INTRODUCTION

Canada’s federal government has played a role in the environmental assessment of major projects since the early 1970s, rarely without controversy. Following a surge in public interest of environmental issues in the late 1960s and the introduction of environmental quality legislation in the U.S. in 1969, the Government of Canada under Prime Minister Pierre Trudeau adopted Canada’s first Federal Environmental Assessment and Review Process in 1973.^[1] However, it wasn’t until 1990, under Prime Minister Brian Mulroney, that the first federal environmental assessment legislation — the Canadian Environmental Assessment Act^[2] — was introduced into the House of Commons and became law two years later. The regime was reviewed and amended over the decades that followed, including most notably under Prime Minister Jean Chrétien in 2003 and Prime Minister Stephen J. Harper in 2012.^[3]

Since his election in 2015, Prime Minister Justin Trudeau put his own stamp on the regime with a significant overhaul of what is now the Impact Assessment Act^[4] (the IAA or the Act), endured a Supreme Court of Canada opinion that the IAA is unconstitutional^[5] and, most recently, passed amendments intended to address those concerns. Although environmental organizations and some representation from industry and Indigenous groups were initially supportive of the IAA during its development, that support has faded in recent years and become overwhelmed by frustrated and disheartened investors, project proponents and others with concerns of regulatory uncertainty and process delays, including impeding energy transition projects and plans.

This article summarizes the IAA amendments that became law on June 20, 2024 in an effort to restore the Act’s constitutionality, as well as the broader Cabinet Directive published on July 5, 2024 aimed at improving all federal regulatory and permitting processes. Finally, the article explores whether and, if so, how the updated IAA can deliver efficient and effective project reviews in a way that restores investor and proponent confidence in the process.

AMENDMENTS TO THE IAA

On June 20, 2024, a series of highly anticipated amendments to the IAA became law.^[6] While the primary purpose and focus of the amendments was to address the constitutional concerns raised by the Reference re Impact Assessment Act, they included additional changes directed at improving federal-provincial and federal-Indigenous coordination as well as fostering Indigenous reconciliation. Taken together, the amendments represent incremental adjustments to the federal impact assessment regime.

Notably, the amendments do not modify the timelines of the impact assessment process; however, some of the amendments are intended to have the effect of accelerating timelines and the federal government has also announced policy measures aimed at accelerating timelines that are described in the next section of this article. In total, 32 amendments were made to IAA, and the most significant amendments can be grouped into three categories that are described in detail below.

A)   NARROWING THE SCOPE OF “EFFECTS WITHIN FEDERAL JURISDICTION”

One of the Supreme Court of Canada’s chief criticisms of the IAA was the overly broad nature of “effects within federal jurisdiction”^[7] which appears 16 times in the IAA and interacts with consequential provisions throughout the Act. The amendments narrow this term to “adverse effects within federal jurisdiction,” thereby tightening the scope of several decisions made in the course of an impact assessment, such as the Minister’s power to designate a project, the discretion of the Impact Assessment Agency of Canada (the Agency) to compel a federal assessment, and the Minister or Cabinet’s public interest determination.

This new definition of “adverse effects within federal jurisdiction” applies only to a list of “non-negligible” adverse changes to specifically listed components of the environment, such as fish and fish habitat, migratory birds, federal lands, marine environments, and environments with significance for Indigenous Peoples. Importantly, this definition now no longer applies to transboundary air pollution or greenhouse gas emissions, meaning that a project can no longer have conditions imposed or be rejected solely on that basis. However, the definition does maintain the use of a Schedule 3, where components of the environment or a health, social or economic matter may be added or removed by regulation.

If the Agency treats these changes as a substantial narrowing of the “effects within federal jurisdiction” in practice — rather than a clarification of the original intent — the result could be fewer assessments for projects with more distant ties to federal jurisdiction, as well as fewer project conditions or rejections made on the basis of factors that could be considered outside federal jurisdiction.

