool box to try to get the two sides together, to try and come to some agreement between the federal government and B.C. about moving ahead with Trans Mountain. There will still be opposition that will come from various groups in British Columbia. The only other course is effectively for the pipeline to be withdrawn. However, that will have negative impacts as well. A resolution is good, but the fact that one may back off from the possibility of using that declaratory power may not necessarily be an advantage because it undercuts potentially the ability of the federal government to move ahead in a different way.
[Translation]
Senator Gagné: Madam Chair, shall we put questions to Mr. Mintz first, and then to Mr. Dachis?
[English]
Mr. Dachis, can the government use the infrastructure bank without passing Bill S-245? It is of federal jurisdiction. Would that be the preference in this situation?
Mr. Dachis: That would be my preference. My preference would be for the government to apply as few political lenses as possible to every decision along the way. The bank has legislation in place. It just needs to get set up. The only thing the bank would need federal approval for is a loan guarantee, but that shouldn’t be too much of a problem given that the federal government has come out and said this is the kind of project it would provide financial support for. The federal government, through the infrastructure bank, has every possible tool available to provide the financial aspect of any kind of backing, so I see that as being absolutely independent of any kind of constitutional challenge.
The Deputy Chair: I will suggest, given that Dr. Mintz has just shy of 20 minutes, that perhaps we focus the questions first on Dr. Mintz and then come back around.
Senator Sinclair: Thank you, Dr. Mintz. I want to ask a question that you might be able to help us with. Based upon your analysis, experience and the work you have done, have you looked at the question of what the cost to Canada would be if the environmental impact of the tar sands is not addressed soon? Do you have a view on that?
Mr. Mintz: Yes. First, you have to ask the question: Exactly what are the environmental impacts? With respect to the use of land, we know that companies have to put money aside in a trust fund and then they have to reclaim the land after they finish with their production or depletion of their reserve. One can go see, for example, the Syncrude reclamation that has been done with respect to its open pit mining. You can go watch the buffalo running around the trees and everything else. It has been completely restored. We have already dealt with that issue quite appropriately in Canada, and probably better than many other countries around the world.
With respect to other issues, particularly greenhouse gas emissions, the new oil sands projects have brought down greenhouse gas emissions. When you look at the total greenhouse gas emissions of a barrel of oil sold in the United States, oil sands is no higher than the average landed oil that falls into the United States. That is because there have been new technologies that have been adopted, particularly with respect to in situ developments of oil sands where greenhouse gas emissions are the worst. These new developments — for example, SAGD, Vapex and other new approaches — have reduced greenhouse gas emissions by 20, 30, 40 per cent, depending on the type of technology, as a result of the changes they have made.
Oil sands themselves, at least with respect to these two issues, have not been any more problematic than what you would find from oil coming from anywhere else in the world at this time.
Regarding the issues around water, a lot of regulations have been done. In fact, oil sands plants now recycle water so there is not as much taking of water, et cetera. We are exaggerating a bit the environmental impact of the oil sands as worse than anywhere in the world. That is just not true. We have been very responsible in Canada through our regulatory system and the actions taken by private producers to minimize the environmental impact as much as possible.
Senator Sinclair: The issue that you have raised and the answer that you have given makes me wonder whether you have been talking at all or if you have ever talked to the First Nations people in the area about the impact of the tar sands development upon their lives.
Mr. Mintz: Yes. Actually, I happen to know the chief of Fort McKay, and he will give you a very positive view of the impact of oil sands on their lives, and there are a number of others who have done that as well.
Senator MacDonald: It’s good to see you again, Dr. Mintz. I have a couple of questions.
In regard to our approach in this country to the approval of pipelines, it’s always been a bit of an ad hoc approach. It’s always been my contention that one of the major omissions in this country has been the establishment of a national energy corridor to the West and East Coasts, particularly to Prince Rupert and Point Tupper. I’m curious what your opinion is on that and if you could perhaps comment on that.
Mr. Mintz: Actually, I’m of the view that we need to seriously take a new approach to infrastructure approvals in this country. If you look at the World Bank study that’s been done on issues related to the cost of doing business across 190 countries in the world, in Canada we do some things very well. We actually run a pretty good tax system in terms of keeping compliance costs down. We’re one of the top 10 in the world. I can vouch for that from my own experience working around the world.
