The National Energy Board (NEB) is a “captured regulator” that has “lost touch with what it means to protect the public interest.”

That’s what Marc Eliesen — former head of BC Hydro, Ontario Hydro and Manitoba Hydro, and former deputy minister of energy in Ontario and Manitoba — told the NEB Modernization Expert Panel on Wednesday morning in Vancouver.

“The bottom line is that the board’s behaviour during the Trans Mountain review not only exposed the process as a farce, it exposed the board as a captured regulator,” he said to the five-member panel.

“Regulatory capture exists when a regulator ceases to be independent and objective.”

The Trans Mountain pipeline was reviewed with what many consider a heavily politicized NEB process, one that Trudeau had committed to changing prior to issuing a federal verdict on the project.

That process included what Eliesen describes as gutted environmental legislation, the removal of “essential features of a quasi-judicial inquiry” including the cross-examination of evidence and the limiting of participation of intervenors in such a way it “predetermined the outcome in favour of the pipeline proponent.”

Eugene Kung, staff counsel at West Coast Environmental Law, said in an interview with DeSmog Canada that the hearings for the project were the worst he’s seen in almost 10 years of practising regulatory law.

But that doesn’t seem to be an accident. Eliesen — who withdrew as an intervenor from the NEB review of the Trans Mountain project in 2014 due to the “fraudulent process” — argues the problems go far deeper than just the Trans Mountain review, predominantly linked to the “revolving door” between industry and the board.

“This ‘modernization’ is some spinmaster’s term,” he said. “It’s about public trust and the fact the NEB has lost this trust to the Canadian public.”

Move of NEB Head Office to Calgary Arguably Compromised Independence

In 1991, the NEB’s head office was moved to Calgary, and legislation was changed to require all permanent members to reside in Calgary.

It’s a decision that Eliesen says was completely unexpected and ultimately a political move by former Prime Minister Brian Mulroney; most other regulatory agencies are located in Ottawa to prevent being influenced by the industry in which they’re supposed to regulate (including finance regulators, even though Toronto is often considered Canada’s finance city).

If it was indeed politically driven, the plan seems to have worked.

More than two-thirds of the staff didn’t move to Calgary, and their positions were subsequently filled by former employees of the oil and gas sector. This has resulted in what some call a “revolving door” between the two; as Eliesen pointed out in his presentation, some former NEB chairpersons have been inducted into the Canadian Petroleum Hall of Fame.

“I’m not suggesting any nefarious activities,” he says. “It’s just that you adopt the headspace and the attitude of the energy industry of Alberta. When you have the legislation changed as well to ensure that all the permanent members reside in Calgary, then you have a major, major bias.”

It’s something he argues got worse under former prime minister Stephen Harper, who took full advantage of it in his final months (appointing many former industry veterans to key positions with the board, including Steven Kelley, who previously worked as a consultant for Kinder Morgan on the Trans Mountain project).

Even one of the five members of the NEB Modernization Expert Panel previously served as president of the Canadian Energy Pipeline Association. That same person, Brenda Kenny, signed a 2011 letter to key cabinet ministers petitioning for regulatory overhaul.

“She is in a real conflict of interest,” Eliesen says. “She’s the last person to be on a panel trying to evaluate how to bring back to the public trust to the National Energy Board.”

How to Fix the National Energy Board, Canada's Captured Regulator https://t.co/mHjDbb2iRj #cdnpoli #EnergyEast #TransMountain @james_m_wilt pic.twitter.com/8So7hzWUQ1

— DeSmog Canada (@DeSmogCanada) February 10, 2017

Many Structural Changes Required to Fully ‘Modernize’ the NEB

Kung, who also presented to the expert panel on Wednesday, expressed concerns about the relationship between the NEB and industry. He says there are many structural ways that such capture can be fixed.

Currently, the NEB receives a majority of its funding from industry, something Kung suggests should be addressed.

Its “very important role” in data collection and forecasting (such as the exhaustive “Canada’s Energy Futures” reports) don’t currently consider climate commitments such as the Paris Agreement, with the latest NEB report imagining a “business-as-usual” world that features an increase of four to six degrees Celsius in average global temperatures. That’s another thing that Kung says needs to change in the modernization.

Patrick DeRochie — climate and energy program manager at Environmental Defence — agrees, arguing that the NEB needs to better align climate and energy policy: “It’s not there right now. With this energy transformation we’re seeing for renewables right now, it’s not adequate. We need to bring that into the 21st century.”

