PART II

SECTORS / AREAS OF REGULATION

Introduction

As the second and third elements of its mandate, the Committee was asked to identify sectors and areas of regulation requiring regulatory reform in Canada. The Committee was also asked to consider areas that could be at risk if regulatory frameworks were not examined and possibly reformed. Its objective was to identify key industry sectors, stewardship regimes and regulatory programs in which regulatory reform would give Canada a strategic advantage and support our country's social, environmental and economic goals. Building on the analysis and recommendations outlined in the strategy in Part I of the report, Part II demonstrates how Smart Regulation can be applied to specific case studies.

The Committee used five criteria to select priority sectors or areas for analysis:

1. The sector or area offers economic opportunity and social/environmental benefits for Canadians.
2. There is pressure for change from industry, the Canadian public, government or international sources.
3. The sector or area demonstrates the enabling and protecting attributes of Smart Regulation.
4. The regulatory framework is a strategic asset for industry and for Canada.
5. There is potential momentum for a Smart Regulation strategy.

In addition to these criteria, the Committee undertook a scan of regulatory issues and took into account the concerns and issues raised by regulators and stakeholders across the country. The Committee also wanted to examine issues which were cross-cutting in terms of having a wide impact on Canadian society and the economy. Based on these considerations, the Committee examined the following subjects: manufacturing and product approval; biotechnology/life sciences; First Nations economic development; the environmental assessment process; and oil and gas exploration and development.

The Committee recognizes that these issues are not the only regulatory priorities facing the Government of Canada and feels strongly that all sectors or regulatory areas should be subject to ongoing evaluation and modernization, as recommended in Part I of the report, in order to reflect the principles of Smart Regulation. The review did not focus on the merits of the policy objectives for these areas of regulation. Instead, the Committee sought to identify how Smart Regulation could be applied to existing Canadian regulation in order to better advance economic, social and environmental policy objectives. In developing its recommendations, the Committee endeavoured to ensure that they reflected the vision and principles discussed at the beginning of the strategy: cooperation, effectiveness, cost-efficiency, timeliness, transparency, accountability and performance.

In undertaking this analysis, the Committee made the following overall broad observations:

Coordinating regulatory action - The federal government should better coordinate regulatory intervention between federal departments and agencies and with other orders of government. At the outset, the federal government should ensure that its regulatory functions are coherently aligned with its policy priorities. Specific initiatives should be implemented, such as the provision of single window service and the designation of federal coordinators with appropriate authority to oversee federal regulatory involvement in major projects. This is particularly critical in the cases of environmental assessment, biotechnology/life sciences, and the oil and gas exploration and development sector.

Developing regulatory policy frameworks - The Committee found an occasional gap between the objectives of a regulation and its actual impact, particularly when more than one department was involved. Accordingly, there is a need to establish overarching regulatory policy frameworks that clearly and concisely spell out the government's objectives in a sector or area of regulation. These frameworks would provide overall guidance to the various regulatory authorities, identify success criteria and ensure the regulatory action is coherent and integrated. The Committee found that the need to establish such frameworks was particularly evident in the automotive, biotechnology/life sciences, and offshore oil and gas industries.

Creating timely and responsive regulations - The Committee found that the current regulatory environment does not adequately adapt to external changes such as those found in business, technology or consumer choice. Regulations must be flexible enough to address advances in production methods and service delivery in a timely manner. One of the remaining challenges is that many federal regulations are prescriptive, rather than based on performance and results. The greater use of performance-based regulatory standards would give stakeholders the flexibility to comply with these standards through innovative means while still respecting the policy goals of the regulation.

Understanding cumulative and unanticipated impacts of regulation - The government needs to become more aware of the cumulative impacts of existing and proposed regulation. This understanding would be a first step in developing a greater sensitivity to the constraints that are inadvertently created by regulation and how an "enabling" dimension can be added to regulation. This observation applies to all sectors.

Maximizing transparency and consultation - The Committee found that many existing regulations continue to be difficult to understand and that many stakeholders do not know how to participate in the regulatory process or find basic information on existing and proposed regulations. The continued development of accessible, easy-to-understand regulatory information is a vital step. Moreover, the increased and innovative use of consultation with the general public would contribute to instilling greater trust in the regulatory system. Federal leadership that would bring industry and citizens' groups together to constructively discuss each other's concerns and explore solutions would be desirable. The report notes these issues are particularly evident in areas such as biotechnology/life sciences and environmental assessment.

Greater use of risk management principles - The federal regulatory framework continues to face greater demands to become more timely and transparent, while at the same time it is being constrained by limited capacity. The Committee observed that risk management principles are not being applied in a comprehensive and consistent manner and should become more prevalent in the review of regulatory frameworks for several sectors (e.g. environment assessment, and oil and gas exploration and development). By implementing risk management principles, the federal regulatory framework will focus on greater risks and achieve the intended outcomes of the regulations more effectively.

Increasing international regulatory cooperation - The Committee noted a lack of policy guidance as to when Canadian-specific regulations would be appropriate or when international regulatory cooperation would be preferable. The greater use of international cooperation would increase efficiency in the Canadian economy, continue to provide high levels of protection for human health and the environment and allow a more effective use of limited resources by regulators. These findings were particularly evident in areas such as the automotive and biotechnology/life sciences sectors, and the drug approval process.

1.1 Manufacturing and Product Approval

As a result of technological developments and ongoing efforts to liberalize trade, markets across the globe have become increasingly open and integrated. This has profoundly transformed the way in which companies do business, as they are continually innovating to develop new products to meet consumer needs, increase their market-share and cut production costs. The main competition for Canadian firms often comes not from other domestic manufacturers, but from foreign companies that operate under a different regulatory system than Canada's. Multinational corporations have restructured and consolidated their operations, resulting in the creation of a limited number of large and specialized plants that serve an international market and compete with one another for accessing intrafirm investment capital. Indeed, more than two-thirds of cross-border trade with the United States is intrafirm trade occurring between different parts of the same company operating on both sides of the border.

The regulatory system is perceived by many stakeholders as having an impact on Canada's investment climate. The Committee heard that, to succeed in this type of environment, Canadian firms need, among other things, dependable regulatory timeframes for planning their business activities and reliable access to necessary and new inputs. For example, in cases where Canadian standards for ingredients and final products differ from those of the international market, production in Canada could become less efficient, thus reducing Canada's attractiveness as a plant location.

Concurrently, citizens want assurances that safety, human health and environmental standards governing products are being maintained at a high level. Moreover, Canadians are demanding better accountability and transparency from both companies and regulators to demonstrate how these high standards are being met.

Within this context, increased regulatory efficiency will be able to both improve the competitiveness of these industries and ensure that the mandate to protect the health and safety of Canadians and the environment is respected. In addition, regulatory reform will assist regulators in helping to ensure that Canadian consumers have timely access to a wide range of products and the latest innovations at competitive prices.

1.1.1 Overview

The Committee heard from a variety of stakeholders across the country that Canadian regulatory standards which diverge from those of other jurisdictions, particularly the U.S., represent a key issue in manufacturing and product approval in a variety of sectors. Manufacturers can face differing requirements for products depending on whether they are made for sale within a province, interprovincially or internationally. These regulatory differences between Canada and its major trading partners can hurt Canadian economic competitiveness in terms of trade and investment opportunities.

Manufacturers have identified a number of regulations in Canada that affect their ability to access and use raw materials or that set industry standards for their products which they feel hinder innovation. In many cases, these regulations differ from the requirements of foreign markets, particularly those of the United States, which accounts for the vast majority of Canadian exports. Why do standards differ? The reasons include enhanced safety and quality standards, differing views on health promotion, different testing methodologies, different trade policy objectives and historical "artifacts" in regulatory approaches.