However, there are certain areas, especially related to infrastructure, where we have a horrible record. We’re 120 out of 190 countries. There are Third World countries that do better than us. There are three areas in particular where we rank very poorly. One is the time taken to get a permit; the second is the time taken to complete contracts; and the third is getting goods to tidewater. That’s not just oil and gas and pipelines; it’s a number of other things.
So I’ve been a proponent of a proposal to follow through with the kind of work that’s done in a number of other countries — like Australia, which has a much better record than us in these areas — where we would have, let’s say, something like a northern corridor, where you get a corridor that has all the pre-approvals and deals with all the difficult issues that we deal with, such as making sure that First Nations are consulted and properly treated in discussions, general environmental issues and things like that. In the corridor, you can then build electric transmission lines, highways and pipelines, although they will each be subject to an approval process with respect to their unique aspects that would still be required to be regulated and properly assessed. Australia uses the corridor concept quite a bit, and in fact you just need to talk to Canadian companies that invest in Australia, for example, in electrical transmission. It takes seven or eight months to get an approval for an electrical transmission line in Australia, while it could take years in Canada.
So I think we need to really figure out how we could do these things better. I’m afraid the new environmental assessment act that’s being proposed is not going to accomplish that. In fact, it itself has so many unknown uncertainties that it will probably make it very difficult to have any resource development take place in Canada with this kind of regulatory system that’s being proposed by that act.
Senator MacDonald: I have a follow-up question in regard to the National Energy Board. We all recall when Energy East pipeline was sandbagged with new regulations and asks put on the National Energy Board. At the end of this process, it was like the National Energy Board’s integrity was itself called into question. I’m curious about your opinion on the conduct of the National Energy Board and how they’ve done their work over the past number of years. They seem to have a good international reputation; however, their reputation seems to be under attack in their own country.
Mr. Mintz: First of all, from what I understand — and I won’t say I’m a complete expert on this because I’m not involved in talking to regulators around the world — but my understanding is that the National Energy Board, over the years, has been very highly respected. Certainly they’ve made all sorts of decisions that have gone well. We have to remember that we’ve had very few pipeline spills. We haven’t had a mess, actually, on the regulatory side in terms of giving approvals where there have been serious problems that evolved as a result. I think we can be proud of what they achieved.
I think Energy East was a combination of moving the goalposts, particularly changing the terminal, which started pushing up the costs quite a bit for Energy East; and then later on changing, in the middle of the game, the rules with respect to how environmental impacts were going to be assessed. There were some mistakes made by the National Energy Board in terms of some of the political things that happened during that time, but generally that shouldn’t be a criticism of its overall function for many years, where it’s done a very good job.
Let’s face it: There are people who oppose the oil sands simply because they just don’t want to see any more resource development in Canada, for whatever environmental reasons. That’s totally opposite to what’s happening around the world, where resource development is taking place and the governments are still addressing the environmental issues.
The Deputy Chair: Thank you, Dr. Mintz.
Are there any other questions for Dr. Mintz? If not, I will thank you very much and let you get on to your next appointment. We’ll carry on with questions to Dr. Dachis. You’re welcome to join us until you have to leave.
Mr. Mintz: Thank you very much.
Senator Sinclair: Mr. Dachis, I wanted to ask you a question about the economic consequences of an oil spill in the Vancouver Harbour area. You’ve done a study on the economic consequences of the tar sands development and the pipeline itself?
Mr. Dachis: No, I have not done any studies on the cost of spills, but it would definitely be bad.
Senator Sinclair: Do you have any information that you can point us to that would tell us something about that?
Mr. Dachis: Not off the top of my head, no.
Senator Sinclair: Earlier I asked a question about the economic impact of the environmental issues around the tar sands in northern Alberta. Maybe you can tell me what you have to say about that.
Mr. Dachis: I agree with Jack, which is that the oil sands are a critical part of the Canadian economy. When it comes to the economic costs of not building pipelines, they’re numerous.
Just to give one concrete example, the Government of Alberta has done studies that have shown that keeping Alberta’s oil stranded in the province and not getting the highest price in the world market costs it about $1.8 billion in royalties every year. That $1.8 billion in royalties means fewer social services for Albertans and less money for health care and schools. These kinds of projects that enable the Province of Alberta to get more revenue are critical for our daily lives.
Senator Sinclair: My question was really not related to that answer. My question is what are the costs of continuing to do what we’re doing in the North?