B)    STRATEGIES TO PROMOTE “COOPERATION AMONG JURISDICTIONS”

The Supreme Court of Canada opinion referred to the government’s commitment of achieving “one project, one assessment”^[8] and the concerns raised by provinces, Indigenous groups and industry on the unnecessary duplication and lack of federal-provincial coordination created by the federal impact assessment regime.^[9] This was addressed through several amendments, starting with modifying the “mandate” section of the Act to highlight that the Government of Canada, the Minister, the Agency and federal authorities, in the administration of the Act, “must exercise their powers in a manner that…promotes cooperation among jurisdictions.”^[10]

Next, under the IAA, the Agency is required to consider the factors listed in section 16 when determining whether or not a project should be subject to a federal assessment in the first place. The amendments introduced a new factor to section 16 that requires the Agency to consider “whether a means other than an impact assessment exists that would permit a jurisdiction to address the adverse effects within federal jurisdiction.”^[11] The Act defines “jurisdiction” broadly to include other federal authorities, provincial authorities and certain Indigenous governing bodies.

Thus, in certain circumstances, the Agency would, therefore, have the discretion to defer to alternative evaluative or impact management models administered by others. This could include existing federal or provincial regulatory or permitting processes that already incorporate impact evaluation and/or mitigation, or new, more streamlined processes that are less focused on advance evaluation and prioritize adaptive management instead. This amendment also has the potential to offer considerably more flexibility for deferring to Indigenous-led community review processes that fall outside the typical impact/environmental assessment paradigm.

Although this did not arise from the Supreme Court of Canada’s decision, the amendments seek to align the IAA with the United Nations Declaration on the Rights of Indigenous Peoples Act,^[12] which received Royal Assent in June 2021. This is done in a number of ways, including by moving up the commitment to implement the United Nations Declaration on the rights of Indigenous Peoples^[13] in the shortened preamble (to give it greater emphasis), as well as changes to the mandate section of the Act to refer to Indigenous rights under section 35 of Canada’s Constitution Act^[14] and the need to account for Indigenous knowledge.

Finally, the amendments also modify sections 31 to 35 of the IAA to create more opportunities for the responsible Minister to substitute the assessment of another jurisdiction, such as a province, Indigenous group or international organization, in place of a federal assessment by softening the requirements around what factors need to be considered before substitution is possible. This change should, in theory, make it simpler for the federal government to enter into cooperation agreements with provincial governments on a regional or project basis, as the federal government has already done with British Columbia.

C)    REFORMULATION OF THE PUBLIC INTEREST TEST DURING FINAL DECISION-MAKING

The amendments reformulate the public interest test, which applies when either the Minister (in the case of an Agency review) or Cabinet (in case of a panel review or referral from the Minister) is making a final decision as to whether the effects within a federal jurisdiction are in the public interest. In recent years, the public interest test has attracted significant controversy for being highly politicized and providing too much leeway for elected officials to insert political judgements into their determination.

The amendments divide the public interest test into two parts. First, the Minister or Cabinet must determine, after taking into account mitigation measures, whether the adverse effects within a federal jurisdiction are “likely to be, to some extent, significant”^[15] and “if so, the extent to which those effects are significant.”^[16] Second, the Minister or Cabinet must determine if those significant effects are “justified in the public interest” in light of the factors that must be considered pursuant to section 63.

The factors in section 63 have been reduced from five to three, now limited to (a) effects related to Indigenous groups and their rights, (b) the federal government’s environmental obligations and climate change commitments, and (c) project’s contributions to sustainability. Factors that were reintegrated into an earlier part of the public interest test at section 60 relate to any adverse direct or incidental effect in the impact assessment report, and the implementation of mitigation measures. Therefore, while the relevant factors did not change dramatically, they appear to be refocusing the public interest test on the federal effects of a project under review, rather than the merits of the project itself.

The practical impact of the changes to the public interest will certainly be dependent on how it is interpreted and implemented by the Minister or Cabinet, and how those decisions are communicated to the public.

