Federal Court of Appeal throws Alberta's energy patch under a bus, once again

Federal Court of Appeal throws Alberta's energy patch under a bus, once again

After 17 straight legal wins, the Trans Mountain Expansion Project (TMEP) hits a brick wall, after the Federal Court of Appeal cancels approvals from both the National Energy Board (NEB) and the federal government.

This latest court challenge was launched by Six First Nations communities, mostly located along the Burrard Inlet, along with the cities of Vancouver and Burnaby, questioning the validity of the NEB review process and Canada's duty to consult with Indigenous peoples.

Marine transport remains an issue

The judges argued that although the NEB's review process was adequate, it did not include a review of project-related tanker traffic. Expansion of the Trans Mountain pipeline would increase tanker traffic out of Vancouver's Westridge Marine Terminal from about five per month to about one a day.

In May of 2012, Kinder Morgan began consultations with 20 Aboriginal communities located along BC's coastline, to examine any navigational safety issues that may arise from the increase in tanker traffic.

The company undertook a TERMPOL review (Technical Review Process of Marine Terminal Systems and Transshipment Sites) under the guidance of Transport Canada. A total of 16 TERMPOL reports were submitted to the NEB as part of TMEP's regulatory review process, along with recommendations to mitigate the impacts on waterways.

Of particular concern to the appeals court is impacts on the Southern resident killer whales. Transport Canada acknowledges that marine animals are impacted by all vessel traffic, not just crude carriers. The extra 34 tankers per month represents a small increase in total traffic through the region. The judges decided that impacts of additional tanker traffic should have fallen under the NEB's scope, which was not the case since Kinder Morgan does have jurisdiction over marine shipping.

Alleviating BC's tanker phobia

Shipment by tanker is the most common method of transport outside of North America, and also the least expensive. About 65 million bbl/day of crude is shipped by sea, a non-issue anywhere except Canada.

The Trudeau Liberals provided BC with $1.5 billion for enhance marine spill response, a key demand from the former BC Liberals in return for their support of the pipeline. So far, Ottawa has no plans to pull that funding. The appeals court called Trudeau's Oceans Protection Plan and enhanced marine response initiatives "inchoate," implying the schemes are just fuzzy concepts that lack details on execution.

Duty to consult, also a fuzzy concept

On the subject of duty to consult with First Nations, the court says "Canada acted in good faith" but "fell short of the mark set by the Supreme Court of Canada" in the last stage of consultations.

The issue of reconciliation with First Nations peoples is a very complicated one. No amount of consultation will ever undo the wrongs of the past. Unanimous approval from all groups is also unlikely to ever be reached. After almost 5 years of consultations, it is unclear how much more could have been done to appease the judges.

"Alberta has done everything right and we have been let down"

Alberta Premier Rachel Notley has vowed to pull her province out of the federal climate plan until Ottawa "gets its act together." Notley warns "without Alberta, that plan isn't worth the paper it's written on." 

Alberta is keeping its carbon tax but will not be increasing to $50/t by 2022, as mandated by the federal government. The premier would like Trudeau to recall an emergency session of Parliament to "fix the mess it created and resume pipeline construction."

However, it's unclear what Trudeau's Liberals can do to revive the project. 

During his election campaign, the Liberals blasted the NEB for its flawed review process and bias towards the energy sector. It would appear Ottawa's review, revamp, rework and expansion of the regulatory review process has appeased no one. And Premier Notley's commitment to combatting climate change has not changed the hearts and minds of those opposed to pipeline construction.

The federal government is now mulling over its options. Both Alberta and Saskatchewan would like to see the case appealed to the Supreme Court, but this would conflict with Trudeau's election promise to give First Nations groups more authority over development of natural resources. The government also has the power to override the court's decision through an act of parliament, or explicitly exclude marine shipping from the NEB's authority, both of which are also seen as a highly unlikely scenarios.

No consideration for jobs, revenues or national unity

Construction on the $7.4 billion pipeline has since been halted, sending hundreds of construction workers home and putting thousands of jobs at risk.

According to Kinder Morgan, construction and the first 20 years of service would have generated $47 billion in government revenues, split $5.7 billion for BC, $19.4 billion for Alberta and $21.6 billion for the rest of Canada. The project would have created the equivalent of 800,000 full-time jobs over two decades.

The province of BC, several municipalities and 43 First Nations communities along the pipeline's right of way also negotiated millions in payouts and profit-sharing agreements from Kinder Morgan in exchange for their support of the project.

Not a death blow, but another delay

The appeals judges argue a rework of the two outstanding issues won't take long, potentially less than one year. The court notes there "may be a short delay in the project, but, if the flawed consultation process is remedied, the objective of reconciliation with Indigenous peoples may be furthered."

However, most analysts expect a delay of at least 18 months. This court case wrapped up last October and this judgement itself was almost one year in the making. Another court case is still pending on BC's right to limit bitumen exports from its export terminals.

BC declares victory, but ...

BC's NDP/Green coalition party declared victory in their fight against the pipeline. The government has placed all their eggs in the $40 billion LNG Canada project, led by Royal Dutch Shell. However, this latest ruling shows that no federal approvals are safe from Canadian courts. A company would have to be exceptionally brave to put billions of investment dollars on the line for projects that are likely to be tied-up in court for decades, and can be cancelled mid-construction.

Kinder Morgan dodges a bullet

Kinder Morgan submitted its application to the NEB at the end of 2013. After 29 months of reviews, Ottawa approved the project at the end 2016 with 157 conditions. The pipeline would have exported 590,000 bbl/day of Alberta crude from the Edmonton area to Burnaby's Westridge Marine Terminal and refineries in Washington State. Most of those barrels were destined for export to refineries in California and Asia.

It's unclear if the company had an inkling they would lose this court case. The presiding judge, Justice Eleanor Dawson, is the same judge that led the cancellation of federal permits for Northern Gateway.

Kinder Morgan Canada's shareholders voted overwhelmingly in favour of selling its existing Trans Mountain assets to the federal government this week. Finance Minister Bill Morneau says his government remains committed to the purchase and has no intention of backing out. The feds say they "inherited a flawed review process" but remain committed to seeing the pipeline built.

The delay or cancellation of TMEP will undoubtedly boost crude shipments by rail through BC's Interior and densely-populated Lower Mainland, as production out of the oil sands continues to rise in the near term. However, the province of BC and federal courts have deemed crude-by-rail to be the lesser evil.

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