Mr. Dachis: When it comes to environmental impacts, we have to remember what the best approach is. When it comes to greenhouse gas emissions, in almost every circumstance, the best approach to dealing with these costs is greenhouse gas pricing, carbon pricing, either a carbon tax or a cap and trade program. The global atmosphere does not give one hoot as to whether a gram or a tonne of carbon dioxide comes from the oil sands or a steel mill in Hamilton or a vehicle’s emissions in Halifax. What matters at the end of the day is the total amount of emissions from around the world that lead to climate change.
A carbon tax has an impressive way of finding the kinds of emissions reductions that make the most sense to the overall economy. It makes sense for us to reduce, say, the amount of steel production in Hamilton, or have people in Halifax to drive a little bit less, because if the economic value of producing oil from northern Alberta, or anywhere in Alberta, is that much higher, then guess what? It makes sense for us to keep producing oil.
Senator McCoy: If I could follow up on your reply to the question about an oil spill in the harbour, on what are you basing your opinion that it would be a bad spill?
Mr. Dachis: Any spill of oil is a bad thing.
Senator McCoy: Is it? Even if it’s just one quart?
Mr. Dachis: Any spill gets attention, and we get a lot of the discussion about the number of spills, even if they’re small. Governments do step in to introduce regulation.
Senator McCoy: Is this in part — I’m sorry to interrupt.
Mr. Dachis: That’s fine. Governments step in to put in place the kinds of policies that will reduce, not 100 per cent eliminate, the likelihood of every possible spill. It gets to a point where the cost of dealing with a small risk of spill at every single point of the way is higher than the economic benefit of preventing that. But we here in Canada have an incredibly good record, especially with pipelines, of preventing spills. Governments always try to step in to stop spills or create regulations that prevent spills as much as possible, but you can’t stop every single one of them. Obviously we don’t want a major spill, and a lot of regulations that have been put in place are there to prevent major spills.
Senator Galvez: Thank you, Dr. Dachis. I think your idea of using the infrastructure bank for the construction of pipelines is an interesting idea. It’s not yet well in place, so I don’t know how quickly it can be arranged. The Kinder Morgan pipeline is very old and needs replacement, but the proponent wants to triple the amount of oil that will come and is arguing that by getting to tidewater we will be able to access the Asian market. To your knowledge, have any contracts been discussed about what the price will be and how much oil they will buy?
Mr. Dachis: I don’t know the details of what kinds of contracts oil shippers or oil producers have gone into with Trans Mountain. It’s very clear that the demand from oil shippers and buyers is there for this project and that oil will go to the place where it makes the most economic sense.
Senator Galvez: I’m asking this because to declare a project to be in the interest of Canada, there are some criteria. It has to be technically feasible, environmentally safe, have commercial benefits, be inclusive of all the stakeholders’ interest, and, of course, it has to touch several provinces. The NEB only did technical feasibility and a commercial assessment from the Kinder Morgan side. Kinder Morgan is going to make money; that’s clear. But the other criteria, to my knowledge, are not there, because the agency didn’t make a complete assessment on all the other aspects, as they were done, for example, for other projects that were declared in the national interest of Canada.
Mr. Dachis: A National Energy Board and then a Governor-in-Council approval is, as far as I know, the highest standard you can reach of asserting that a project is in the national interest. The government is going to take that to the voters. They decided that they’re willing to put their electoral necks on the line in making that case. That is as pretty clear-cut a case as you can find of something being in the national interest or the government establishing it as being in the national interest.
Senator Plett: A question was posed by Senator Sinclair as to what the environmental effects would be with an oil spill with oil coming from the oil sands of Alberta. I didn’t know that they had tar sands; they have oil sands. If no more pipelines get built, Alberta, Saskatchewan and even parts of Manitoba will continue to try to get their oil to market. They will do it by rail or by truck. It will obviously not be as economical and as efficient.
Mr. Dachis: Or as safe.
Senator Plett: Okay. That was going to be my question. You answered before I asked it.
In your opinion, what is the safest way of doing it? Environmentally, what is the best way of doing it, aside from the fact that we hopefully don’t have any spills? If we do have a spill and a train runs off the rail, would that do almost as much damage as an oil spill would do?