NEW CABINET DIRECTIVE

On July 5, 2024, the Government of Canada published a new Cabinet Directive on Regulatory and Permitting Efficiency for Clean Growth Projects^[17] (the Cabinet Directive), replacing the last cabinet directive designed to get major projects built faster, which was published more than 15 years ago. While a Cabinet Directive does not carry the same legal weight as a law or regulation, a cabinet directive is generally seen as a federal policy instrument that is more substantial than a policy guideline issued by a single department because the directive is endorsed by all of Cabinet. This Cabinet Directive is designed to respond to criticisms often directed at the IAA process that may be better resolved through policy measures as opposed to legislative ones.

The federal government initially stated its intention to develop the Cabinet Directive earlier this year when new measures were announced in Budget 2024 to improve federal regulatory and permitting processes. On the same day that the IAA amendments became law, the government published an action plan entitled Building Canada’s Clean Future^[18] (the Action Plan). The Action Plan elaborates on new measures announced in Budget 2024, including new target timelines for impact assessment and permitting processes, a commitment to create a Federal Permitting Dashboard that reports on the status of clean growth projects, and the establishment of a Federal Permitting Coordinator and a Crown Consultation Coordinator.

Notably, the Cabinet Directive takes three new steps.

A)   DEFINES “KEY SECTORS” CONSIDERED TO BE ALIGNED WITH A NET-ZERO FUTURE

In recent years, the Government of Canada shifted focus from building “major projects” to building “clean growth projects” a term that had not previously been explicitly defined in law or policy. In fact, the bulk of the Government of Canada’s industrial policies and new regulatory actions are now focused on combating climate change and supporting sectors aligned with a net-zero emissions global economy. This is often described as “clean growth” a term that is generally not well defined and has been evolving alongside the development of technologies and global economic trends.

This new Cabinet Directive prioritizes the following six “key sectors that are aligned with a net-zero future”: 1) greening manufacturing, industry and hard-to-abate sectors; 2) critical minerals; 3) power/electricity; 4) nuclear; 5) enabling infrastructure (such as ports, roads, pipelines and transmission lines); and 6) clean fuels. This development brings a new perspective to the IAA process, which has historically been focused on evaluating the environmental impacts of projects, as opposed to placing a stronger emphasis on the importance of advancing projects that have the potential to support environmental and climate change outcomes.^[19]

B)    ESTABLISHES NEW FEDERAL GOVERNANCE STRUCTURES

Between the new measures announced in Budget 2024, the Action Plan and the Cabinet Directive, there will be no shortage of internal governance mechanisms to facilitate a focus on clean growth projects. These changes are in response to calls primarily from the business community for better coordination between the 14 relevant federal departments and agencies responding for regulatory and permitting.^[20] Specifically, the Cabinet Directive outlines and assigns responsibilities for the following internal governance structures:

• A new Deputy Ministers’ Regulatory Efficiency Action Council (Action Council) that will include deputy heads of federal entities with a role in issuing key federal permits, licenses or authorizations for clean growth projects to get to construction.^[21] This Action Council involves a similar structure to and is very likely modelled off the United States Permitting Council, which is comprised of representatives from the permitting departments across the United States federal government, such as the Environmental Protection Agency, the Department of Energy, the Federal Energy Regulatory Commission and the Nuclear Regulatory Commission.
• The previously announced Clean Growth Office, within the Privy Council Office, will act as the secretariat to the Action This office will provide strategic advice on the implementation of the Cabinet Directive, work closely with federal entities to track projects with upcoming federal decisions and report to the Action Council.
• Two new coordinator positions are outlined in detail in the Action Plan: the Federal Permitting Coordinator and the Crown Consultation Coordinator. While the description of these positions is high-level and subject to engagement with Indigenous partners, we expect that both these roles will ultimately be housed within the Clean Growth Office and reside with the Deputy Secretary of Clean Growth.