(Conversely, Eliesen disagrees and suggests the NEB be solely a quasi-judicial agency and the energy information and advisory mandate be removed).

A key concern for Kung is also about NEB personnel. He acknowledges the board possesses technical expertise and that it’s tricky to find that kind of knowledge in people who haven’t worked in the industry at some point.

“But the way you can separate it structurally is making their role slightly different so they’re not making a decision, for example, about national or public interest,” he says. “Because that’s an impossible decision to make by a captured regulator.”

Proposed Solutions Include Replacing Board Members, Relocating Head Office

Eliesen proposed two major solutions to the review panel.

First, remove all current board members and replace them with people that reflect a broad range of background and expertise, not just the oil and gas industry. And secondly, relocate the NEB’s head office back to Ottawa.

These two decisions would create a firewall of sorts between industry and the board.

In addition, he suggested that environmental assessments be undertaken outside of the NEB, enforcement of pipeline safety be increased, and proponents be required by the NEB to provide alternative routes for pipelines.

Vancouver was only the third stop of 10 for the expert panel. The final “engagement session” in Montreal will conclude on March 29.  The panel is required to submit a report and recommendations to the Minister of Natural Resources around May 15.*

It’s a timeline that DeRochie suggests has made the process “really rushed,” noting that some of the 12 discussion papers weren’t even posted on the NEB Modernization Panel website by the time the first engagement sessions started in Saskatoon. However, DeRochie presented at the engagement session in Toronto on Feb. 1, and said that he went in “kind of cynical” but emerged feeling like they “really did seem like they wanted to engage us and fix this regulator.”

“It’s either get this right or face a bunch of political and legal challenges to every single energy project moving forward,” he says. “I think all stakeholders — industry, government, indigenous communities and ENGOs — want to avoid that.”

* Update: Feb 9, 2017. This article originally stated the panel report was due March 31, as stated on the National Energy Board's website. However, the date has been updated to May 15, as stated in the National Energy Board's terms of reference for the review panel.

Images: Natural Resources Minister Jim Carr. Photo: Canada 2020 via Flickr (CC BY-NC-ND 2.0)

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Move over Duffy diaries. There’s a new black book in town.

That’s the detailed work journal of B.C. Ministry of Environment senior official Frazer McKenzie, which recounts conversations between ministry officials and Rio Tinto Alcan while the company was applying for a permit to increase aluminum production at its Kitimat smelter.

“Frazer McKenzie was a diligent and thorough employee. He documented ongoings with Rio Tinto Alcan within government that we’d otherwise never know about,” lawyer Chris Tollefson told DeSmog Canada.

During the application process, Rio Tinto Alcan financed McKenzie’s position at the Ministry of Environment through a secondment agreement and government officials repeatedly refer to the company as a “client.”

DeSmog Canada has learned this parlance has become commonplace between ministry officials and industry. Indeed, much of what occurred in the Rio Tinto Alcan case appears to be standard operating procedure. 

McKenzie's journal — made public due to an appeal — offers a rare glimpse into the inner workings of B.C.'s Ministry of Environment. 

The ministry has argued that it agreed to allow the company to fund McKenzie’s position because of concerns there would be “inadequate staffing to deal with the application” otherwise. Such arrangements with industry are not entirely unusual due to chronic underfunding.* 

Rio Tinto Alcan’s application, which was approved by B.C. in 2013, granted the company the right to increase sulphur dioxide emissions in the Kitimat airshed by 56 per cent.

Sulphur dioxide is released from the combustion of sulphur-laden fossil fuels — such as the petroleum coke used to smelt aluminum — and irritates eyes, noses, throats and lungs. People with asthma, children and the elderly are at increased risk from sulphur dioxide exposure.

Two Kitimat elementary school teachers — Emily Toews, who suffers from asthma, and Lis Stannus — are now challenging that permit approval through the B.C. Environmental Appeals Board, arguing the project threatens human and environmental health. The appeal, being heard by a tribunal in Kitimat, is in its third week.

“This case really does represent a situation where you have a regulator that has gotten too close to a powerful and well-resourced private interest that it is supposed to be independently regulating,” Tollefson told the tribunal.

Central to the tribunal are the extensive notes McKenzie took while the Ministry of Environment, including manager of environmental protection Ian Sharpe, and Rio Tinto Alcan discussed the company’s permit application.

