BILL C-69 AND THE OFFSHORE: UNCERTAINTY IS CERTAIN.

• Author: Hickman, Stephanie
• Position: Canada

Petroleum activity in the East Coast of Canada is experiencing unprecedented regulatory uncertainty. The regulatory framework governing environmental assessments ("EAs") and approvals for petroleum activities offshore the coast of Newfoundland and Labrador ("NL") and Nova Scotia ("NS") is under significant scrutiny and revision and the East Coast is struggling to understand new legislation that may have an unexpected and detrimental impact on one of the most important industries in both provinces, especially in NL. This uncertainty is shared with the rest of Canada, as all resource development industries are grappling with the potential implications of Bill C-69, the federal government's overhaul and expansion of approval processes for development projects. However, operators in NL's offshore are dealing with two other significant sources of uncertainty. The first is an expected regional EA process, announced by the Canadian Environmental Assessment Agency ("CEA Agency") in the middle of Bill C-69's progression through the legislative process, by an entity which will no longer exist in name if and when Bill C-69 is passed. The other source of uncertainty remains the existing 2012 amendments to the federal EA process. While those changes were perceived generally in Canada as being a weakening or lessening of the rules regarding EAs, they had the opposite effect in the Atlantic Canadian offshore. The implications of these changes are still being worked through in the industry. This means the changes introduced by Bill C-69 and a new regional EA process will potentially be implemented in an industry already challenged to understand exactly what is expected of it. For an industry which operated from 1987 to 2012 in a relatively stable legislative environment, this rapid rate of regulatory change and revision is creating significant uncertainty for the industry participants.

Legislative Issues to 2012

Until 2010, federal environmental law was set out in the Canadian Environmental Assessment Act (1992) (1) CEAA 1992 contained a number of characteristics which had direct implications for the NL and NS offshore areas. CEAA 1992 prescribed a strict legal test to determine projects that were to be captured by and required to undergo the federal EA process. CEAA 1992 applied to all "federal" projects, meaning any project that involved the federal government as a proponent, federal lands, a federal permit, or any form of federal financial assistance. (2) Projects listed on the exclusion list or projects that were carried out in response to a national emergency were specifically excluded from federal EAs. (3) The second characteristic important to the offshore was that the Canada Newfoundland & Labrador Petroleum Board ("CNLOPB") and the Canada Nova Scotia Petroleum Board ("CNSOPB" and together with the CNLOPB, the "Boards") were "designated authorities" for the purposes of conducting the required EAs for exploratory drilling and seismic activities.

There was no requirement for full EAs for exploratory drilling programs; instead the CNLOPB, as the responsible authority, satisfied the CEAA 1992 framework requirements. This generally resulted in an EA process for an exploration well that took between six and nine months. The project proponent was required to provide a description of the proposed physical activity with a particular emphasis on the existing geotechnical, shoreline, and biological environments. In coming to a decision, the CNLOPB considered the interaction between the project phases and the existing environments, while referencing the environmental factors listed in section 16 of CEAA 1992. The CNLOPB had the authority to prescribe certain mitigation and monitoring procedures in light of any identified effects, project or accidental. (4)

CEAA 2012 Amendments

Starting in 2010, the then minority Conservative federal government began the process to amend CEAA 1992. The process was not uncontroversial. Amendments were included in an omnibus 2010 budget bill, thereby hindering significant detailed consideration of the legislation. When the mandatory seven-year review of the EA process was conducted by the Standing Committee on Environment and Sustainable Development in late-2011, the controversy continued, as the Committee terminated the review hearings before it heard from all interested parties. The Committee filed its report in early 2012. Opposition parties argued that a large number of interested parties did not get a chance to participate in the hearings and the Committee should therefore extend proceedings. The NDP and Liberal parties both filed opposition reports in early 2012. (5) Their lobbying failed and, in April 2012, in association with the 2012 Budget Implementation Bill, the Canadian Environmental Assessment Act (2012) (6) was introduced and passed.