The Committee feels that specific Canadian requirements should be limited to the following instances: there is no commonly agreed upon international or North American standard; important national priorities, unique Canadian circumstances or Constitutional values require a different approach; or the government has not yet developed sufficient confidence in the regulatory processes, practices results and/or decisions of a key trading partner to meet Canadian policy objectives. When specific Canadian requirements are adopted, the federal government should consider other tools at its disposal, including performance-based regulation and voluntary codes, to minimize the burden of specific Canadian regulatory requirements on businesses (see Part l, sections 3.1 "International Regulatory Cooperation" and 3.5 "Instruments for Government Action" for more details).

Recommendation 42: The federal government should work with stakeholders and citizens to develop an inventory of regulatory differences, particularly between Canada and the U.S., that impede Canadian competitiveness. They should be examined using the criteria for Canada-specific requirements. If regulations do not meet these criteria, Canada should take immediate action to align its regulatory requirements.

The Committee examined regulatory compatibility and divergence regarding manufacturing and product approval in the following three fields: the automotive industry, the drug approval process and New Substances Notification (NSN) (e.g. chemicals).

1.1.2 Automotive Manufacture and Assembly

The Committee examined the automotive industry from the perspective of its North American structure and implications for regulatory cooperation. The automotive sector is the largest manufacturing industry in Canada, accounting for 13% of Canada's manufacturing GDP and has invested more than $23 billion in facilities and technology over the past decade.¹²

This industry is highly competitive, trade-oriented and fully integrated across North America. Canada is the eighth largest integrated vehicle producer in the world, assembling about 2.6 million vehicles annually and representing about 16% of North American vehicle production. A major portion of the vehicles manufactured in Canada are exported to the U.S. Similarly, vehicles assembled in the U.S. are freely exported to Canada.

At the same time, the Canadian automotive sector is facing increasing pressure from a number of fronts: increased competition from offshore manufacturers, over-capacity in companies' assembly plants, and regulatory pressures which auto companies have claimed are increasing their production costs. Moreover, the Canadian industry has witnessed the closing of three assembly plants in the past few years — with the associated loss of high-paying jobs — while a number of new plants were concurrently opened in the southern United States.

The Government of Canada's involvement in the automotive sector is derived from several crosscutting mandates which include the safety of new and imported motor vehicles, environmental stewardship, the improvement of energy efficiency, the reduction of greenhouse gas emissions, and the fostering of the industry's international competitiveness and sustainable growth. Several federal departments (e.g. Transport Canada, Environment Canada, Natural Resources Canada) have a role in regulating or setting policies relevant to motor vehicles, the automotive industry and consumer interests.

For example, regulation and road safety are intertwined. With over 19 million vehicles on Canadian roads and over 21 million drivers operating vehicles across more than 900,000 kilometres of roads, road transportation is important to virtually every Canadian. In recent decades, deaths and hospitalizations due to motor vehicle traffic collisions have declined markedly in Canada. Since 1982, the road traffic death rate has declined by almost 50%, while the number of vehicles and licensed drivers on our roads has increased.¹³ Nevertheless, road collisions continue to cost Canadians approximately $25 billion dollars annually.¹⁴ Government interventions, such as laws mandating the use of seat belts and child restraints, as well as more stringent drinking and driving sanctions, public education and enforcement campaigns, safer vehicles and road infrastructure enhancements have all contributed to the increased safety of Canadian road users.

Government stewardship has also increasingly focused on the problem posed by greenhouse gas emissions from a variety of sources, including the transportation sector. According to Environment Canada, Canadians contributed about 720 megatons of greenhouse gases to the atmosphere in 2001, up from 608 megatons in 1991. Of this amount, the road transportation sector¹⁵ contributed 133.4 megatons (18.5% of the total), up from 107.5 megatons in 1990 (17.6% of the total). While emissions from the greatest number of vehicles — gasoline automobiles — actually declined during this time period, the overall growth of emissions in the road transportation sector is primarily attributed to an increase in the number of light-duty gasoline trucks (such as SUVs and mini-vans) and heavy-duty diesel vehicles. ¹⁶

It should be noted that in both Canada and the U.S., compliance with regulated performance requirements is based on a self-certification regime applied by the companies themselves. However, both countries exercise safety oversight through testing, auditing and investigations.

Key Challenges

Automotive regulations fall under four types: fuel consumption standards; safety regulations; emission regulations; and fuel quality standards. They affect mostly those vehicles which are sold in Canada, irrespective of their country of manufacturing. Since more than 85% of vehicles sold in Canada are produced abroad, auto regulations in Canada have implications not only for Canadian assemblers but also for assemblers manufacturing in other countries.

The Government of Canada strives to harmonize regulatory requirements and policies with those of the U.S., except in cases where there is a benefit to Canadians in pursuing a non-harmonized approach. In such cases, departments have indicated that they attempt to make every effort to develop regulations and policies that are as compatible as possible with those of the U.S. to permit the sale of vehicles in eithermarket, while placing a high priority on safety and environmental responsibility.

Approximately 85% of existing Canadian safety standards for new motor vehicles are harmonized with those of the U.S. However, North American manufacturers have expressed concern that there may be an increasing trend towards regulatory divergence in areas that could complicate vehicle design, engineering and manufacturing processes.

One of the challenges for industry is that these changing regulatory requirements have to be factored into the vehicle design process. Vehicle designs have a lifespan of 5 to 15 years, with designs locked in as much as 4 years in advance of production. Accordingly, manufacturers have stated that they require significant lead time (at least six years) to implement regulations and adequate flexibility to implement regulatory change in terms of human resource and capital allocations (although it should be noted that regulators factor in lead time when consulting with industry on regulatory proposals).

As an alternative to accomplishing public policy objectives through vehicle design changes, there may be other instrument options that could accomplish similar results. For example, rather than pressing for across-the-board fuel efficiency and emissions improvements, the government could provide incentives for consumers to purchase smaller, more efficient vehicles which are already on the market or disincentives to purchasing larger, less efficient vehicles.

These proposed changes to vehicle design resulting from Canadian regulatory requirements may have a longer-term impact on the health of the industry. Investment decisions are based on a variety of factors, regulatory differences being among them. Given the competitive global environment, these differences may leave the impression with potential investors that Canada's regulatory system is overly complex, hampering the international perception of Canada's business climate.

The Committee recognizes the challenges the automotive industry faces to retain and attract investment while respecting the need to maintain the integrity of safety and environmental standards, which benefit all Canadians. Accordingly, given the roles of multiple federal regulators and the impact of this sector on the Canadian economy and environment, the Government of Canada must develop a policy framework to outline its policy goals for the automotive sector. In so doing, the government could then align its regulations to ensure they help achieve these policy priorities.

The Committee feels that such a framework would help create a new and modern automotive regulatory environment, address Canadian economic concerns (e.g. domestic investment and employment in Canada), foster the automotive manufacturing industry's ability to innovate and compete globally, and protect the health and safety of Canadians and the environment.

Recommendation 43: A comprehensive Canadian automotive policy framework is required in order to coordinate automotive regulatory roles and develop clear objectives. This framework would also incorporate a strategy of cooperation on standards and joint regulatory development with the U.S.

1.1.3 Drug Review Process

Canada, like other industrialized nations, faces significant challenges with respect to the regulation of new drugs. Key issues for Health Canada include keeping up with the fast pace of scientific discovery that leads to the development of new drugs, and responding to consumer demands for access to innovative and potentially life-saving medicines.

The process of making these medicines available on the Canadian market is complex and involves decisions by a number of parties. The Committee agrees with Health Canada and its partners that safety is paramount. It has also heard, however, that the processes to approve and make these new medicines available to Canadians take too long. This delay can lead to lost sales for pharmaceutical companies, resulting in disincentives for the development of new pharmaceuticals in Canada and lost opportunities for innovation.

