Ottawa’s Regulatory Assault on the Extraction Sector and Its Impact on Investment

Business investment is a foundational requirement for a prosperous economy. It provides the resources to establish new companies, expand existing ones, and invest in new factories, machinery, and technologies.

Business investment in Canada has declined markedly for over a decade. It is a major reason why Canadian living standards are stagnating in absolute terms and declining relative to many peer countries, particularly the United States.

One factor behind declining business investment is the heavy regulatory burden imposed by the current federal government on the extraction sector, which includes: mining, quarrying, and oil and gas. Since 1990, this sector averaged 17.3 percent of total non-residential business investment, and reached as high as 28.7 percent of the total in 2013.

But business investment in the extractive sector (mining, quarrying, and oil and gas) has declined substantially since 2014. In fact, adjusted for inflation, business investment in the oil and gas sector has declined 52.1 per cent since 2014, falling from $46.6 billion in 2014 to $22.3 billion in 2022. In percentage terms the decline in non-conventional oil extraction was even larger at 71.2 percent, falling from $37.3 billion in 2014 to $10.7 billion in 2022.

The importance of business investment to the health of an economy and the rising living standards of citizens cannot be overstated. One of the major challenges facing Canadian prosperity are regulatory barriers, particularly in the oil and gas sector.

A careful and clear analysis is needed of the costs and benefits of the regulatory measures imposed on the oil and gas sector, including Bill C-48, the recent methane regulations, and the emissions cap. Based on this analysis, the regulatory measures should be adjusted to help improve the ability of Canada’s energy sector to attract and retain investment.