CEAA 2012 created a significantly different "triggering process" for EAs. Under CEAA 2012, the presumption is that projects are required to undergo a federal EA if they are a "designated project" on the Regulations Designating Physical Activities ("Project List"). (7) The Minister is responsible for creating and adding physical activities to the Project List. (8) In the event that there is a physical activity not on the Project List, the Minister may use his or her discretion to require that an EA be completed for that project if he or she believes it could have adverse environmental effects. (9) Once a project is either on the list or has been deemed to have potential "adverse environmental effects" by the Minister, the CEA Agency conducts a screening process. The first stage of the screening process involves the proponent of a project describing the designated project and the CEA Agency ultimately deciding whether an EA is required. (10)

Given the process changes from the greater certainty of CEAA 1992, there were concerns that the new CEAA 2012 could drastically reduce the number of projects that were subjected to federal EAs. The concern was that the Project List itself could remain limited, and further to that the CEA Agency and Minister were given what appeared to be broad discretion to exempt both designated projects and non-Project List projects respectively from federal EAs. Further, the CEA Agency could decide through the screening process that something other than a complete federal EA was required. (11) This raised a further concern of uncertainty as to what projects would be subjected to EAs.

It is not clear to what extent these concerns respecting the operation of CEAA 2012 were fully realized in the rest of Canada. However, in the context of offshore energy projects in Atlantic Canada, the practical implications of CEAA 2012 were the opposite of what had been feared elsewhere. Instead of reducing the number or scope of EAs, the combined result of the change in responsible agency, the changes in the Project List, and the CEA Agency's interpretation of the scope of CEAA 2012 has been to significantly change and expand the EA process in the offshore to the point where it is arguably inclusive and repetitive.

For offshore oil and gas activities in NL and NS the Project List includes a significant amount of major offshore activity. Some of this is unchanged from CEAA 1992; for example, construction, installation, and decommissioning activities at a project level required EAs under CEAA 1992 and were included under the Project List in CEAA 2012. This has not been controversial, as there is little dispute in the industry that major and long term project developments should undergo significant and thorough EAs. However, the Project List also includes the following activities:

10 The drilling, testing and abandonment of offshore exploratory wells in the first drilling program in an area set out in one or more exploration licences issued in accordance with the Canada-Newfoundland and Labrador Atlantic Accord Implementation Act or the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act. (12) The other major change of CEAA 2012 for the NL offshore was a change in the responsible agency for conducting these EAs. As set out above, under CEAA 1992, activities in the Atlantic offshore short of development project applications that required federal EAs were conducted by the CNLOPB and CNSOPB in offshore NL and NS respectively. (13) Specifically in the 1992 regime, the assessment and approval of activities such as exploratory drilling and seismic exploration was with the Boards, who were directly responsible for collecting the necessary information for EAs and completing the EAs.

CEAA 2012 reduced the number of federal decision makers involved in conducting EAs across several industries, including offshore energy in the Atlantic Canadian region. Currently, the CEA Agency is responsible for EAs for physical activities included on the Project List and thus most federal EAs for major offshore oil and gas activities. (14) The Board's role is reduced to providing technical information and their expertise when required by the CEA Agency, and continuing to conduct the assessments for activities not included under the Project List, such as seismic testing. For these activities, the Boards can conduct EAs under the Accord Acts rather than pursuant to CEAA2012. (15)

In this new role, the CEA Agency interpreted "area" in section 10 of the Project List so as to include the area in a project proponent's exploration licence. The consequence of this interpretation was a significant increase in the amount of offshore activity that is captured under CEAA 2012 and in the number of EAs required in the NL offshore, because it means the first drilling program on every exploration license requires a full EA. This interpretation leads to a repetitive process, as it does not consider whether the geographic region in which the exploration license is issued has been the subject of previous EAs under nearby or even adjacent exploration licenses...