There are three main factors involved in approving and making new drugs available to Canadians, all of which should be considered in an overall drug strategy.

The first is the marketing strategies of pharmaceutical companies. In general, new drugs are introduced to Canada, which represents 2% of world pharmaceutical sales, only after they have been sold in other larger markets for several months or even years. Seventy percent of new drug submissions are filed first in the United States, where pharmaceutical companies can expect to recuperate their research and development costs more quickly. The second factor is the inclusion of new drugs in provincial formularies, a process which entitles citizens to be reimbursed for these drugs under their provincial health care plans. The third factor is the drug review process under the responsibility of Health Canada, which faces pressure to ensure the safety of new therapeutic products but to do so more quickly and efficiently.

The Committee decided to focus its recommendations on how international regulatory cooperation can improve Canadians' access to new drugs by speeding up the drug approval process, thereby enabling Health Canada to use its limited resources more strategically. If Canada's regulatory process were more closely aligned with the processes of leading countries in the area of drug review, then safe products already approved in those countries could be introduced more rapidly to the Canadian market. Canada could implement such an approach by adopting international standards and streamlining the review process for medicines previously approved in other countries with high regulatory standards.

Key Challenges

A Slow Drug Approval Process

Under the Food and Drugs Act, Health Canada is responsible for the review of drugs authorized for sale in Canada, a process which involves assessing their safety and quality. The drug review process comprises three distinct but interrelated stages, the first of which is the scientific review of new drugs. The second stage entails regulating the quality of both the manufacturing installations and processes for drugs. Lastly, Health Canada is responsible for continually monitoring the safety and quality of drugs after they have been released on the market.

Between January 1999 and June 2003, Health Canada's Therapeutic Products Directorate received and processed 314 applications for new drugs. These are drugs containing a substance that has not been sold in Canada for a sufficient length of time and in a sufficient quantity to establish its safety and effectiveness.¹⁷ Over half of these applications involve changes made to previously approved drugs, such as changes to the combination or proportion of ingredients, or the formulation of the finished product (including dosage, presentation and labeling). Over this period, 139 submissions (less than half) involved new active substances (i.e. substances never previously approved for sale in Canada).

Although target review times for new drugs in Canada compare with those of other countries, they are met only a small proportion of the time. The Centre for Medicines Research International indicates that Canada's review performance times lag behind those of the U.S., Switzerland and the EU, are more or less on par with Australia's, and are ahead of Japan's.¹⁸

With respect to new active substances, in 2001-2002, pharmaceuticals were introduced to the Canadian market on average six months later than in the U.S. In the case of biologics, the delay relative to the U.S. market ranged from six months to two years.

This delay can be explained in part by the fact that, in 2001-2002, industry filed applications for regulatory review of new active substances in the U.S. before it did so in Canada. On average, filings for pharmaceuticals took place 3 months later in Canada than in the U.S., while they occurred 12 months later for biologics. The delay in question is further compounded by the fact that, in 2001-2002, the regulatory review and approval of pharmaceuticals and biologics (new active substances) required, on average, four months more in Canada than in the U.S.¹⁹

In addition to these factors, it has also been argued that drug companies may often decide to introduce these drugs to the Canadian market later than in the U.S., following the respective drug approvals in the two countries. In order to ensure that Canadians have timely access to new drugs, the Canadian regulatory process has to take these market realities into account and adapt accordingly.

In terms of meeting its own performance targets, Health Canada reports that, for 2002, the average time to first decision²⁰ for pharmaceuticals was 547 days for approved non-priority new active substances submissions (192 days over the performance target time), and 332 days for approved priority new active substances submissions (97 days over the performance target time). For 2003, approved non-priority new active substances submissions took an average of 678 days, while approved priority new active substances required an average of 348 days.²¹

Regulatory performance targets are also an issue for the generic drug industry as well. According to Health Canada, in 2002 the average time to first decision for generics was 368 days (133 days over the performance target time of 235 days). In 2003, the average time to first decision was 385 days (150 days over the performance target time).²²

Delays in the drug review process are due in large part to a backlog (applications for which the performance target has not been met) that applied to an estimated 60% of all drugs and biologics under review by Health Canada until last year. Health Canada reports that the 2003 increase in approval times stems from efforts to reduce this backlog, leading to a 62% reduction in the pharmaceuticals backlog as of March 2004 (relative to March 2003). Moreover, the department plans to have the pharmaceuticals backlog eliminated entirely by the end of 2005-2006. Through its Therapeutic Access Strategy, Health Canada has also revamped its drug review processes to incorporate practices contributing to the high level of performance at the U.S. Food and Drug Administration (FDA). With the progressive elimination of the backlog, Health Canada can focus on implementing practices that reflect the principles of Smart Regulation: making the drug approval process simpler, more efficient and focused on quality of results.

A slower approval process does not necessarily indicate greater rigour in the scientific review of new drugs. Instead, it can reflect the effects of the regulator's limited resources and capacity. For example, the U.S. has a higher rate of products withdrawn from the market than Canada,²³ but this is due in part to new pharmaceuticals often being approved in the U.S. before being submitted for review in Canada. This time lag allows Canadian authorities to consider post-market data in their scientific review, thereby reducing the number of withdrawals.

It should be noted that industry sources have reported longer approval times compared with data provided by Health Canada. These differences highlight the challenges of measuring and reporting information about the drug review process clearly and consistently.

Using Limited Resources More Wisely

Canada needs to recognize that its resources and capacity are limited compared with those of other leading regulatory authorities, such the U.S. Food and Drug Administration. For 2002, the FDA's budget for the evaluation of human medicines reached an estimated $US220 million, as compared with Health Canada's $US40.9 million. The FDA also deploys 10 times more people for drug reviews than Health Canada, resulting in roughly the same number of new drugs approved as in Canada. However, the FDA's performance surpasses that of all other jurisdictions with regards to the quality of its scientific review and the speed of its approval process.

Canada cannot support a regulatory agency as large as the FDA, nor can it afford to carry out drug reviews as extensive as those of its American counterpart. It must be strategic in the use of its limited resources. It can do this by focusing on areas where products are specific to the Canadian market (such as blood-derived products, vaccines, etc.), or where Health Canada can demonstrate that an independent review process is essential to the health and safety of Canadians. The strategic use of resources also means taking advantage of the regulatory knowledge and capacity developed in other jurisdictions, such as using data and results from reviews carried out elsewhere, sharing workloads and processes, and eventually establishing mutual recognition or accepting the equivalency of processes. Although shaped by a particular context, the European Agency for the Evaluation of Medicinal Products (EMEA)²⁴ is an example of taking a single window approach to the regulation of therapeutic products. Simply put, if 25 European countries can work in a cooperative multilateral framework to assess drugs, why can't Canada participate more fully in international approaches?

Increased international cooperation in the review of new drugs can lead to direct benefits for citizens in terms of accelerating the introduction of safe new therapeutic products to the Canadian market. Better and more strategic use of international cooperation would also allow Health Canada to allocate resources more efficiently to areas which require a Canadian approach and could provide advantages to the country. For example, the department could devote additional resources to working more closely with industry stakeholders in the research and development of innovative therapeutic treatments, as the FDA does. Resources could also be shifted to such areas as developing clinical trials in Canada and post-market monitoring of adverse drug reactions, as outlined in Health Canada's Therapeutic Access Strategy.

Using International Cooperation More Strategically

Health Canada is currently involved in a number of international cooperation agreements with the U.S. and other jurisdictions. However, it needs to move forward more rapidly on strengthening and implementing its international cooperation framework. Strategic international regulatory cooperation involves determining when and with whom to collaborate in order to increase the efficiency of the drug review process and generate benefits for Canadians. This includes determining when it makes more sense to align our regulatory process with the processes of our trading partners (i.e. Canada adopting international standards or accepting equivalency), and when we should develop mutual collaboration (e.g. joint or shared review processes).