Mr. Dachis: When it comes to environmental damage, I haven’t calculated those costs, but we at the institute have done a couple of estimates of the value of rail in that rail does have a value independent of pipeline constraints. We have to remember that railways move grain but also oil, because pipelines go to a fixed point. That fixed point ends up at a refinery and there are only a certain number of pipelines. Rail offers companies more flexibility to be able to get their oil to a variety of different buyers, and that creates competition and actually a higher price for Alberta’s oil, independent of the costs of supply caused by pipelines. At the end of the day, however, you’re right that pipelines are absolutely environmentally safer and have a broader economic benefit.
Senator Sinclair: I find it ironic to have you here, Mr. Dachis, on behalf of the C.D. Howe Institute, because of the history of pipelines in Canada. C.D. Howe was the advocate of the TransCanada pipeline and led to the defeat of the Liberal government in the 1950s because the Conservatives didn’t agree with the TransCanada pipeline at that time. Now, of course, we have the Conservative Party very much advocating for this particular pipeline. So the irony, of course, is the flip-flopping that’s going on here.
I’m curious to ask you about whether or not you’ve had an opportunity to consider the question of First Nations involvement in the approval of the pipeline portion that’s running over their particular territory.
Mr. Dachis: That’s a bigger question than something I’ve been able to look into. It’s absolutely critical.
Senator Sinclair: Has the C.D. Howe Institute made any analysis in that area?
Mr. Dachis: Specifically to pipelines, no.
Senator Sinclair: Thank you.
Mr. Dachis: You’re right; it’s quite ironic. You go back to the pipeline debate in 1956, led by Mr. Howe, and you go back to how that pipeline got built for the portion in Western Canada. The federal government at the time gave $80 million in a loan to the corporation, and guess what? It was paid back in full the next year. That’s the kind of model that, if necessary for a project of such national importance, can work.
Senator Sinclair: And the opposition from the Conservatives is because the product was going to a Texas company.
Mr. Dachis: I won’t get into the politics of that one.
Senator MacDonald: I want to clarify one thing about the pipeline debate with C.D. Howe. The issue was closure. That was the issue the Conservatives fought over in the 1950s. The issue was about closure. I want to put that on the record.
Senator Sinclair: You were there?
Senator MacDonald: I wasn’t there, but I know the issue.
The Deputy Chair: On that note, I think our questions have come to a close. Mr. Dachis, I’d like to thank you very much for your testimony and for being with us this morning and addressing the questions.
Honourable senators, as we continue our study on Bill S-245, I’d like to welcome Mr. Dwight Newman, Professor of Law and Canada Research Chair in Indigenous Rights in Constitutional and International Law at the University of Saskatchewan.
Professor Newman, thank you for joining our deliberations today. I will invite you now to start your presentation. As you know, following that, senators will have a number of questions.
Dwight Newman, Professor of Law and Canada Research Chair in Indigenous Rights in Constitutional and International Law, University of Saskatchewan, as an individual: Good morning. I’m honoured to speak with the committee on this important matter related to Bill S-245. As has been mentioned, I’m a law professor at the University of Saskatchewan. I’m sorry I couldn’t join you today in Ottawa. I’m in Toronto speaking at the Canadian Energy Law Forum in a few hours.
I carry out a broad program of research, with a significant part of it focused on the nexus between constitutional law and resource development, constitutional law including, very significantly, Indigenous rights.
We are going to have a fair amount of time to address the matters that may be of interest to you, if you wish to ask a lot of questions. In my opening minutes, I will highlight several points that I set out in my written brief. I want to focus particularly on three key points.
First, the use of the federal declaratory power in section 92(10)(c) is indeed constitutionally available for the Trans Mountain project if Parliament wishes to use it. On many past occasions, it has been used in instances involving interprovincial or international projects as well as projects within a province. I list some examples in the footnotes within my written brief just to establish that point. Many of these uses were in the context of what is sometimes called “private legislation” focused on rights of particular parties or on particular projects, and that kind of legislation has often originated in the Senate, as I also set out in the brief. It’s not unusual that this sort of a bill, using the declaratory power, would originate in the Senate. The declaratory power hasn’t been used that much recently, but it has been actively used in the context of nuclear regulation even in current times.
Second, the use of the declaratory power in this bill would offer symbolic clarity that Parliament is taking full legislative jurisdiction over the Trans Mountain project. Those sorts of legislative steps should not be necessary, but in the present circumstances they seem to be. The constitutional effect of a declaration under section 92(10)(c) can vary based on features of the legislation in which it is used, and that legal principle is found in a complex 1993 Supreme Court of Canada decision in the Ontario Hydro v. Ontario (Labour Relations Board) case concerning the use of the declaratory power in the nuclear context. The intent of Bill S-245, as I read it, is to clarify exclusive federal jurisdiction on the Trans Mountain pipeline, and it would contribute to doing that.