With the new governance mechanisms, the Cabinet Directive clarifies that regulatory entities such as the Canadian Energy Regulator and the Canadian Nuclear Safety Commission will continue to operate at arm’s length to preserve their regulatory independence and to ensure that their autonomy is “not affected” by the Directive.

C)    DIRECTS ALL FEDERAL ENTITIES TO “DRIVE CULTURE CHANGE” AND MEET TARGET TIMELINES

Think tanks, such as the Canada West Foundation,^[22] have repeatedly pointed out the importance of a “cultural shift” within the federal departments and agencies responsible for regulatory processes. Similar to the 2007 Cabinet Directive on Improving the Performance of the Regulatory System for Major Projects^[23], this Cabinet Directive is intended to accelerate the Government of Canada’s decision-making and set out clear federal roles and responsibilities within the public service. It is intended to “give confidence” to Canadians, and presumably also investors in projects in Canada, in the integrity and efficiency of federal regulatory and permitting systems.

As initially announced in Budget 2024 and now specified in the Cabinet Directive, federal entities are expected to:

• complete impact assessments and federal permitting processes for designated projects under the IAA within five years; and
• complete federal permitting processes for projects that do not require impact assessments within two years.

Additionally, the Agency and the Canadian Nuclear Safety Commission are expected to work together to ensure a three-year review process for nuclear projects.

This new Cabinet Directive also devotes an entire section to “culture change” within the 14 relevant federal departments and agencies aimed at creating a sense of urgency without compromising the objectives of the statues and regulations they are implementing. It lists ten specific actions the public service can take, including working to “respond quickly” to proponent applications, providing “risk-informed” guidance, and increasing early engagement with Indigenous peoples.

One significant change to the status quo will be the transparency of the promised new public permitting dashboard. Currently, the Agency updates its Canadian Impact Assessment Registry (the Registry) with the status of projects in their system,^[24] however, for projects seeking a federal permit, such as under the Fisheries Act^[25], the Canadian Navigable Waters Act^[26], the Species at Risk Act^[27], or the Explosives Act^[28], there are no transparency mechanisms to determine the status of the federal permit. The Cabinet Directive stipulates that the Action Council will be responsible for identifying projects to include on the public dashboard and other internal tracking mechanisms designed to ensure transparency and increase accountability around timeline targets.

PRACTICAL IMPACTS

This spring, the federal government responded to significant concerns about the federal impact assessment process from the Supreme Court of Canada and the Canadian public. With the IAA now amended and the new Cabinet Directive in place, can the federal government deliver more efficient and effective project reviews? Can the federal government strike the appropriate balance between achieving the IAA’s stated purpose of fostering sustainability, while getting clean growth projects built?

The evidence available to evaluate the IAA process is limited. Since the IAA came into force in 2019, ten projects entered the impact assessment process, with the Agency determining during the planning phase that a federal assessment was ultimately not required.^[29] Only one project has undergone an impact assessment from start to finish: the Cedar LNG project, which proceeded by way of substitution. The review process, from planning to approval, took a little more than three years, typical for such projects in the past. Cedar LNG’s official application was received in late 2021, with British Columbia approving the project 15 months later and the Government of Canada endorsing that approval the next day.^[30] According to available data on the Registry, no projects have been rejected under the IAA to date.

As of the drafting of this article, 42 projects are listed as “in progress” on the Canadian Impact Assessment Registry.^[31] Of those 42 projects, 19 are under the CEAA, 2012 process and the remaining 23 are under the IAA. Of those 23 projects under the IAA, four are regional assessments and therefore will not result in a project decision, and three projects are following the substitution process with the British Columbia government. That leaves 16 project decisions to be decided exclusively by the federal government under the IAA. Of those 16 projects, six are in the planning phase and all of those proponents submitted their initial project descriptions to the Agency as recently as October 2023, meaning that project decisions will not be imminent. That leaves just ten projects which could expect to receive a decision under the IAA in the near-term; however, all of these projects are listed as “in progress” meaning none are currently close to the final decision-making phases.