International regulatory cooperation can take a variety of forms, as discussed in Part I, Section 3.1 "International Regulatory Cooperation." The Committee believes that both long-term and short-term objectives for cooperation should be developed.

In the short term, Health Canada should focus on determining the areas of the drug approval process for which an independent approach does not contribute to the quality of decisions or generate a benefit for Canadians. For example, alignment with other regulatory authorities could be considered for applications involving changes to a therapeutic product that are minor or do not require scientific review. Another example is in the area of manufacturing data reviews, where pharmaceutical plants comply with quality standards that are accepted by many different regulatory authorities around the world. Could these international standards not be accepted by Canada as well, thereby reducing the need for independent review? Pre-market reviews and post-market surveillance are other areas where Canada would benefit from increased international cooperation without compromising control over outcomes. A recently signed Memorandum of Understanding between Health Canada and the FDA for new therapeutic advances, such as cell and gene therapies and medical technologies, illustrates this approach.

A comparative outcomes-based review of new drug submissions over the past five years between Canada, the U.S. and the EU could help determine the substantive differences in their respective approval processes and whether these differences could result from the analysis of post-market surveillance information alone. It would also be useful to examine new drug submissions made over the past five years to the FDA and the EMEA, but not to Health Canada, to determine potential lost benefits to Canadians from the unavailability of these medicines. This analysis would indicate both the potential benefits of independent Canadian drug review (for example, enhanced safety in the case of products withdrawn from the U.S. market but never introduced in Canada) and the costs associated with deferred access to innovative therapeutic products. Based on this analysis, Health Canada could consider how and when to better align itself with other jurisdictions that have high regulatory standards.

Longer-term objectives should be developed to maximize the benefits for Canadians of the knowledge and regulatory capacity developed in other jurisdictions. Canada needs to determine when common regulatory challenges could best be addressed through international cooperation. For mutual cooperation to take place, other countries will need to develop confidence in Canada's regulatory assessment capabilities and vice-versa, which can be achieved through confidence-building measures (see Part I, Section 3.1 "International Regulatory Cooperation"). Ultimately, Health Canada should aim to develop relationships of confidence with comparable regulatory authorities that would allow it to accept the decisions of other jurisdictions under certain circumstances.

Recommendation 44: The federal government should further develop its international cooperation framework for the regulation of therapeutics to include short- and long-term objectives and timeframes, and it should proceed quickly with the implementation of this framework to achieve a level of performance reflecting international best practices.

Recommendation 45: The federal government's short-term efforts should be focused on implementing measures to use data and reviews produced in other jurisdictions when an independent Canadian process does not add to the quality of outcomes. Longer-term efforts should focus on establishing mechanisms to maximize the benefits for Canadians of the knowledge and regulatory capacity developed in other jurisdictions in order to provide timelier access to new therapeutic products.

Indemnification of Officials

Health Canada, and the government in general, can be sued for acts or omissions committed by its staff. This has an impact on the organizational culture and can contribute to resistance to change and risk aversion, particularly in light of increasing therapeutic product-related litigation involving the government. Providing some measure of immunity to a regulatory authority and its individual staff members may be appropriate in some circumstances, such as when the regulator is undertaking its responsibilities for the benefit of the public in general.

Other leading regulators, such as the U.S. Food and Drug Administration and Australia's Therapeutic Goods Administration, provide some measure of immunity from litigation where they can demonstrate that their duty to the public was fulfilled.

Recommendation 46: Health Canada and the Department of Justice should explore and recommend, in the context of the renewal of the Food and Drugs Act and other health protection statutes, what immunity might be appropriate to the department and its staff. The recommended approach should be consistent with the protection provided to other leading therapeutic product regulators, including the U.S. Food and Drug Administration and Australia's Therapeutic Goods Administration.

1.1.4 New Substances Notification

The chemical manufacturing industry is an important component of the national economy as chemicals are the basic building blocks for many Canadian industries. The chemical industry is the fourth largest manufacturing sector in the country and sixth overall as a creator of wealth in Canada's economy. Canada's chemical industry employs 83,000 Canadians, providing highly skilled and well-paid jobs relative to other sectors of the Canadian economy.²⁵

Canada's regulations for this sector are embodied in the Canadian Environmental Protection Act, 1999, which is intended to contribute to sustainable development through pollution prevention and to protect the environment and human health from the risks associated with toxic substances. Under CEPA 1999, the New Substances Notification Regulations ensure that no new substance is imported into or manufactured in Canada without a formal "cradle to grave" review of its potential risks to human health and to the environment.

Under CEPA 1999, a substance is considered "new" if it does not appear on the Domestic Substances List (DSL).²⁶ Using information provided by notifiers and other available information, Environment Canada and Health Canada conduct a joint assessment to determine the risk that the substance may pose to the environment and human health. Risk management measures are implemented in the event they are required. Assessments usually take from 5 to 90 days.

Key Challenges

Given the size and dynamics of the U.S. marketplace, most new chemicals in North America are developed in the U.S. Although there is considerable sharing of assessment information between regulators in Canada and the U.S., each country maintains a separate regime for the assessment of new chemical substances. As such, chemicals approved for use in the U.S. have to undergo separate assessments in Canada, and vice versa. In an integrated North American market, this can negatively impact the competitiveness of not only Canadian primary chemical manufacturers, but also processors who incorporate chemicals into consumer and industrial products. Chemical companies increasingly serve a North American and world market and regard different national regulatory regimes as non-tariff barriers to trade. They want access to an inventory of chemical inputs that they can use and ship anywhere.

The Canadian new substance regime places the onus on notifiers to provide the required test data and other assessment information needed to evaluate the chemical. The regime ties the amount and type of test data to the proposed volume, associated risk and potential for exposure of the products. If any of the requested test data are not necessary or feasible to obtain, the requirement can be waived, something that is done frequently. The test data, analysis from predictive modeling and all other publicly available assessment information are used by Environment Canada and Health Canada to assess the potential toxicity of the substance and its likely effects under different exposure scenarios.

The Toxic Substances Control Act (TSCA), administered by the U.S. Environmental Protection Agency, requires test data from industry only if they are already in the possession of the notifier. In the majority of notifications, the U.S. EPA supplements this data through the use of computer modeling when assessing potential health and environmental effects. Another way in which the U.S. approach differs from the Canadian one is the requirement under the TSCA to show that achemical presents or will present an "unreasonable" risk in order to regulate it.

While there is support for the current policy among many Canadian stakeholders,²⁷ some representatives within the Canadian chemical sector argue that Canada should generally accept the results of U.S. assessments unless uses/exposures of the chemical in question are different in the two countries. Until there is greater availability of U.S. assessment documentation and information, the federal government's position is that it has chosen not to follow this approach because it believes that it cannot respond to calls for greater accountability to the Canadian public and because there remains significant uncertainty whether such an approach would result in an unacceptable and lower level of environmental and human health protection.

The Committee has heard conflicting views over whether the differences between the two new substances regimes have impeded Canadian industry's access to new chemicals despite the large difference between the two countries' domestic inventories (80,000 chemicals in the U.S. compared with 23,000 in Canada). On the one hand, the larger inventory of available chemicals in the U.S., relative to Canada, appears to be more a function of several factors: the size and diversity of the countries' chemical industries; the number of grand-fathered, unassessed substances in the U.S.; and when and how the inventories were created and how they are updated (e.g. new substances that are available for use do not get added to the Canadian domestic substances inventory until a particular volume threshold is reached). On the other hand, chemical industry representatives claim that the NSN regulations cause delays for the Canadian industry in obtaining access to new chemicals, a situation which they say damages the competitiveness of their sector.