Third, in several pieces I have written recently on the Trans Mountain project, I have actually suggested that Parliament could provide more legal certainty with legislative steps that go beyond symbolism. By establishing a set of regulatory powers over the pipeline that clearly created what’s known as a complete code in the constitutional context, Parliament would benefit from the constitutional doctrine of federal paramountcy, under which any provincial regulation in the same area would be overridden because of a conflict between the federal legislation and the provincial regulation.
In my written brief, I derive some sample regulatory provisions from past uses of the declaratory power and suggest that those could be the type of thing that could be included in Bill S-245. There would be better drafting than what I’ve offered there. They are based very much on the old drafting style. But, of course, all of the resources of the Justice Department could be brought to bear if there were a follow-through on the commitment of the government to legislate steps to provide certainty for the pipeline. If things have to progress from the Senate, the Senate will have to do what it can do with Bill S-245.
In any event, Canada does have the legislative powers to get this project done if there’s the will to do so. With that, I would conclude these remarks and simply open myself up to questions on the constitutional dimensions related to the declaratory power in Bill S-245.
The Deputy Chair: Thank you very much, Mr. Newman.
Senator Sinclair: Hello, Mr. Newman.
My question to you has to do with your other area of expertise, or perhaps a related area of expertise, and that is Aboriginal rights in the petroleum industry or the resource industry generally and the impact that could be had with regard to the exercise of the right to consultation, the right to involvement. Have you had a chance to look at the court cases that have been filed in the various courts by the First Nations with regard to the failure of the National Energy Board to consult with them properly or to consider their position properly in the process of approval?
Mr. Newman: Yes, indeed. I referenced those in the written brief and in my writing on the Trans Mountain project of late. I’ve tried to emphasize that this is a part that has been forgotten in a lot of the discussion. There’s a very important discussion to have around the federal-provincial jurisdictional issue, but there’s a very important part connected with those cases. Of course, those were heard back at the Federal Court of Appeal in October and at the British Columbia Supreme Court in November. There would have to be a hope that those decisions come through. The court is best placed to assess all of the complex evidence that was presented there, and hopefully those courts will render those judgments. I would see it as vital that the government respect the Indigenous rights dimensions, of course. It needs to be responsive to anything that comes from those judgments.
Senator Sinclair: Whatever the courts say with regard to section 35 and the clarity around what those rights might mean, would you agree with the suggestion that any declaration that this is a work to the advantage of Canada and, therefore, a federal undertaking that is subject to federal jurisdiction is still subject to the section 35 rights of Indigenous people under the Constitution?
Mr. Newman: Yes. It is a statement about federal versus provincial jurisdiction. Section 35 is a constraint in legal terms on both levels of government but part of the cooperation within a diverse Canada.
Senator Sinclair: All right. Thank you very much.
Senator Galvez: Thank you. I think we are all aware that, as parliamentarians, we have the power to declare a project of national interest, but I think the question is when to use this card.
In this case, we have some questions. For example, I mentioned to the previous witness that to ensure success in negotiation, it should be individual, private, incentive-type negotiations instead of being coercive and done in a public place or enforcing this type of bill.
In analyzing the global picture, it seems ironic to declare a project of national interest by using a tool that will confront provinces. Therefore, it is going against the unity of the country.
The other point I want you to comment on, has someone evaluated the commercial cost of putting friction between provinces? What does that do to the whole of Canada with losing money because we are putting provinces in opposition to each other?
Mr. Newman: On the second point, I think I’d have to defer to the expertise of economists in terms of the assessment of any costs that exist out of different types of policies.
Speaking to the first point, I would simply say I don’t see it as running counter to national unity for the federal government to use its powers that are explicitly provided for it under the Constitution, and this bill shouldn’t be necessary. Section 92(10)(a) already provides the federal government with jurisdiction over interprovincial transportation and communications, obviously the area in which this committee routinely works. There are a lot of constitutional doctrines that back up the exercise of powers under that power.
However, in the present circumstances, there seems to be a lot of questioning of that area of federal jurisdiction, phrased very indirectly at times. There have been statements put around whether Parliament could use the declaratory power or not. I’ve tried to respond to some of those here. If you agree that it’s very clear that Parliament can be — of course, I am not questioning that, but there are people who have floated comments in the press suggesting that it couldn’t use it legally, so one of the things I am saying is legally it can.
