‘Wildly Optimistic’ to Expect Energy Regulator to Embrace Net-Zero, Veteran Energy Executive Warned

December 17, 2021

The Canada Energy Regulator is so closely tied to the fossil industry that it can’t be counted on to produce independent advice on the country’s path to net-zero—yet it’s considered the leading source of in-house energy modelling the Trudeau government has at its disposal, according to an independent expert commenting on the CER’s deeply flawed energy futures report released earlier this month.

The gaps in the CER’s analysis have been under the spotlight, generating intense and sometimes caustic pushback from climate and energy experts, ever since Canada’s Energy Future 2021 projected the country’s oil and gas production growing steadily to 5.8 million barrels per day in 2032, before falling off slowly to 4.8 million barrels per day in 2050. Within days, outside analysts were pointing to the CER’s lack of any roadmap to meet Canada’s legislated climate target and contribute to the global goal of holding average global warming to 1.5°C.

While Natural Resources Minister Jonathan Wilkinson tweeted that he expects better from the Calgary-based agency, veteran energy and utility executive Marc Eliesen told The Energy Mix he doubts the regulator will get the job done.

“It’s wildly optimistic to believe there will be a fundamental change in the workings of the CER in the future,” said Eliesen, a former CEO of four provincial utilities and energy authorities and one-time board member with Suncor Energy. “The people there are entrenched in a petro-culture with industry. Most people are not aware that 90% of the funding of the CER comes from industry, which really compromises the board’s own goals and aspirations of trying to serve the public interest.”

The deep connections between the regulator and the oil and gas head offices in Calgary date back to the early 1990s, Eliesen said. That was when the Conservative government led by then-prime minister Brian Mulroney moved the head office of the CER’s predecessor, the National Energy Board (NEB), from Ottawa to the centre of the Canadian oilpatch.

“The NEB had been an effective energy regulator” that largely operated in the public interest, he recalled. But the change of location “dramatically altered the work of the Board,” while making it the only federal regulatory agency with a head office outside the nation’s capital.

“First of all, two-thirds of the staff elected not to leave Ottawa, and they were replaced at that time by largely Alberta-based employees coming directly from the oil and gas industry,” he said. “So what has developed over the years and continues to this day is a close interaction between the (NEB/CER) staff and industry representatives,” so that the “goals and aspirations of the industry become closely intertwined with those of the CER.”

Then the federal government shut down the economic analysis unit at the department that later became Natural Resources Canada. That move made Ottawa dependent on opinions that largely originate within the industries the CER is supposed to regulate, Eliesen explained.

“The NEB and now the CER replaced the resources that used to exist within the government department,” he said. That makes the regulator “the number one energy policy advisor to the government, and quite frankly, it’s not in the national interest that policy advice comes from an agency so closely tied to industry. But that’s been the fact of life.” Over a span of years, the NEB and now the CER “accept what the industry proposes or submits,” uncritically taking in economic forecasts and indicators developed by the country’s leading fossil industry lobby, the Canadian Association of Petroleum Producers (CAPP).

“There isn’t any independent evaluation,” Eliesen said. “On all the projects I’ve been involved in as an intervenor, with that industry they simply accept what CAPP puts forward.” The NEB process once allowed for “hard-hitting questions to the applicant” from federal and provincial agencies, often based on input from environmental groups, he said. But that practice “disappeared completely” during Stephen Harper’s years as prime minister, while the board was reviewing Enbridge Inc.’s proposed Northern Gateway pipeline.

Eliesen’s recollections came in the wake of a comment from Ontario climate and energy specialist Steve Lapp, who followed up on The Mix’s coverage of the CER report by looking at the background of its lead author, Acting Chief Economist Darren Christie. He found an Environment Canada economist who moved to the NEB for nearly eight years before starting a four-year stint at Enbridge as director of regulatory affairs, then returned to the CER in 2019.

“What is the point of putting out a report that is not in line with the country’s net-zero targets?” Lapp asked. “His previous job for four years was with Enbridge, [so] was he afraid of the blowback from past colleagues? Maybe the feds need a regulation that all agencies reporting to them must recognize the 2050 net-zero targets and explain and justify why any projected actions/paths do not conform to that goal.”

The CER has been saying since October that next year’s edition of Canada’s Energy Future will include net-zero modelling. CER Communications Officer Karen Ryhorchuk declined a request for an interview with Christie, who shared some of his assumptions about future fossil fuel demand with CBC earlier this week.

Chris McDermott, a former Environment Canada official and Kyoto Protocol negotiator from 1998 to 2007, traced a pro-fossil tilt within the federal government that went beyond the then NEB. Within the environment department, “the economics group was very fossil biased. A lot of their analysis and their outlook reflected the lobbying positions of CAPP,” he said. “So this is not new, the fact that these economists have close linkages to the fossil fuel industry”, in jobs that give them “a surprising degree of autonomy” to work in ways that run counter to ministerial direction.

McDermott’s description of the Environment Canada economics unit differed from Eliesen’s memory of the policy shop at the Department of Energy, Mines and Resources, which was renamed Natural Resources Canada in 1993. “The old EMR had quite a strong, competent group,” he said. “That changed, of course, with the Mulroney government, and as a result the chief energy policy advisor to the government became the NEB,” a state of affairs that hasn’t changed with the arrival of the Trudeau government and the shift to the CER.

“So the knowledge and the ability to evaluate developments in the Canadian fossil fuel industry comes primarily from the regulator, which as I’ve argued is closely tied to the industry, and has an inability to define really what the public interest is,” Eliesen said. “You don’t have a really strong policy presence, particularly on the economics, coming from Natural Resources, which should be the department to house this kind of expertise.”

In the aftermath of the Canada’s Energy Future release, and the pushback on its lack of net-zero modelling, two frequent CER observers said Wilkinson can compel the agency under the Canada Energy Regulator Act to report back on specific topics.

“I think the obvious step for government to take would be to direct the CER to introduce and mainstream a net-zero scenario in its annual energy outlook,” University of Ottawa public policy professor Nicholas Rivers wrote in an email. “Minister Wilkinson stated following the most recent report that this is exactly what he intends to do,” and “I’m inclined to take the Minister at his word.”

“At this stage, I’m confident that CER will analyse Canada’s own path to net-zero, since the Minister of Natural Resources has already asked for that,” agreed University of British Columbia political science professor Kathryn Harrison. “What I am less confident about is whether CER will also analyse the implications of a global transition to net-zero. I hope that the Minister will request that as well,” because “the global transition has bigger implications for Canada’s oil and gas exports.”

But Eliesen and McDermott were less certain the CER would fully comply with Wilkinson’s mandate.

“At the present time, I would not rely on the CER for any policy advice, because by their actions they are too captured by industry and do not have a full appreciation of what it means to be in the public interest,” Eliesen told The Mix. “That’s why they’re defined in my context as a captured regulator.”

McDermott said Lapp’s suggestion of a regulation to mandate net-zero compliance by the CER “is not a bad idea. The question is why should you need it. Agencies are supposed to respond to the will of the government of the day, and it’s a pretty sad state of affairs if you need regulatory power to make an agency do what it’s otherwise supposed to be doing.”

A spokesperson for Wilkinson did not return calls seeking details on what the minister will be asking the CER to report on, and when he plans to make the request.

[Top photo: Jiri Rezac / Greenpeace]