Red tape continues to hamper Canadian energy industry

For the past few years, Canada has seen a marked decline in oil and gas investment. Spending in the sector has plummeted from $54.5 billion in 2015 to $21.4 billion in 2020—a 60 per cent drop. Although market conditions and COVID have surely impacted spending levels, investors continue to view Canada’s unattractive policy environment as a deterrent to investment.

According to our latest Canada-US Energy Sector Competitiveness Survey, which gauges oil and gas executives on the investment attractiveness of 22 energy-producing provinces and U.S. states, all top-ranking jurisdictions are in the United States (led by Texas). This year no Canadian province or territory made the top 10—Saskatchewan (11th) is the highest-ranked Canadian province followed by Alberta (12th) and Newfoundland and Labrador (16th).

So why is this happening?

To understand why Canadian jurisdictions underperform relative to their U.S. competitors, look no further than Canada’s regulatory environment. Simply put, investors have a more positive view of the regulatory regime in the U.S., and Canada’s energy sector—which of course employs many Canadians—is suffering as a result.

More specifically, investors indicated that uncertainty around environmental regulations, regulatory duplication and inconsistencies, and the cost of regulatory compliance are the three main policy areas where Canadian provinces and territories underperform relative to U.S. states.

For example, only 13 per cent of respondents for Texas (and 20 per cent for Oklahoma) indicated that uncertainty concerning environmental regulations was a deterrent to investment compared to 65 per cent for Alberta and 91 per cent for British Columbia.

Moreover, at least 60 per cent of respondents for all provinces cited regulatory dupli¬cation and inconsistencies as a key factor deterring investment. In contrast, none of the respondents for Kansas and North Dakota indicated that regulatory duplication and inconsistencies were a deterrent to invest¬ment. And only 8 per cent of respondents for Oklahoma and 10 per cent for Texas were deterred by this factor. These are very large gaps in investor perceptions of Canadian provinces and U.S. states.

And yet, these negative views of Canada’s regulatory environment are not surprising in light of recent policy developments. For example, the Trudeau government’s Bill C-69, which created a new agency for reviewing major energy projects with additional regulatory requirements. Under the bill, new more stringent and more subjective criteria have been added to the regulatory process, which has created massive uncertainty about how—and if—new infrastructure projects (including pipelines) will get approved. Similarly, the Trudeau government passed Bill C-48, which bans large oil tankers carrying Canadian oil off B.C.’s northern coast and limits access to new markets.

In the medium-term, global oil and gas demand will continue to grow, driven by population and economic growth. Until there’s some technological breakthrough, either a new energy source and/or perhaps better technology for energy storage (which would make wind and solar more viable and reliable), there will be a global need for oil and gas. In this context, it makes no economic or environmental sense for Canada to forego its global leadership position to countries with lower environmental standards. For Canada to continue to be a global leader in environmentally sustainable energy production, more investment is needed.

Given our current unattractive regulatory regime and the urgent need to encourage oil and gas investment in Canada, governments across the country—especially in Ottawa—should remove regulatory barriers and introduce reforms to increase Canada’s attractiveness to oil and gas investors.