As the province and Ottawa take part in yet another constitutional squabble over jurisdiction, some oil and gas sector watchers are worried about the effect on the industry caught in the middle.
Thank you for reading this post, don't forget to subscribe!On Tuesday, Alberta Premier Danielle Smith signalled her government’s intent to table a motion invoking the Alberta Sovereignty within a United Canada Act to push back against federal draft regulations that would require oil and gas producers in Canada to limit greenhouse gas emissions by 35 per cent below 2019 levels.
The Alberta Sovereignty Act is intended to allow the province to declare federal laws unconstitutional or harmful, and to issue orders to provincial entities not to comply with federal rules.
The motion begins by asserting Alberta’s jurisdiction over the “exploration, development, conservation, management and production” of non-renewable natural resources in the province.
It would designate emissions data as proprietary information owned exclusively by the Alberta government, with all reporting of that data to be at the province’s direction.
It would also prohibit site visits by federal employees or contractors without authorization by the province.
Federal Environment Minister Steven Guilbeault was quick to criticize the proposed motion, telling reporters on Wednesday the restrictions on emissions reporting would be a “violation of federal laws.”
Those comments prompted a swift rebuke from Guilbeault’s provincial counterpart, Alberta Environment Minister Rebecca Schulz.
“I can tell you that Minister Guilbeault is lying. He is lying because he has to lie. Because if he says anything else, he knows what we know, which is that his oil and gas production cap will be found unconstitutional when we challenge it in court,” Schulz told reporters on Wednesday.
This week’s back and forth is just the latest battle in a long war of words — and lawsuits — between the governments of Danielle Smith and Justin Trudeau concerning jurisdictional authority over emissions generated by Alberta’s oilpatch. The fighting has created uncertainty in the oil and gas sector, according to some insiders, and the latest provincial salvo is only going to create more of it.
‘It’s just not going to happen’
Richard Masson is an executive fellow with the University of Calgary’s School of Public Policy and the ex-CEO of the Alberta Petroleum Marketing Commission.
He told CBC News that the oil and gas sector is very worried about the federal emissions cap, and he has argued for years it is not a good idea. But according to Masson, this week’s provincial announcement is just going to lead to confusion.
For one thing, he can’t imagine oil and gas companies not following federal rules for emissions reporting in order to comply with provincial legislation that hasn’t been tested in court.
“They [oil and gas companies] are not going to not comply with federal law. It’s just not going to happen,” Masson said.
Sander Duncanson, a partner at the law firm Osler, Hoskin and Harcourt, shares Masson’s concern about the oil and gas cap.
His practice involves advising companies about regulatory frameworks that apply to their business or potential investments. That includes helping companies navigate carbon regulations.
Though the emissions cap doesn’t yet exist, one of the challenges associated with it is that there are a number of overlapping federal and provincial regulations, many of which are concerned with emissions reductions.
“It’s already a very complicated system. In my experience, it’s already driving investment away,” Duncanson said.
Reporting emissions data
When it comes to Alberta’s plan to take charge of reporting emissions data, Duncanson says it would be important first to understand the exact details of what the province is contemplating.
“I think this is really just going to push us towards constitutional litigation more quickly than we otherwise would get there,” he said.
“Apart from the lawyers who will benefit from the additional courtroom drama, it’s certainly not helpful from the perspective of actually driving emissions reductions.”
Masson says he doesn’t expect the existing lines of reporting to stop. That includes reporting to the federal and provincial governments, the provincial and federal energy regulators, and company shareholders.
“There’s all kinds of reporting that happens right now,” he said.
He adds that the ability for companies to communicate environmental benchmarks — such as emissions — with potential investors is crucial.
“They need to be able to demonstrate to shareholders that they are proper stewards, good stewards of the production and doing it in an environmentally responsible way. That’s how they are going to have pension funds, mutual funds, individual investors stick with them through owning their equity and their debt,” said Masson.
Duncanson, the partner at Osler, Hoskin and Harcourt, says the uncertainty tied to what future regulations will look like could also have an impact on companies investing in themselves.
“In the work that I do, working with companies that are looking at making these investments, that kind of regulatory uncertainty has a direct correlation to driving investment away,” he said.
When asked about the reporting conditions in the proposed motion, Schulz told CBC News on Thursday that the government acted for two reasons. One was a concern that Ottawa was requiring all companies to provide this data, even those with smaller emissions that would have virtually no impact on the cap. The second reason is a lack of trust in Guilbeault.
“If he has that data and decides to misinterpret it or share it in a way that is not accurate with the facts … Industry now has absolutely no way to defend their environmental record because of what the federal government put forward with Bill C-59, essentially a gag order on industry from talking about both their goals and their records when it comes to emissions reduction,” Schulz said.
Bill C-59 requires companies to provide evidence to back up environmental claims. The province of Alberta has considered using the Sovereignty Act to challenge its provisions as well.
As far as companies reporting emissions data to investors, Schulz doesn’t foresee any issues.
“We made a very public commitment to work with industry on how exactly this would be rolled out. So we agree we absolutely have to work with industry, organizations and companies to make sure that we figure out exactly how to do this and get it right,” she said.
Restricting access
The prohibition of site visits by federal government employees will also pose challenges to companies in the oil and gas sector, according to Masson, who questions whether the province has the jurisdiction to enforce such a restriction.
“I would expect the companies wouldn’t want to be put in a position of having to enforce excluding normally allowed federal employees to get onto their sites,” he said.
“I think right now there will be a lot of consternation in downtown Calgary as they try and sort out what this means. I can’t imagine there was a lot of consultation, because the answer probably would have been different if the companies were consulted.”
Asked about concerns that no industry consultation was undertaken before the motion was drawn up, Schulz says that consultation will happen now.
“The motion really sets forward seven things that we would like to look at. So once this is introduced, this motion essentially says, if this is passed, these are the things that Alberta will look at.… We absolutely will be consulting with industry,” she said.
Concern around investments
Masson describes the fighting between the provincial and federal governments as a “black cloud” hanging over the industry.
“What we’re doing is just fighting and fighting and fighting, and the governments will be going to court and that will take years. And the lawyers get rich and the companies really don’t know what the rules are, which is harmful to investment and jobs and taxes and royalties.”
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Oil and gas companies in Alberta might find themselves in a tough situation. The federal government is insisting they follow the rule of Ottawa’s oil and gas emissions cap while the provincial government is bringing forward a motion to push back against that.
Duncanson says he’s waiting to see more details tied to the measures that the provincial government is considering. In the meantime, he’s concerned companies won’t make material long-term investments without certainty around what that long-term framework will look like.
“Unfortunately, we’re just layering more and more uncertainty into the market right now,” he said.
But Schulz says, if there’s any uncertainty, Alberta is not to blame, pointing to what she calls unanimous disapproval of the federal emissions cap by oil and gas industry organizations.
“If anybody is curious as to why there is uncertainty in Canada when it comes to investment in the energy space, look no further than all of those statements made by all of those industry organizations about Justin Trudeau’s punitive oil and gas production cap,” she said.