It should also be noted that, in some cases, Canada does use American assessments in Canadian decision making. The Non-Domestic Substance List (NDSL) largely consists of substances that are not on Canada's DSL, but are in commercial use in the U.S. When a substance is added to our NDSL, it faces reduced reporting requirements in Canada. Under the Canada-U.S. Four Corners Agreement (see below), a company submitting a chemical to the U.S. EPA for review can also request that its data and assessment results be shared with Canada. Moreover, as a result of the recent NSN regulations review, the waiting time for adding a substance to the NDSL is intended to be reduced from five years to one year. Environment Canada should ensure that it meets its commitment to have these regulatory changes in place by early 2005.

Ongoing Canada-U.S. Cooperation

The Committee finds it highly encouraging that both Canada and the U.S. have recognized the importance of bilateral cooperation in achieving greater efficiencies in the introduction of new substances to the North American marketplace. Canada and the U.S. have a history of collaboration through information sharing in this field. Since it is not in the public interest for national agencies to duplicate each other's efforts, the responsible agencies are working towards introducing new chemicals to the marketplace more efficiently while assuring the protection of public health and the environment.

This cooperation is embodied in the Canada-U.S. Four Corners Agreement, which involves Canadian and U.S. federal regulators and chemical industries in both countries. Its objectives include increased mutual understanding of the risk assessment and risk management policies and practices in both countries, identification of strategies for overcoming barriers to greater cooperation, and identifying and taking appropriate action to ensure progress toward the long-term goal of greater cooperation and alignment of Canadian and U.S. new substances regulatory schemes.

Canadian and U.S. regulators are working towards a shared vision that could be considered as embodying Smart Regulation approaches where:

• each country can see, understand and accept each other's results aimed at protecting human health and the environment;
• companies can submit one notification (assessment dossier) and then, after national review, market anywhere in North America;
• chemicals approved for use in North America would be routinely accepted in commerce by other OECD countries; and
• countries and companies can make better use of their assessment resources and continuously improve their decision making concerning new chemicals.

The Canadian government is putting an action plan in place to pursue this vision. To make the vision a reality, each government would have to document its assessment decisions in a way that can be shared with the other country's regulatory agency. The industries in both countries would have to support changes to the ways in which confidential and proprietary business information is protected, which has been a substantial stumbling block to promoting broader Canada-U.S. cooperation in this field. The Committee supports this approach.

The Committee also endorses Canada's efforts to promote the use of Mutual Acceptance of Notifications (MAN) with the United States and internationally. As the first step towards this goal, companies would be able (but not compelled) to notify under a MAN process. They would authorize intergovernmental sharing of their assessment dossier and, where warranted, augment their notified information. The first country notified would then review the notified substance, fully conduct the hazard assessment, and document and share the results. Other countries when in receipt of such information would agree to use it in their risk assessment process. All countries would have to put in place measures for the effective and secure sharing of assessment information and for the protection of confidential business information. Rather than each country doing its own exposure and risk assessment and comparing the outcome to what another country has done, an equivalency framework would also be adopted. This framework would provide a decision tree justifying why a separate or new exposure and risk assessment may or may not be necessary.

A MAN with Europe, which is currently proposing major revisions to its chemical regulation, would provide considerable assessment information for use by both the new and existing chemical program. That said, the Committee recognizes that the development of a MAN with the European Union or other international jurisdictions will take considerable time and effort to implement.

These signs of progress are important as the Committee holds the view that Canada ought to eventually be able to rely on another regulator's hazard assessments. After all, a toxic chemical will have the same effect of humans, plants and animals no matter where it is released. What differs from country to country is the amount released and what is going to be exposed. Other important a country's legislature and the different scope of the legislation itself.

1.2 Biotechnology/Life Sciences

The industrial revolution changed the world. Developments in the life sciences sector will likely have the same impact. Recent scientific discoveries have significantly increased our ability to develop new knowledge and innovative products and processes such as pest-resistant crops with higher yields, better disease diagnostic tools, and treatments that complement one's genetic make-up. The life sciences sector is research-based and capital-intensive and could yield positive benefits in such fields as health care, the environment, safety, agriculture, aquaculture, economic development, food safety and sustainable development.

This section addresses issues related to biotechnology. The Committee is of the opinion that the analysis is relevant to other emerging multidisciplinary areas such as nanotechnology. Given the highly complex and broad nature of biotechnology, the Committee decided to limit itself to certain issues: a regulatory strategy for biotechnology, legislation, international cooperation, and communications and stakeholder engagement. Other important questions including environmental and ethical issues that could affect the nature of the future regulatory framework were not researched in detail and were not included in the Committee's work plan.

Canada is internationally well positioned in this field, as it now accounts for almost 10% of the world's biotechnology-related revenues and ranks second behind the U.S. in number of biotechnology firms. The federal government has made significant efforts and investments to support the development of biotechnology. In 1998, it released the Canadian Biotechnology Strategy, which has so far formed the basis of federal government action. Various committees were also established to oversee the development and implementation of the broad policy issues associated with biotechnology. The most notable of these is the Biotechnology Ministerial Coordinating Committee (BMCC), which includes the ministers of Industry, Agriculture and Agri-Food, Health, Environment, Fisheries and Oceans, Natural Resources and International Trade. The Canadian Biotechnology Advisory Committee (CBAC) was also created to provide external advice to government.

The federal government has allocated significant resources to biotechnology over the past few years. In 2002-2003, it invested $695 million in science and technology expenditures on biotechnology²⁸ (up 25% from 2001-2002), which includes the $9 million earmarked annually for the Canadian Biotechnology Strategy since its creation. Of this $9 million, $2.5 million is allocated to the CBAC, $0.5 million to the operations of the Canadian Biotechnology Secretariat,²⁹ and the remaining $6 million to the Canadian Biotechnology Strategy Fund to support departmental initiatives.

From policy and regulatory standpoints, biotechnology falls under the mandate of many departments, including Health Canada, the Canadian Food Inspection Agency and Environment Canada. Health Canada regulates biotechnology-derived products that are subject to the Food and Drugs Act, that is, genetically modified and other novel foods, biologics, assisted human reproduction technologies and therapeutics. The department also regulates pest control products as they relate to human health and the environment under the Pest Control Products Act. In turn, the CFIA regulates biotechnology-derived products including plants, animal feeds and animal feed ingredients, fertilizers and veterinary biologics, and conducts all federal inspection and enforcement services related to food — including those stemming from the Food and Drugs Act. Finally, under the Canadian Environmental Protection Act, 1999, Environment Canada and Health Canada regulate all new substances except new substances for uses that are regulated by other federal acts and regulations that include environment and health risk assessments. These are listed for biotechnology products under schedule 4 of CEPA 1999.

Other federal departments have important responsibilities regarding policy, research and regulatory issues that affect biotechnology-derived products. These departments include Agriculture and Agri-Food Canada, Industry Canada, Justice Canada and the National Research Council of Canada.

1.2.1 Key Challenges

Despite federal actions to support biotechnology, the Committee believes that significant challenges remain. The 375 biotechnology firms located in Canada³⁰ face serious obstacles, including accessing early stage financing and conducting the R&D required to commercialize their ideas and grow their businesses.

The development of biotechnology in Canada is also hindered by increasingly complex regulatory challenges. Current legislation, which was largely developed before the advent of biotechnology, is often ill equipped to address these challenges. Regulators must also evaluate large numbers of products of a more and more complex nature. These products will increasingly be multifunctional (e.g. nutraceuticals), based on converging scientific disciplines (e.g. nanotechnology for drugdelivery), or use plants and animals to produce drugs and vaccines. In addressing these challenges, the federal government will want to consider how best to take advantage of Canadian investment in research and development capacities and also establish relationships with scientific communities, for example, universities, centres of excellence and granting councils. Government must also address the ethical issues often associated with biotechnology.