On Monday, Sharpe told the appeals panel Rio Tinto Alcan was “after comfort in the authorization process” and that he discussed the possibility of creating “some kind of comfort letter or document…that would give Rio Tinto Alcan’s board the comfort they needed to get on with funding.”

“This is B.C.’s version of the Duffy senate scandal: it shows how deeply comfortable government and industry are with one other,” said Richard Overstall, counsel for Emily Toews.

Notebook Shows B.C. Left Sulphur Dioxide Limits Unanswered

McKenzie’s notes show the provincial government was aware of scrubbing technology — used to eliminate sulphur dioxide emissions from smelters around the world — but chose not to require Rio Tinto Alcan to put that technology in place.

Under cross-examination, McKenzie read aloud his notes, which referenced Rio Tinto Alcan’s request to eliminate the mention of scrubbers from an internal memo. He also noted a phone call from a deputy minister who “did not want to let a little SO2 get in the way” of Rio Tinto Alcan’s project.

McKenzie’s journals also show the company was anxious about the projected increase of sulphur dioxide emissions from the modernization project and wanted regulatory certainty to calm investors.

Rio Tinto Alcan requested specific sulphur dioxide discharge limits during the creation of a joint memorandum of understanding (MOU) with the province. Under the MOU, the province committed to regulate Rio Tinto Alcan under sulphur dioxide standards from the 1970s — and guaranteed those weak rules would stay in effect for the project until at least the end of 2018, even though the province introduced much stronger interim standards in 2014.

Those weak standards were eventually dropped altogether by Sharpe, who said he began to consider them “obsolete,” but told the panel he could not recall when. No new standards for Rio Tinto Alcan’s smelter have been put into place and, according to Sharpe, won’t be in place until B.C. or the federal government mandate them after conducting a full public consultation.

McKenzie’s notes make numerous mentions to Rio Tinto Alcan’s desire for “certainty” regarding potential SO2 standards.

“SO2 is troubling to Alcan,” McKenzie wrote in one entry entered into evidence. “Insisting they have limit ahead of time — something in writing.”

McKenzie noted in one internal correspondence, “Alcan is anxious to get green light…to provide good news on project to stakeholders.”

The province approved the company’s permit in 2013 but did not release an environmental monitoring plan until 18 months later. Although the modernization project is very close to complete, it remains without sulphur dioxide emission limits.

Appellants Point to Regulatory Capture

Between the period of 2007 and 2013, McKenzie was seconded to Rio Tinto Alcan, which funded his position. He worked closely with the company during the permit application process.

Tollefson argues Sharpe's close ties with Rio Tinto Alcan influenced and ultimately fettered his decision-making.

The evidence shows that government of B.C. and Rio Tinto Alcan “deliberated carefully over the language” contained in their agreement “knowing that it might be challenged in court on the ground that it fettered the discretion of the decision-maker charged with granting the permit,” he told the panel.

“We need to reinvigorate the idea of a regulator as a fearless public defender,” he said.

That was not the case with Ministry of Environment officials, who, according to Tollefson, throughout years of documents refer to Rio Tinto Alcan as a “client” and tend to view the world through “industry-coloured glasses.”

Overstall said there was a “slow creep” of industry’s interests into government activities.

“That’s what we see with the Duffy scandal: these guys get so involved they lose their compass,” he said.

“No one wakes up one morning and decides, ‘I’m going to get cozy with industry.’ It’s more of a slow creep,” Overstall said. “They make small decisions one after another behind closed doors thinking what they’re doing is okay until suddenly the public spotlight is shone on them.”

* This story was updated after publication to add more context about the frequency of secondments and the use of the term "client" to refer to companies applying for permits with the Ministry of Environment.

Image Credit: Rio Tinto Alcan

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When the B.C. Ministry of Environment approved Rio Tinto Alcan’s application to modernize its aluminum smelter in Kitimat, B.C., local resident Emily Toews assumed that would mean an improvement in the plant’s emissions.

But the modernization project, which will increase the plant’s production, will raise sulphur dioxide (SO2) emissions by 56 per cent from 27 to 42 tonnes per day.

Toews, who suffers from asthma, told a tribunal in Kitimat Monday she decided to remain in Kitimat in 2010, rather than move to West Kelowna with her husband, because she had “previous knowledge that the modernization project would reduce emissions.”

The tribunal, hosted by the B.C. Environmental Appeals Board, is entering its third week in Kitimat after two weeks in Victoria. The board began investigating the government's approval of the Rio Tinto Alcan modernization project after Toews and fellow Kitimat resident Lis Stannus asked it to overturn the decision, saying increased sulphur dioxide emissions endangered their community's health.