And, second, it is within the explicit powers of the federal government, so I don’t think that is an interference with national unity. I think it is actually a carrying out of the constitutional purposes that the federal government can construct interprovincial transportation infrastructure.
Senator Galvez: I think you are aware, because it has been all over the media, that the provinces are already threatening each other with commercial bans and limitations. I think it is pretty evident that they are already in a confrontational situation.
Will this bill, or the one that is being put in the other chamber, which I think has the same type of purpose, at the end accomplish this? Will it accelerate this and give the results that some portion of the population seems to want, which is the construction of this pipeline?
Mr. Newman: I think this bill provides an environment of legal certainty for the project. Now, there are a lot of other factors that come into play in terms of what happens from here. Certainly, if a province decides to continue to disregard the rule of law, at that point there would be complexities that arise. If there are protesters who disregard the rule of law in some manner, all kinds of things could happen. It is not my place is to speculate on that. I am speaking simply to the reality that this bill would provide a legal certainty for the project, and things would have to develop from there in terms of the more political dimensions.
Senator Galvez: Thank you.
The Deputy Chair: If there are no other questions on first round, I will move to second round.
Senator Sinclair: That was quick. You have either provided all the answers, professor, or else no one can understand what you have said, so let me see if I can help here.
We have already discussed the impact on the relationship between section 35 and the declaratory power generally, but the court cases that are before the court clearly raise the question of whether or not the duty to consult has actually been met, particularly those cases that have been filed by the First Nations. Would you agree with that?
Mr. Newman: That’s one of the principal issues raised in those cases before the courts.
Senator Sinclair: In the case law to this point in time with regard to the issue, the Supreme Court in a couple of decisions appears to have said — maybe you can comment on this — that projects should not be allowed to proceed until the duty to consult has been met.
My question goes to this. If that is the case, the court decisions clearly raise that question, and that is an open question for the courts to decide. How will we then reconcile the fact that the pipeline proponents — Kinder Morgan, in particular — seem to have put so much money into the ground to get this pipeline to the point where they are now saying they will not spend any more money if consultation may not, in fact, have been completed?
Mr. Newman: That is an immensely complicating feature to our present regulatory environment, that companies are being expected to spend $500 million or $1 billion and not have knowledge of whether there might be some other issue that comes up by surprise. We saw that certainly with the Northern Gateway decision, where the Federal Court of Appeal, after the project proponent had spent $500 million, ruled that there was still further consultation that needed to be done. With a change of government, the new government decided not to go ahead with that further consultation that would have been required.
In this instance, the two courts are best placed to assess all of the evidence that has been put forth before them. They will have to make that assessment. If they determine that there were inadequacies in consultation, presumably the remedy would be that more consultation would be carried out. The government would need to carry that out in good faith if it wishes to potentially proceed with the project and would need to consider that further consultation, what came from it and, if necessary, accommodations that arose.
Right now we are speculating about a court decision that might or might not come. The government’s view, certainly that it has articulated, is that it has carried out extensive engagement and consultation. The government has tried to learn lessons from the Northern Gateway decision and the judgment in that case in order to improve the consultation process that was carried out on this project in response to that. It is possible that the government might well win those cases. That remains to be seen, depending upon the court’s assessment of the evidence in those cases.
Senator Sinclair: Yes. They haven’t won them yet.
In the Carrier Sekani case, which you reference, and the Clyde River case, which you also reference in your material, the courts seem to say that until consultation has been completed or the consent of the First Nations involved has been received — so in either case — if consultation is not yet completed, the project cannot be deemed to be in the public interest. Do you agree with that statement?
Mr. Newman: There certainly have been court statements that a project shouldn’t proceed until consultation has been completed, although there may be continuing consultation during construction. I think that is a positive thing where that bears on elements of the project proceeding.
A sufficient consultation related to the approval of the project needs to have occurred before a project is approved and proceeds. That said, that assessment is initially in the hands of government, subject to a court challenge. If the government’s view is that it has carried out that consultation, it could authorize a project to proceed without having a court hearing in every case.
