The Canadian energy regulatory landscape in 2023 was dominated by tension between the Canadian Federal Government's pursuit of its environmental policy objectives, particularly related to reducing greenhouse gas (GHG) emissions, and the desire of provincial governments to address GHG emissions and pursue economic objectives without federal interference. We expect that trend will continue into 2024 and may intensify as a result of elections in the United States and, possibly, a Canadian federal election.

The federal government will continue advancing a number of key initiatives announced over the past year, foremost among them being changes to the Impact Assessment Act (IAA). After a majority of the Supreme Court of Canada (SCC) found that the IAA was largely unconstitutional in October 2023, the federal government quickly announced that it intended to amend the IAA to align with the SCC's majority opinion. Proponents and investors will be reviewing those proposed amendments carefully to seek clarity on the scope of federal reviews of major projects. For their part, provincial governments will be watching to determine whether the amendments respect the SCC's ruling or whether further challenges are warranted.

The federal government's draft Clean Electricity Regulations, introduced in August 2023, are likely to be a further source of tension (and possibly litigation) with the provinces in 2024. The federal government will be reviewing public comments (and, undoubtedly, the SCC's guidance from the IAA reference case) before publishing final regulations later this year. Some provinces have expressed concern that the requirements set out in the Clean Electricity Regulations are unconstitutional, practically unworkable, or too costly. The Province of Alberta, in particular, invoked the Alberta Sovereignty Within a United Canada Act in response to the draft regulations, introducing a resolution that expressly called for legal challenges to those regulations, and calling for provincial entities (such as the Alberta Electric System Operator and Alberta Utilities Commission) to avoid enforcing the Clean Electricity Regulations or co-operating in their implementation to the extent possible.

Tension will also persist over the federal government's proposals, recently announced during the COP 28 climate change summit in Dubai, to limit GHG emissions from the oil and gas sector. In December 2023, the federal government published a framework outlining key aspects of the cap and trade system it intends to impose on that sector, including the requirement to reduce emissions by 35 to 38% below 2019 levels by 2030. It also published draft regulations aimed at achieving a 75% reduction in oil and gas sector methane emissions by 2030, relative to 2012 levels. The federal government is expected to receive feedback on both before publishing final regulations later in 2024. Perhaps emboldened by the SCC's decision on the constitutionality of the Impact Assessment Act, Alberta and Saskatchewan have strongly opposed both proposals, arguing that it infringes on their jurisdiction over natural resources and that it will harm their economies and the competitiveness of their resources.

The disagreement among federal and provincial governments over these policies in 2024 will play out in a complicated and potentially shifting political environment. Economic and affordability concerns are likely to be major issues in the 2024 United States elections. There is also the possibility of a Canadian federal election in 2024, raising similar issues. As politicians and voters come to terms with the cost of transitioning away from hydrocarbon fuels, there may be pressure on incumbents to temper climate change commitments in favour of increased affordability. To the extent there are changes in government following the 2024 U.S. elections, that could introduce significant uncertainty on climate change and energy regulatory policy. Presidential elections in 2000 (Bush defeating Gore), 2008 (Obama defeating McCain), 2016 (Trump defeating Clinton) each led to significant changes to U.S. energy and/or climate policy, with corresponding regulatory uncertainty. Perhaps the most notable example was former President Trump taking the extraordinary step of withdrawing the United States from the Paris Climate Agreement, only for the United States to rejoin the Paris Agreement in 2021 under President Biden. The outcome of the 2024 Presidential election could have a significant impact on the trajectory of global climate policy. Similarly, a change in government following a Canadian federal election could have a material effect on climate and energy policy.

For more information on this topic, please reach out to the authors, Dan Collins and Bernard Roth.

We wish to thank Jack Yuan, Articling Student, for his contributions to this article.

Stay up-to-date with all insights and guidance from our Regulatory team by visiting our Canada Regulatory Review blog here and signing up for future alerts here.