The project, granted approval from the B.C. government in 2013, will reduce greenhouse gas emissions from the smelter, but not sulphur dioxide emissions because Rio Tinto Alcan was not required to introduce scrubbers, commonly used in smelters to remove the pollutant from airborne emissions.

Toews, who has a 10-month old child and is a kindergarten teacher, said she’s worried about the impact the increased pollution will have on the community’s children.

Sulphur dioxide, a pungent pollutant that results primarily from fossil fuel combustion, irritates the skin as well as the mucous membranes of the eyes, nose, throat and lungs. Exposure to sulphur dioxide aggravates the respiratory systems of asthmatics and is known to negatively affect the respiratory systems of children and the elderly. 

She told the tribunal that several children in the Kitimat school where she teaches suffer from asthma.

“Working at an elementary school there are a lot of illnesses going around,” she said. “During allergy season I often have to help kids, or help administer their medication before they go outdoors.”

”I’m concerned for other people in the community,“ she said.

Toews questioned why, if solutions like scrubbers are a possibility, the province didn’t require them when approving the smelter modernization project.

Scrubbers, which can either create dry sulphur waste or can use seawater which converts SO2 to sulfates for a benign release into the ocean, are commonly used in European smelters.

Toews told the panel she cannot see why the province wouldn’t require Rio Tinto Alcan to employ scrubbers to eliminate the SO2 emissions problem in Kitimat.

“No I’m not opposed to the modernization project, however I am opposed to increasing one emission — sulphur dioxide — and I don’t understand why that emission was left out of this 'state of the art' modernization process,” Toews said.

“I’d like this panel to consider having Rio Tinto produce the best state of the art reduction in emissions possible with the technologies that are available and to my knowledge there are technologies that are available to do that.”

An expert witness who previously gave testimony during the hearings told the panel Rio Tinto Alcan was avoiding paying for the installment of scrubbers and thereby externalizing the costs of SO2 emissions onto the health of local households.

Chris Tollefson, a lawyer representing Toews’ co-apellant Lis Stannus, said the company is primed to install scrubbers in a “plug and play” manner.

“There’s no dispute on the evidence that these scrubbers can be installed with relative ease,” he told the panel. “In fact, the [Kitimat modernization project] has been designed and built with an onsite area specifically set aside for scrubbers to be retrofitted…on what the experts describe is a ‘plug and play’ basis.”

Tollefson said the company’s issue with scrubbers is cost — an estimated $100 to $200 million for installment, not including operating costs. The company estimated the modernization project would cost $3.3 billion but overruns have the project nearing $5 billion last summer.

Rio Tinto Alcan has “made this very clear to the provincial government…that they simply do not want to spend the money.” Government officials from the B.C. Ministry of Environment were also too concerned with Rio Tinto’s interests, Tollefson previously argued, alleging the project’s approval without scrubbers at the provincial level is the result of regulatory capture.

Tollefson said he is asking the panel to “weigh the financial benefit to Rio Tinto Alcan of not being held to a rigorous environmental standard against the cost to the environment and human health of allowing Rio Tinto Alcan to increase its SO2 emissions by 56 per cent.”

The hearings, conducted by the B.C. Environmental Appeals Board, are currently underway in Kitimat.

Image Credit: Rio Tinto Alcan

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The B.C. Ministry of Environment was too concerned with the interests of Rio Tinto Alcan when it granted the company a permit to dramatically increase the release of sulphur dioxide (SO2) emissions in the Kitimat airshed, attendants of a tribunal heard in Victoria on Monday.

“This case raises the specter, in a very real way, of regulatory capture,” Chris Tollefson, lawyer for the University of Victoria’s Environmental Law Centre, argued in his opening statement.

Tollefson said the B.C. Ministry of Environment put senior official Frazer McKenzie in a conflicted position when it allowed Rio Tinto Alcan to pay his salary between 2007 and 2013 — during which time McKenzie was tasked with reviewing an upgrading application for the company’s Kitimat smelter.

In 2013, the province, acting through Ian Sharpe, environmental manager for the Ministry of Environment,  granted Rio Tinto Alcan permission to proceed with a $3.3 billion modernization project that would increase production and the amount of sulphur dioxide emissions released into the Kitimat airshed.