The duty to consult today is triggered in Canada several hundred thousand times a year. Most of those instances see projects proceed, without controversy, with good consultation. There are certainly times where consultation efforts should be critiqued, but in many cases we see good consultation efforts proceed. We see many instances of agreement with Indigenous communities. We can’t have a court proceeding in every instance, and governments are entitled to proceed subject, of course, to a court challenge. In this case, there are court challenges, and it is very important that those be heard and decided.
Senator Sinclair: I may be the only member of this committee that is interested in continuing this conversation ad nauseam.
Concerning the degree to which there may still continue to be provincial jurisdiction remaining even after the declaration that this bill appears to authorize, in the Ontario Hydro case, for example, I think the Supreme Court of Canada put a significant limitation upon the federal jurisdiction to regulate and control only those workers in the industry who actually were involved on behalf of Ontario Hydro in the nuclear component of their work, and that they didn’t necessarily impact upon those who were involved in the project who were not involved in the nuclear component. Do you have a comment to make with regard to the limitation on the federal undertaking jurisdiction and the ongoing possibility of provincial jurisdiction here?
Mr. Newman: Thank you for the attention to the Indigenous issues because those are vital to continue bringing to attention here.
On this question about the Ontario Hydro decision, I will say it is a complex judgment. There is a three- to three-to-one type split, which never enhances the clarity of a Supreme Court of Canada judgment when you see that kind of split. I would read the combination of the two judgments in the majority to imply that the consequences of a use of the declaratory power depend on the particular intentions spelled out in the legislation in that instance. In the instance involved in that case, the effects were subject to some limits.
In Bill S-245, one might read a broader intention and one might read the legislation as further displacing provincial jurisdiction that might otherwise have existed through the intention to use the federal jurisdiction.
That said, that would be clearer if there were additional provisions added to the legislation. They might or might not take the form I have included in the written brief, but something that would set out more of a federal covering of the field, as it were, in the context of the project would further use the doctrine of federal paramountcy. In the case of a conflict between a federal law and a provincial law, even where they are both entitled to enact the legislation, federal paramountcy says that, to the extent of any conflict, the federal legislation takes priority and the provincial legislation then doesn’t operate to the extent of that inconsistency.
In some of my recent writing on Trans Mountain, that is the sort of approach I have suggested as a legislative path forward, being very precise about the federal-provincial issue if the federal government wishes to assert its powers. That doesn’t deal, of course, with the section 35 issues, which are an additional set of legal issues.
Senator Sinclair: I found that very exciting.
The Deputy Chair: I am glad.
Senator D. Black: Dr. Newman, thank you very much for being available and for the detailed work you have done to be of assistance to us.
I read, from what Senator Sinclair, my esteemed colleague, is suggesting, that, in his view, consultation is not complete until there is consent. Do you agree with that?
Mr. Newman: I don’t know if that is what he has articulated or not. That’s not what I heard in his question of a moment ago.
Senator Sinclair: It is an interesting question.
Mr. Newman: If he were to make that assertion, or if someone else were to make that assertion, I would say that consent certainly seems to be able to substitute for consultation. If consent is achieved, that may replace the need for consultation. That is the structure under which we are operating in the context of impact benefit agreements negotiated between industry and Indigenous communities very routinely. There is reference to that idea in the Tsilhqot’in decision of the Supreme Court of Canada in 2014, as well, that if there is consent, that effectively resolves all the issues.
Nothing in what the Supreme Court of Canada has said thus far suggests that consent is the requirement under consultation other than possibly in some very limited circumstances. Consent is the standard requirement in the case of an established Aboriginal title area. That is not surprising. Where it is established that someone owns land, the usual standard for someone else to use that land would be consent. Apart from that circumstance, there has been no suggestion that consent is the general standard. Consultation varies across the spectrum. It is a complicated doctrine as to what exactly is required under it. The current state of Canadian law does not seem to reflect a requirement of consent.
Senator D. Black: Thank you very much, Dr. Newman.
The Deputy Chair: Are there any other questions or comments?
Senator Sinclair: I am tempted. You will hear a lot about this as we go forward, let me assure you. Tomorrow we have a panel from First Nations leaders who will speak to us about this question, but generally the issue of consent is one that they will raise.
Are you familiar with the United Nations Declaration on the Rights of Indigenous Peoples and its endorsement by Canada?
Mr. Newman: Yes, I am.
Senator Sinclair: From a constitutional perspective, what do you think that endorsement does to the existing state of the law in Canada, if anything?
