Canada’s energy sector has seen dwindling investment in the past decade because of a hostile regulatory environment, according to a new MEI publication released January 16.
“While global investment in oil and gas projects has grown by over a quarter since the 2015 glut, in Canada it has shrunk by nearly a quarter,” said Krystle Wittevrongel, director of research at the MEI and co-author of the publication.
“Policies that are hostile to large projects, such as the Impact Assessment Act, are the reason why we’re missing out on tens of billions of dollars of potential investment in our economy.”
After dropping to $481 billion USD in 2015, global investment in upstream oil and gas production had grown to an estimated $603 billion USD in 2024, according to a joint International Energy Forum and S&P Global Commodity Insights report.
Over the same period, investment in construction of extraction or pipeline transportation facilities in Canada shrank 24% from $56.8 billion to $42.9 billion.
Global upstream investment in oil and gas production is expected to rise a further 22% by 2030, per the joint IEF and S&P report.
In 2019, the Impact Assessment Act replaced earlier legislation, and MEI researchers point to the uncertainty created by its adoption as a key contributor to this drop in Canadian investment.
The legislation broadened the scope of governmental assessments to include not only environmental impacts, but also the social and cultural effects of large infrastructure projects.
Since it came into effect over five years ago, only one project, the Cedar LNG project, has been approved, and that took 3.5 years. In contrast, 17 projects were approved in the first five years under the previous legislation. Currently, 25% of all projects stuck in the assessment process are in the oil and gas sector.
“Our new impact assessment process is trying to do too many things at once, resulting in the current gridlock,” explains Wittevrongel. “Investors look at this and, when faced with the choice to invest here only to be stuck in regulatory limbo, or invest elsewhere and see better returns, they choose to put their money – and the jobs it creates – anywhere but here.”
Investors have expressed concerns about Canada’s growing regulatory framework: 68% of investors cite environmental regulations as a concern in Canada, compared to just 41% in the United States. Similarly, 54% of investors see regulatory duplication as an issue in Canada, versus only 34% in the U.S.
Oil and gas investment in the US grew by 51% from 2009 to 2017, compared with a mere 1% in Canada.
Canada is the second-largest oil and gas producer in the Western Alliance, and accounts for 17% of its total oil and gas production.
In 2023, the sector contributed $208.8 billion to real GDP, representing 7.7% of Canada’s overall economy. Energy makes up 25% of the country’s total exports and supports 446,000 direct and indirect jobs.
“This is an industry that generates exceptional value and could help reverse our weak standard of living trends,” says Wittevrongel. “Watching domestic investment stagnate as global demand for energy rises to record levels should be a major wake-up call for Canadian policymakers.”
The MEI outlines three recommendations to help reduce the regulatory burden:
Return to a permitting process that includes automatic issue upon meeting environmental standards, as previously done under the Canadian Environmental Assessment Act, 2012.
Establish a firm deadline of 18 months for completion of the entire impact assessment process.
Automatically recognize previously approved provincial assessments.
In an interview with Western Standard, MEI communications manager Samantha Dagres said a government that enacted these changes would see investment increase dramatically.
"The market would respond drastically. But how quickly, exactly, I couldn't precisely say," Dagres explained. "It just takes a little bit of tweaking for us to be a little bit more competitive."
Dagres pointed to an annual study on tax competitiveness put together by the U.S. based Tax foundation. Canada dropped two points since last year due solely to an increase in capital gains taxes.
"If one change in one tax can actually make us less competitive, I truly can't imagine how much [change] a slew of both tax changes and regulatory changes would make."