Two Kitimat residents, Emily Toews and Lis Stannus, appealed the project’s approval in 2013 with the B.C. Environmental Appeal Board, arguing the 56 per cent increase in sulphur dioxide emissions would threaten human and environmental health. Toews and Stannus are both elementary school teachers in the region.

“This case really does represent a situation where you have a regulator that has gotten too close to a powerful and well-resourced private interest that it is supposed to be independently regulating,” Tollefson told the tribunal, an independent body tasked with hearing appeals submitted to the Environmental Appeals Board.

Tollefson alleged Rio Tinto Alcan was granted too much authority in the decision-making process and “in the end got exactly what it wanted.”

The province announced the project did not require an environmental assessment because overall emissions will be reduced as a result of the modernization project — even though SO2 emissions are set to increase.

Tollefson argued that because Ministry of Environment officials were too wrapped up with Rio Tinto Alcan’s interests, they did not order the company to install scrubbers, designed to ‘scrub’ SO2 pollution out of the smelter’s effluent.

However, Rio Tinto Alcan has “covered its bets,” Tollefson said, by “setting aside the ability to install these scrubbers on a plug and play model” should the province decide to require them.

“If this Panel decides to order the installation of scrubbers, there is no technological or logistical reason why Rio Tinto Alcan can’t comply with that,” he said.

The province has not required scrubbers be installed — at an anticipated cost of between $100 and $200 million to the company — because “this concern to keep Rio Tinto Alcan content…in the end overshadowed the concern that should have been shown for the public interest.”

Ben Naylor, co-counsel for the Ministry of Environment said there was no conflict of interest and that Rio Tinto Alcan funded McKenzie’s position because of concerns there would be “inadequate staffing to deal with the application, including the application to increase sulphur dioxide.”

“This agreement allowed the government to secure funding for a complicated position,” he told the tribunal. “Without this funding this permit would not have been dealt with in the timeframe provided or with the amount of scientific rigour needed.”

Dan Bennett, a lawyer representing Rio Tinto Alcan, said the appellants have raised “no credible concerns” with the smelter’s modernization project. Doyle argued the changes will reduce the plant’s environmental footprint including reducing greenhouse gas emissions by 42 per cent.

But, he added, he does “acknowledge that suphur dioxide emissions are intended to increase and that results from the increased level of aluminum production.” 

Co-counsel for Rio Tinto Alcan Jana McLean added the “appellants request in this appeal to amend the permit to require scrubbers lacks any evidentiary foundation and is without scientific merit.”

The hearing will continue in Victoria for two weeks (April 27 – May 1 and May 11 – May 15) before continuing in Kitimat.

Image Credit: Robin Rowland

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This video, by comedian Scott Vrooman, originally appeared on the Toronto Star.

American energy corporation Kinder Morgan filed a multimillion-dollar lawsuit against five Trans Mountain pipeline protestors in Burnaby, B.C., because apparently nobody told them the average income of a pipeline protestor.

The National Energy Board — an anagram of “regulatory capture” — ruled that the City of Burnaby can’t stop Kinder from carrying out its work, so now the protestors are accused of trespassing in their own city’s park. Kinder solved the Not In My Backyard problem by taking the backyard.

The company also claims that protestors’ angry facial expressions constitute an assault on their workers. They’re arguing that freedom of expression doesn’t extend to your face. So I assume that if protestors draw angry faces onto their butts and display those towards Kinder Morgan workers, that won’t constitute assault. And I encourage every protestor to test that theory.

All of this comes within the context of a wider attempt to delegitimize protest itself. The University of Calgary’s School of Public Policy which just installed a new oil feature in their garden it’s lovely — they recently held a conference on “social license,” where the case was made that protestors undermine the rule of law by claiming to speak for the whole community.

But pipeline and climate change protestors are mostly speaking for members of the community who don’t have a voice: children. Or they do have a voice, but they’re babbling and responding to everything with “why” and just generally saying the darndest things.

We don’t have a law that says children have a right to a livable environment when they get older. They’re expected to earn their ice sheets and predictable planting seasons just like we did. 

Even radical, chaos-gargling anarchists like the International Energy Agency and former Bank of Canada governor Mark Carney have agreed that the vast majority of fossil fuel reserves must be left in the ground to avoid devastating climate change.

So maybe angry protestors aren’t the problem, it’s the lack of anger of everyone else. Maybe the expression we should be worried about isn’t an angry face, it’s a shrug.

Follow Scott on Twitter: @mescottvrooman

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