Why TMX Ruling Broadcasts a Concerning Message

Understanding the implications of the Aug. 30 Trans Mountain Pipeline ruling.

Nicholas Lupick, CFA

On Aug. 30, the Canadian Appeals Court of Canada (the Court) released a ruling that determined that the previous federal approval of the Trans Mountain pipeline was invalid due to inadequate environmental analysis and insufficient Indigenous consultation. The ruling quashed the existing approval, halting construction and sending the pipeline back for further regulatory assessment.

Specific Objections
The Court cited three reasons for the ruling.

1. It was deemed that Kinder Morgan (KML-T; Not Rated), through its tanker acceptance process, would be influencing waterway traffic in the Juan de Fuca Strait, and thus needed to consider this traffic as part of the environmental assessment (this was not in the original assessment).

2. In light of this widening of scope, the Court determined that the project needs an “impact of species” assessment (regarding the native Orca whale population).

3. In some cases, it was deemed that there was inadequate consultation and resolution of stakeholder concerns.

What’s Next
Based on current information, there are three possible courses of action that the Federal Government (the current owners of the pipeline) can take.

1. Accept the Court ruling and re-enter Phase III consultation with the Indigenous parties in question, and conduct the required additional impact assessment of the Juan de Fuca Strait.

2. Escalate the decision to the Supreme Court of Canada in hopes of overturning the ruling.

3. Invoke special legislative powers of the Federal government, likely applied to the NEB Act in order to legitimize the project and force its construction with limited further debate.

Impacts Go Beyond Pipelines
What is most concerning about the Aug. 30 ruling by the Appeals Court of Canada is the message it sends to industry and the rest of the world; namely, that Canada carries great political risk and regulatory uncertainty, thereby warranting material discounts to investments with long-term horizons.

Ultimately, there is no other way to characterize Canada’s current state of affairs than to say that the country (and to a greater extent, the federal government in Ottawa) is at a crossroads. In order to provide clarity to the world that Canada is a stable and reliable country for business and investment, the federal government should exhibit unwavering clarity on the regulatory and approval process with expediency. While we believe that material damage to Canada’s reputation as an investible jurisdiction has been done, the damage will intensify the longer the current uncertainty prevails.

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