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Gary Mar: Canada has spent much of the past decade sending mixed signals to investors interested in major energy infrastructure projects
By Gary Mar
Canada has spent much of the past decade sending mixed signals to investors interested in major energy infrastructure projects.
Northern Gateway was approved and then cancelled. Energy East was abandoned after regulators expanded the review process to include upstream and downstream emissions. Ottawa ultimately purchased and completed the Trans Mountain expansion because private capital was unwilling to absorb the political and execution risk. Bill C-69, the Impact Assessment Act, was later ruled substantially unconstitutional by the Supreme Court of Canada.
Reasonable people will disagree with some of those decisions. But taken together, they have contributed to growing concern over Canada’s investment climate and its ability to provide stable conditions for long-term projects that require significant upfront capital.
Expanding pipeline capacity, increasing production and building large-scale carbon-capture infrastructure could require roughly $90 billion in upfront investment before additional production reaches new markets, according to a recent analysis by Servus Credit Union chief economist Charles St-Arnaud. He asks an important question: where will that capital come from?
Even under relatively optimistic assumptions, governments are already positioned to absorb a meaningful share of the costs through carbon-capture tax credits and other forms of support. Under more expansive scenarios, public exposure could rise much further.
That naturally raises questions about what role governments should play in supporting major private-sector investments and why investors remain cautious despite the underlying economics of Canadian energy projects remaining relatively strong.
In 1947, the Leduc No. 1 oil well in Alberta came in after Imperial Oil Ltd. drilled 133 consecutive dry holes. That discovery transformed the province and helped transform Canada’s economy. It happened because private capital was prepared to accept long timelines, repeated setbacks and substantial uncertainty in pursuit of opportunity.
Oilsands projects require significant upfront capital. Once built, however, they can remain productive and economically viable for decades.
Investors need clarity around approvals, confidence in the timelines and assurance that conditions will remain sufficiently stable once capital has been committed. They need confidence that projects will be assessed fairly and consistently over their lifespan.
These are not extraordinary requests. They are basic requirements for attracting long-term investment capital.
There is also a broader competitiveness question that Canada will need to address.
Recent geopolitical disruptions have reminded us that energy security still matters. Events in Europe and the Middle East have reinforced the importance of a reliable supply, resilient infrastructure and long-term domestic energy capacity.
At the same time, Canada is pursuing a combination of policies — including economy-wide carbon pricing, oil and gas emissions caps, clean fuel regulations, methane reduction requirements, tanker bans and extensive federal impact assessment processes — that, taken together, are more extensive than those faced by many competing oil-producing jurisdictions.
This raises legitimate concerns about the cumulative effect of overlapping regulatory requirements on Canada’s long-term investment competitiveness.
That does not mean environmental regulation is unnecessary, but policymakers must consider whether the cumulative economic burden associated with overlapping federal and provincial requirements remains commercially viable over multi-decade project timelines.
The cost of capital rises when investors are uncertain whether regulatory conditions, permitting timelines or political decisions will remain reasonably stable.
That reality deserves more attention.
There is also a longer-term issue worth considering carefully.
As governments absorb more of the risk associated with major projects — through tax credits, loan guarantees, ownership backstops and equity participation — the distinction between public-private partnership and state-directed industrial policy begins to blur.
Successful public-private partnerships depend on both sides carrying meaningful responsibility. Governments provide stable regulatory conditions and long-term public policy objectives. The private sector contributes operational expertise, execution discipline and capital genuinely at risk.
Losing that balance could weaken the investment culture that resource development depends on.
Canada still has the resource base, technical expertise and access to capital necessary to support major energy development. What has weakened is confidence that the rules governing those investments will remain sufficiently stable over time.
Governments are facing rising fiscal pressure and public debt. That makes it even more important for Canada to attract private capital, rather than relying on taxpayers to carry the risk of nationally significant infrastructure projects.
For Canada to be a global energy superpower, investors need confidence that governments will establish common-sense rules, apply them consistently and maintain them with enough stability to support long-term investment decisions. The country’s long-term competitiveness depends on it.
Gary Mar is chief executive of the Canada West Foundation.
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