If Canada is to be a successful leader in biotechnology, it is particularly critical that Canadians' views and concerns be given due consideration in the policy and regulatory development process. This means that government must address not only scientific considerations but also ethical issues in a transparent and inclusive manner. This part of the process is critical, as public trust is essential to a successful regulatory system.

Recent surveys³¹ demonstrate that Canadians generally tend to support areas of clear benefit to them, but only a very small percentage of Canadians consider themselves to be very familiar with biotechnology. Thus, another key challenge for regulators is to inform consumers about products derived from biotechnology and to engage them when they develop regulation in this area.

In an environment where a number of departments share regulatory responsibilities, accountability is at times unclear and collaboration is not always effective. This situation can lead to regulatory frameworks, decisions and enforcement which are not always coherent and integrated.

Biotechnology has often been identified as a national priority. However, the Committee did not see clear evidence of this. There is a need for effective leadership and accountability, both of which are required to ensure a concerted federal approach to biotechnology regulation and the timely attainment of federal regulatory objectives. In addition, there are still significant legislative and information gaps and outdated legislative frameworks, which affect the commercialization of and access to biotechnology products. More efforts could also be devoted to informing and engaging the public concerning biotechnology issues.

Federal Biotechnology Regulatory Strategy

Consultations leading to the development of the 1998 Canadian Biotechnology Strategy (CBS) revealed, among other things, the need for better coordination within government to address issues affecting many departments. This feedback translated into 10 CBS work plan themes. One of these concerned the need for continuous improvement in the regulatory system to accommodate the growing demands of new applications of biotechnology; another concerned modernizing Canada's intellectual property laws. The Biotechnology Ministerial Coordinating Committee was mandated to oversee the strategy's implementation and address multidepartmental issues. Unfortunately, the strategy did not translate its proposed policy framework into a work plan with clear timelines and accountability; it only listed "possible actions." Its progress is therefore difficult to measure.

Six years later, despite the establishment of several governmental and industry committees to shape the federal approach to developing and applying biotechnology, there does not seem to be effective and accountable leadership in Canadian biotechnology regulatory matters. The BMCC, which comprises seven ministers, has met only once since it was created. However, senior officials responsible for biotechnology have been active, producing among other things a recent federal proposal to strengthen Canada's position as a responsible world leader in biotechnology. This proposal, which is under consideration, addresses how best to balance the detection and management of risk with the development and commercialization of new discoveries to capture health and environmental benefits for Canadians.

Recommendation 47: The government should make it a priority to develop and implement a comprehensive, government-wide biotechnology regulatory strategy which would:

• identify and address legislative gaps, implement systematic international cooperation, and provide accessible and comprehensive information about regulatory developments;
• identify ways to access and draw from the expertise of the domestic and international scientific communities;
• give due consideration to ethical issues;
• provide opportunities for input from all stakeholders and for citizen engagement;
• be translated into a detailed work plan that measures and reports on progress;
• be reviewed regularly and modified to account for progress in implementation and the rapid changes that characterize biotechnology; and
• assign clear and effective accountability for its strategic leadership and management.

It should be noted that many of the above issues were previously highlighted by other external bodies.³²

Legislative Gaps

Canada needs a clear legislative framework for biotechnology if the public is to benefit from biotechnology products and if firms are to research, develop and commercialize new products. Without such a framework, Canada will have much more difficulty attracting financial and scientific resources. The federal government must address all current and future gaps in biotechnology legislation in a timely fashion. When doing so, it should ensure appropriate expert input and public involvement.

Stem cell research illustrates an area where a legislative vacuum has existed for many years. Stem cells can be cultured from certain types of tissue such as embryonic or fetal tissue. Such research holds great potential to treat human disease, including Alzheimer's, Parkinson's, diabetes, multiple sclerosis and heart disease. After more than a decade of work on a legislative framework for this area, a bill providing a legislative framework for stem cell research received Royal Assent on March 29, 2004.³³ The Act will have a staged implementation. In that same time, most other developed countries have implemented their own regulatory frameworks. Some, such as Germany and Ireland, have banned embryonic research, while others, including the U.K., Japan and Israel, have opted to allow the creation of embryos for research. Lack of regulation leads to the potential for unethical research and creates market uncertainty.

A number of legislative gaps currently exist, including:

• Biotechnology products regulated under health statutes: The current health statutes are decades old and do not provide an appropriate legislative framework for products that are new and novel, have characteristics of both food and drugs or are targeted at a narrow sub-group of the population, such as pharmacogenomics. Canada needs a legislative framework that is sufficiently flexible and forward-looking to address the regulatory issues associated with new inventions derived from biotechnology.³⁴ The federal government recently launched public consultations on the renewal of health protection legislation.

• Intellectual property (IP) protection: IP protection is important to the development and commercialization of biotechnology products. Inadequate patent protection causes market uncertainty, likely resulting in an outflow of funds and expertise. A number of key issues remain to be resolved, such as the treatment of higher life forms. The patent is the most common form of IP protection sought for inventions resulting from biotechnological research. Although hundreds of applications have been filed thus far, the Supreme Court of Canada has determined in December 2002 that higher life forms, i.e. plants, seeds and non-human animals, are not included in the definition of invention in the Patent Act and therefore are currently not patentable in this country. This distinguishes Canada from all G7 countries and, in fact, from the vast majority of OECD countries where patenting of higher life forms is permitted.³⁵ However, it should be noted that in May 2004, in a 5-4 decision, the Supreme Court ruled that if there is a patent on a gene or a cell in a plant, anyone using seeds or plants containing those genes or cells without permission is infringing on the patent.

• Orphan drugs legislation: Firms are more reluctant to invest in the research and commercialization of drugs that target medical conditions that afflict only a small percentage of the population. The U.S., EU, Australia and Japan have enacted legislation and implemented programs to address this market shortfall in order to stimulate innovation and increase the safe availability of these so-called orphan drugs to their citizens. Canada allows access to drugs that are not otherwise available in this country under specific regulations and policies³⁶ but there is no Canadian orphan drug policy or legislation. Orphan drug policies typically grant market exclusivity and tax credits to manufacturers as incentives. Complete drug reviews are also conducted on orphan drugs before they can be marketed. With the recent developments in pharmacogenomics, and the resulting ability to target treatments for sub-groups of the population, it may be timely to consider implementing a legislative framework to facilitate access to these drugs.

The Committee is of the view that, given the rapid evolution of biotechnology, legislation must also be regularly reviewed once it has been enacted to ensure its continued appropriateness. This must be done in a proactive, systematic and timely manner to avoid reviews taking place in times of crisis.

Recommendation 48: The federal government should identify, prioritize and address legislative gaps impacting biotechnology. As a first step, it should accelerate the renewal of health protection legislation. To ensure legislation also continues to be appropriate, it should be monitored via regularly scheduled reviews that are provided for in legislation or in departmental mandates. When appropriate, independent scientific advice and public input should be sought in these reviews.

International Cooperation

In the Committee's view, smart biotechnology regulation involves using international regulatory cooperation more strategically, as stated in the previous section of this document. The same principles set out in Part I, Section 3.1 "International Regulatory Cooperation" can apply to products and processes derived from biotechnology. Canada could work with other countries on common or shared approaches to assessments, approvals and post-market reviews of biotechnology products in a systematic and consistent manner across departments.