Assuming this will be the system in place for some time yet, here are ways that project proponents can work with the tools on hand:

• Encourage provincial and Indigenous governments to adopt cooperation agreements with the federal These agreements can take a variety of forms: for example, a cooperation agreement can be negotiated province-wide (such as in British Columbia), regionally or on a project-by-project basis. With the IAA amendments, a cooperation agreement can result in not only full substitution, but also partial substitution for certain aspects of the assessment.
• Evaluate whether a provincial or Indigenous assessment may be appropriate under the circumstances, recognizing the new language in the IAA related to promoting cooperation among jurisdictions.
• Seek out Indigenous partnerships where appropriate and consider opportunities for Indigenous-led assessments.
• Carefully evaluate the utility of regional While they may produce novel information, they are proving to be time-consuming and should not come at the expense of moving forward on the individual assessment of a well-developed project.
• Hold the federal government to the timelines set out in the Cabinet Directive and encourage the public service to continue driving culture change. Although these are target timelines not found in legislation or regulation, they have been endorsed by cabinet and achieving them should be a government priority.

Of course, the practical effects of the IAA amendments and complementary Cabinet Directive remain to be seen. In the months and years to come, significantly more evidence and case studies will be available on which to evaluate the IAA. What is certain is that the actions of the federal government over the next 12 to 18 months, including the implementation of the IAA and Cabinet Directive, will materially influence public confidence in the regime.

* Claire Seaborn is Counsel in the Environmental and Climate Change Law Group at Torys LLP. Previously, she spent five years in senior roles at the Government of Canada, most recently as Chief of Staff to Canada’s Minister of Energy and Natural Resources.

Dennis Mahoney is head of the Environmental and Climate Change Law Group at Torys LLP, and certified by the Law Society of Ontario as a Specialist in Environmental Law.

Michael Fortier is a Partner in the Environmental and Climate Change Law Group at Torys LLP who provides practical advice to clients on key environmental, Indigenous and strategic aspects of developing, permitting and constructing energy, infrastructure, mining and real estate projects.

Tyson Dyck is a Partner in the Environmental and Climate Change Law Group at Torys LLP who provides critical guidance to clients primarily in the energy, infrastructure and mining sectors and has decades of experience in carbon offset deals and emissions reduction funds.