Mr. Newman: There have been a couple of endorsements by Canada, of course. There was an endorsement in part in 2010, and then there have been subsequent endorsements in 2015 and 2016, more recently. Those have been phrased, to some extent, in less qualified terms, or at least purported to be, although some parts of the phrasing of the 2016 endorsement did refer to still carrying this out in conformity with the Constitution of Canada.
In general terms, those endorsements themselves don’t have any particular legal effect. They do represent a commitment by Canada, and at the policy level, going beyond the constitutional context, there are questions in terms of how the government wishes to proceed given that it stated itself to be seeking to conform to the UN Declaration on the Rights of Indigenous Peoples.
There is another bill in progress through Parliament concerning the UN Declaration on the Rights of Indigenous Peoples, Bill C-262. If adopted, that bill certainly has effect in relation to the status of the UN Declaration on the Rights of Indigenous Peoples.
At this point, though, a description of the present law would say that there has not been an incorporation on the UN Declaration on the Rights of Indigenous Peoples into Canadian constitutional law. It has been argued before the Supreme Court of Canada in many of the recent section 35 cases, and the court has never cited to it. That is it not to say they might not in future, and then I would describe the law differently. Trying to describe the present state of the law, I would say that at this point in time it does not appear to be part of Canadian law.
This is a complex space, and it is certainly a space in which, understandably, there is an enormous amount of advocacy around the UN Declaration on the Rights of Indigenous Peoples. You know better than anyone, the recommendations of the Truth and Reconciliation Commission in this regard. It may be that that does lead to changes in Canadian law in the coming years, but in trying to describe the present state of the law, I would say that has not yet occurred.
Senator Sinclair: As I said, I could go on ad nauseam, chair, but I am prepared to follow your lead if you wish. If you wish to end at this point, I am fine.
Senator Galvez: We still have time.
The Deputy Chair: We do still have time. Do you want to ask one more question or comment?
Senator Sinclair: I wish to pick up on the point you just made having to do with balancing the interests at play here. If the interests of the pipeline are matched up against the interests of Indigenous people as endorsed by the UN declaration and the policy decision that Canada has made to endorse the UN declaration, how do you see that coming out of the shaker?
Mr. Newman: Well, that’s a complicated question, of course.
Senator Sinclair: That is why I ask them.
Mr. Newman: I would tend not to phrase it in that way. I don’t think this should be portrayed in oppositional terms, in the sense of here is Canada’s interest and here are the interests of Indigenous peoples under the declaration. I think there still needs to be room for a national interest or a public interest within which Indigenous rights and respect for Indigenous rights is a very important component. I think there could be different judgments reached, frankly, by different people, depending on their view of particular aspects of the declaration and its relation with what has occurred.
Regarding some key aspects of the declaration, the legal interpretation of those is not yet clear, honestly. Something like free, prior, and informed consent within the declaration is raised. There are at least three different trends in terms of interpretation of what the free, prior, and informed consent element of the UN Declaration on the Rights of Indigenous Peoples means in natural resource-type settings.
It is my understanding that the Department of Justice might be providing a perspective on that in the context of the hearings around Bill C-262 in the coming week or weeks. That will be of interest in terms of what the Department of Justice says in the Canadian context on how the Justice Department is interpreting free, prior and informed consent within the declaration.
There are a lot of complexities there. I wouldn’t try to make an assessment offhand in terms of that question of considering the declaration, how does one read the national interest? However, I think that is a question that Parliament needs to squarely face as part of this. There is a policy commitment there that needs to factor significantly into the overall read of the national interest.
Senator Sinclair: Thank you, sir. Thank you, chair.
The Deputy Chair: If there are no other comments, I will thank you very much, Mr. Newman, for being with us today.
Honourable senators, for our meeting tomorrow, we will carry on with this theme. We have Chief Ian Campbell of Squamish Nation in British Columbia and Chief Nathan Matthew of the Simpcw First Nation, which is located both in B.C. and in Alberta — primarily in B.C. but it does have part of its jurisdiction in Alberta as well.
I would also like to remind members that the committee is expected to do clause-by-clause consideration of Bill S-245 after tomorrow’s Indigenous panel. If you intend to propose an amendment to this bill, it is recommended that you seek the advice of the Office of the Law Clerk to ensure your amendment is drafted in the proper format and in both official languages. It is also helpful if you could send your amendment in advance to the clerk of the committee so that sufficient copies will be available at the meeting.
With that, honourable senators and Professor Newman, thank you.
(The committee adjourned.)