The Committee further thinks that there are some areas of biotechnology in which Canada should take a leadership role internationally. In this fast-paced environment, Canadian inventions derived from biotechnology can sometimes precede the development of an international legislative framework. In such cases, and where these developments could give Canada a comparative advantage in developing or commercializing a biotechnology-derived product, Canada should take the lead internationally in developing biotechnology regulation.

Recent experience in food biotechnology shows how the federal government played a leadership role internationally both in setting standards and working to achieve international harmonization (see sidebar).

Recommendation 49: The federal government should be actively and strategically involved in international regulatory cooperation activities impacting biotechnology. It should encourage international and domestic experts to participate in independent peer reviews of studies, risk assessments and regulatory analysis. It should also identify instances where it is in Canada's interest to be a regulatory leader and actively pursue this objective.

Information on Biotechnology and Citizen Engagement

There is an obvious need for appropriate legislation. But there is also a need to provide the public, industry and other regulators with understandable explanations and information. Recent surveys³⁷ confirm that only 16% of Canadians consider themselves to be very familiar with biotechnology. This lack of understanding can have a negative impact on the public's acceptance of products, even if these products have been properly evaluated for inherent risks. It also limits the public's grasp of Canada's international actions on specific biotechnology issues, including genetically modified organisms (GMOs). Further, firms — especially smaller firms and start-ups — also need access to clear regulatory information. Finally, federal biotechnology regulators would benefit from an up-to-date and accessible source of information on this broad topic.

While there is some information available from federal sources, there is no comprehensive, user-friendly, up-to-date source of information on regulatory developments in biotechnology. It is the Committee's view that the government must better inform all stakeholders. This would provide citizens with a stronger basis for informed involvement and improve the transparency of the legislative process. It would also assist Canadian biotechnology firms that are seeking to market new products and processes. It should be noted that a one-window consumer information centre was also recommended by the Canadian Biotechnology Advisory Committee in its August 2002 report, Improving the Regulation of Genetically Modified and Other Novel Foods and Feeds. As of August 2004, the federal government had not formally responded to the report.

The U.K. has devised a novel approach to informing biotechnologists and "enquiring minds from all walks of life": the Biotechnology Regulatory Atlas.³⁸ It is an effective retrieval system which signposts laws and official guidance as well as explanations and commentaries on biotechnology issues. It outlines both overarching and sectoral regulation requirements, including what firms need to do to comply with the law (e.g. preparing risk assessments, record keeping, notifying the authorities and obtaining licences). The Atlas provides all stakeholders with information on legislative trends, current debates and the international outlook. It also includes information on a variety of themes such as strategy and society, intellectual property, safety and welfare, contained use of GMOs, human genetics and therapy, and food and agriculture.

In addition to providing relevant, accessible and up-to-date information, the federal government should ensure that there are opportunities for it to communicate with citizens, industry and provincial and territorial governments and develop a better understanding of each other's perspectives. In light of its significant ethical, social, environmental and economic implications, biotechnology is an area where government should be particularly active in engaging citizens and stakeholders and in encouraging public debate.

Recommendation 50: The federal government should implement an enhanced communications strategy which would include an accessible Web-based consumer and industry information service similar to the U.K.'s Biotechnology Regulatory Atlas and effectively inform target audiences of its existence and benefits.

Recommendation 51: The federal government should devise and implement a thorough and sophisticated approach to engage citizens and other stakeholders of information on current scientific evidence and risk management analysis.

1.3 Enabling First Nations Economic Development

More and more First Nations communities are promoting economic development and looking to manage their own lands and resources. Today there are mining, forestry, oil and gas, aquaculture and other business developments under way on reserve lands across Canada. The goal behind these activities is to build stronger indigenous economies, leading to greater economic independence for First Nations.

The regulatory regime on reserves, however, is undermining this agenda. The current regime is complex and poorly defined. The majority of regulations are based on an Act that was brought into force in 1876 and underwent its last major update in 1951 — the Indian Act. Efforts are being made to correct this situation but, in the Committee's view, they are moving far too slowly. The Committee notes that many of these same issues were raised in the 1996 report by the Royal Commission on Aboriginal Peoples. The government must move quickly to establish a modern, efficient regulatory regime that supports development and creates a healthier environment for business and investment on reserves. Consistent with the Committee's vision statement, a key element of the new regime should be strengthened cooperation between First Nations, governments and industry.

Indigenous economies today are contributing increasingly to provincial, regional and national economies. Over the last decade, there has been a noticeable rise in independent business development and joint ventures with large Canadian and international firms. For example, First Nations are participating in major industrial initiatives, particularly in the natural resources sector, where there is significant expansion in oil and gas, hydro-electricity, forestry and mining. To ensure that they can fully benefit from these projects, and to support the projects' success, First Nations must have effective regulatory arrangements in place, including capacity-building measures. (Issues specific to major industrial developments are discussed in more detail later in Part II.)

There are important benefits for Canada in First Nations economic development. It provides employment, helps build more diverse skills sets on reserves, creates wealth and can help reduce demands on the social safety net. Economic development is key to improving the quality of life for Aboriginal citizens and advancing their participation in the Canadian economy.

1.3.1 Regulatory Arrangements and Key Challenges

Given its limited timeframe and resources, the Committee was unable to address all Aboriginal-specific regulatory issues. The focus of this section is the regulatory regime for First Nations communities located south of the 60th parallel, particularly with respect to land and resource management issues.

Regulatory arrangements for First Nations lands and resources vary according to location and jurisdiction. In the North, resource management falls under a legislative framework that applies to all northerners, including Aboriginal and non-Aboriginal residents. Other variances exist as a result of comprehensive land claims or self-government agreements that have been settled (which confer regulatory authority on First Nations in some areas). Some of the regulatory issues in the North are addressed later under Section 1.5 "Oil and Gas Exploration and Development."

Land and resource management in southern communities is guided primarily by the Indian Act and the Indian Oil and Gas Act, both of which fall under the responsibility of the Department of Indian Affairs and Northern Development (DIAND). Five southern groups have achieved comprehensive or sectoral self-government status. But the majority of communities are subject to federal regulations administered by DIAND and other federal departments.

The Committee considered three key regulatory challenges related to southern First Nations economic development:

• updating legislative and regulatory arrangements;
• building regulatory management capacity; and
• reducing regulatory complexity and burden.

Updating Legislative and Regulatory Arrangements

The Indian Act is widely considered to be outdated and limited in its coverage of economic development activity. The approval process for development projects, as set out in the regulations to the Act, is cumbersome and lengthy. Projects can take years to approve, resulting in the loss of opportunities, jobs and the potential for economic growth.

The First Nations Land Management Act (FNLMA) was passed in 1999 to address the deficiencies of the Indian Act related to land and resource management. The FNLMA gives signatory First Nations the freedom and responsibility to manage their own reserve lands, natural resources and revenues. It allows them, for example, to develop their own land codes and pass and enforce laws, including regulations.

The creation of the FNLMA was an important step in enabling economic development. However, progress is slow. In passing this legislation, Parliament indicated that implementation should be limited initially to a small group of bands to ensure an orderly and effective process. Currently, 12 out of 629 communities are operating under the FNLMA, 24 are in the development process and 52 are awaiting entry. The vast majority of bands are still subject to the regulations under the Indian Act and, at the current rate, it will be years before they can be considered for coverage under the FNLMA. The Committee believes that aggressive action is needed to rectify this situation. The federal government should reconsider its approach; it should accelerate the current process to ensure that all bands have the benefit of a more timely and effective regulatory process, consistent with a Smart Regulation approach.

In addition, there are significant gaps in regulation on reserves which contribute to regulatory uncertainty and can discourage investment. First Nations that want to develop commercial and industrial projects on reserve land are prevented from moving major projects forward because the required regulations are lacking (e.g. health and safety, environmental protection and enforcement regulations). Current federal legislation does not cover or provide regulations for projects of this type. And provincial regulation — which governs most other business and commercial development in Canada — does not apply on reserve lands. This situation is a result of the division of responsibility for First Nations, as set out in the Constitution. DIAND is exploring options to address this situation, including the possibility of incorporating provincial regulations by reference.