1. Government of Canada, “Milestones in the history of assessments” (last modified 18 December 2023), online: <www.canada.ca/en/impact-assessment-agency/corporate/mandate/milestones-history-assessments.html>.
2. Canadian Environment Assessment Act, SC 1992, c 37.
3. Canadian Environment Assessment Act, SC 2012, c 19, s 52 [CEAA, 2012].
4. Impact Assessment Act, SC 2019, c 28, s 1 [IAA or Act].
5. Reference re Impact Assessment Act, 2023 SCC 23 [Reference re Impact Assessment Act].
6. The IAA amendments were introduced in the House of Commons on May 2, 2024, in a bill bearing the number Bill C-69. By apparent coincidence, this is the same number assigned to the bill that introduced the IAA in 2018, repealing and replacing the CEAA, 2012, and that was used extensively in lobbying and marketing campaigns by those who opposed the legislation.
7. Reference re Impact Assessment Act, supra note 5 at paras 179, 183, 193.
8. Ibid at para 107.
9. Ibid.
10. IAA, supra note 4, as amended, at s 6(2).
11. Ibid, as amended, at s 16.
12. United Nations Declaration on the Rights of Indigenous Peoples Act, SC 2021, c 14.
13. United Nations Declaration on the Rights of Indigenous Peoples, UNDRIP, 33^rd Sess, UN Doc A/RES/61/295 (2007).
14. Constitution Act, 1982, s 35, being Schedule B to the Canada Act 1982 (UK), 1982, c 11.
15. IAA, supra note 4, as amended, at s 8(b)(i).
16. Ibid, as amended, at s 28(3).
17. Government of Canada, PC, “Cabinet Directive on Regulatory and Permitting Efficiency for Clean Growth Projects” (last modified 5 July 2024), online: <www.canada.ca/en/privy-council/services/clean-growth-getting-major-projects-done/cabinet-directive.html>.
18. Ministerial Working Group on Regulatory Efficiency for Clean Growth Projects, Building Canada’s Clean Future: A plan to modernize federal assessment and permitting processes to get clean growth projects built faster (Ottawa: Privy Council Office, 2024), online (pdf): <www.canada.ca/content/dam/pco-bcp/images/pco2/clean-growth/plan-eng.pdf>.
19. See, for example, Anna Johnston et al, Is Canada’s Impact Assessment Act working? (West Coast Environmental Law et al, 2021) online (pdf): <www.wcel.org/sites/default/files/publications/2021-impact-assessment-act-report-en-web.pdf >; Calvin Trottier-Chi, “Canadian Climate Institute: Streamlining clean growth project approvals with strategic assessments” (30 November 2023), online: <www.climateinstitute.ca/publications/streamlining-clean-growth-project-approvals>.
20. See generally Dylan Kelso et al, Future Unbuilt: Transforming Canada’s Regulatory Systems to Achieve Environmental, Economic, and Indigenous Partnership Goals, (Business Council of Alberta, 2023), online (pdf ): <futureunbuilt.com/wp-content/uploads/2023/06/Future-Unbuilt-Task-Force-Paper-FINAL.pdf>; Heather Exner-Pirot and Micheal Gullo, Reforming Canada’s regulatory approval and permitting process (C.D. Howe Institute, 2023), online (pdf ): <www.cdhowe.org/sites/default/files/2023-07/IM-Pirot%20and%20Gullo_2023_0720.pdf>.
21. The federal entities that will be regular members of the Council are identified at Annex A and include: Canadian Energy Regulator, Canadian Northern Economic Development Agency, Canadian Nuclear Safety Commission, Crown-Indigenous Relations and Northern Affairs Canada, Department of Fisheries and Oceans, Environment and Climate Change Canada, Finance Canada, Health Canada, Impact Assessment Agency of Canada, Indigenous Services Canada, Natural Resources Canada, Privy Council Office, Transport Canada and Treasury Board Secretariat.
22. Marta Orenstein, “Competitive Canada: Recommendations to Improve Federal Assessment for Major Projects” (Canada West Foundation, 2023), online (pdf ): <www.cwf.ca/wp-content/uploads/2023/08/2023-08-31-CWF_Competitive-Canada-IAA-Report-WEB.pdf>.
23. Government of Canada, PC, “Cabinet on Improving the Performance of the Regulatory System for Major Resource Projects” (2011), online (pdf ): <www.ceaa-acee.gc.ca/050/documents_staticpost/cearref_21799/83452/Vol1_-_Part03.pdf>.
24. Government of Canada, “Canadian Impact Assessment Registry” (last modified 21 March 2024), online: <www.iaac-aeic.gc.ca/050/evaluations/Index?culture=en-CA> [Canadian Impact Assessment Registry].
25. Fisheries Act, RSC 1985, c F-14 [Fisheries Act].
26. Canadian Navigable Waters Act, RSC 1985, c N-22 [Canadian Navigable Waters Act].
27. Species at Risk Act, SC 2002, c 29 [Species at Risk Act].
28. Explosives Act, RSC 1985, c E-17 [Explosives Act].
29. See Canadian Impact Assessment Registry, supra note 24.
30. Government of Canada, “Cedar LNG Project” (last modified 26 June 2024), online: <www.iaac-aeic.gc.ca/050/evaluations/proj/80208>.
31. Government of Canada, “Canadian Impact Assessment Registry: Search Registry” (last modified 12 August 2024), online: <www.iaac-aeic.gc.ca/050/evaluations/exploration?active=true&showMap=false&document_type=project#371165586>.