Recommendation 52: The federal government must move quickly to create an efficient, more responsive regulatory environment in First Nations communities, thereby enabling them to realize full economic growth. A key element in designing a successful approach should be to improve cooperative arrangements between First Nations, governments and industry.

Recommendation 53: Working with First Nations, the federal government should accelerate its agenda to introduce new legislation or amend existing legislation as necessary, so that bands have the benefit of a modern regulatory regime in the shortest possible time. In addition, the federal government should move immediately to address regulatory gaps that inhibit the development of commercial and industrial projects on reserve.

Reducing Regulatory Complexity and Burden

In addition to DIAND, there are several other federal departments and agencies with regulatory responsibilities that affect First Nations communities, including Fisheries and Oceans Canada, Environment Canada, Natural Resources Canada, the Canadian Environmental Assessment Agency, Health Canada and Human Resources and Skills Development Canada. The result is a complex web of regulations and management regimes, and a heavy burden on First Nations communities, approximately half of which number fewer than 500 people. Certain provincial and territorial regulations, such as those of general application, also apply to First Nations.

The full scope and nature of regulatory activity in communities is unknown at present, as there is no process or federal mechanism to collect this information or coordinate regulatory activity. This is a fundamental issue in developing a Smart Regulation regime. The federal government should ensure that regulations on reserves are appropriate, coordinated and not overly burdensome to communities. As part of this effort, due consideration should be given to First Nations in developing or amending and enforcing key federal legislation (e.g. the Canadian Environmental Protection Act, 1999; Species at Risk Act). In addition, the government should maximize the contribution of advisory bodies such as the National Aboriginal Economic Development Board. The Committee notes that ensuring well-coordinated regulatory arrangements for communities and eliminating duplication will become increasingly important over time, as more First Nations achieve self-government status.

Recommendation 54: The federal government should review the full scope of regulatory activity in First Nations communities with a view to reducing the regulatory and administrative burden placed on them. Outdated or duplicative regulations should be eliminated and regulatory gaps addressed. In support of this initiative, the government should put in place a centralized process or mechanism to ensure better coordination and monitoring of regulatory activity in communities.

Building Regulatory Management Capacity

How bands execute and operationalize regulations is also important. Initiatives are under way within DIAND to strengthen the land and resource competencies and professional skills base in First Nations communities and governments. The Committee believes this is a critical success factor in developing Smart Regulation in communities.

A few organizations and institutions are in place now that give First Nations the authority to regulate in key areas or give them a leadership role working with DIAND. In addition, legislation is being developed within DIAND that would give First Nations additional responsibilities, including helping to build capacity on reserves. The existing Indian Resource Council, First Nations Lands Advisory Board, the National Aboriginal Land Management Association, and the Aboriginal Environmental Network could form the basis for more formalized arrangements that would provide for greater control and direction for First Nations and First Nations institutions.

Recommendation 55: The federal government should accelerate the development of initiatives to improve the skills and capacity of First Nations to make rules and manage regulations. As a key step, the government should give priority to developing the appropriate legislation that would help strengthen the professional skills base in First Nations communities.

1.4 The Environmental Assessment Process

Under the Canadian Environmental Assessment Act (CEAA), environmental assessment is a project planning tool used to help eliminate or reduce potential harm to the environment resulting from the issuance of a federal permit, when the federal government is a project proponent or when federal funding or land is involved. More broadly, assessments support efforts to achieve sustainable development.

The CEAA, which is administered by the Canadian Environment Assessment Agency,³⁹ provides for four types of environmental assessment: screening, comprehensive study, mediation and assessment by a review panel. The vast majority of projects (greater than 99% of all projects assessed) are assessed as screenings. The Comprehensive Study List Regulations under the CEAA identify those projects likely to result in significant environmental effects and thus require a comprehensive study assessment. The primary differences between screening reviews and comprehensive studies are the complexity and length of the process, and the extent of public consultations, which are greater for comprehensive studies. In terms of the time required, screenings generally take a few months, comprehensive studies require about a year and review panels may require over a year.

Public concern and the potential for significant adverse environmental effects tend to be the major factors in determining what type of environmental assessment is required. Regulators or other government decision makers must consider the extent to which both these factors warrant a more thorough assessment by a mediator or review panel. Regulators have the authority to ensure that projects with issues of significant public concern are subjected to a review panel or other public consultation.

Federal environmental assessments are generally meant to result in the identification of measures to mitigate potentially adverse environmental consequences rather than cause the cancellation of a project. Rather than being strictly a planning tool, however, the Committee has heard that industry and citizens perceive environmental assessments as de facto project approval tools for the federal government.

Both federal and provincial governments have responsibilities for environmental assessment. The specific responsibilities overlap and also vary considerably. For example, provinces are responsible for natural resource projects within their borders, while the federal government is responsible for projects in various areas such as those that affect fish habitat and navigable waters, or that have significant adverse effects that cross interprovincial or international borders. The use of environmental assessments can also vary among jurisdictions. For example, Saskatchewan uses the environmental assessment process not only as a planning tool, but explicitly as part of its development planning/project approval process.

1.4.1 Key Challenges

The Committee recognizes that the federal environmental assessment legislation was just revised in 2003 following extensive consultation and that there is not enough evidence yet to assess how well the revisions address environmental assessment issues (see the sidebar on the Canadian Environmental Assessment Act). Accordingly, the Agency should fast-track implementation of the new legislation. It should be noted, however, that the recent amendments to the CEAA left some issues untouched where there was not consensus on how to proceed (e.g. enforcement mechanisms, the principle of self-assessment, etc.).

Moreover, the environmental assessment process is one of the issues about which the Committee heard the most complaints and it was viewed as a key priority for regulatory reform by many industry and environmental non-governmental organizations, given its impact on environmental management and on numerous economic sectors across Canada. The Committee also heard scepticism over whether the recent changes to the CEAA would make the environmental assessment process much more effective or, in some cases, even more cumbersome.

The Committee heard a high degree of frustration from industry, which views environmental assessment as important, but finds the process slow, lacking in clarity, costly and occasionally of uncertain benefit to the environment. Provincial governments also question the slowness of federal environmental assessment processes and their overlap with provincial/territorial regulations. Many provinces also view the federal role as an intrusion on provincial/territorial jurisdiction. Virtually all parties agree that, as a whole, environmental assessment processes are overly complicated.

Environmental non-governmental organizations sometimes argue that environmental assessments are mere window dressing for decisions already made. At the same time, some government officials question allocating scarce resources to assessing small or routine projects whose effects and contributions to advancing environmental priorities are well understood.

Finally, the environmental assessment process can represent the only, or at least an easily accessible, route for citizens to have a direct voice in development proposals. Interested citizens often view this process as unfair since they have limited financial and legal resources to participate. In particular, local communities impacted by a project can feel that they do not have the opportunity to provide input and believe that their interests are not always reflected in the final regulatory decision. In addition, the purpose of environmental assessments is not always well understood, particularly by citizens, who may expect the results of an environmental assessment to end or significantly alter a project. When this does not occur, they feel a sense of frustration and powerlessness. In addition, citizens sometimes perceive the government as a proponent or a major supporter of a project.

While all of these parties have specific views, the following diagram shows that there are some common elements to their concerns.

Concerns Expressed About the Canadian Environmental Assessment Process

1.4.2 An Integrated Approach to Environmental Assessment

One of the most consistent concerns expressed to the Committee about the environmental assessment process was the lack of effective coordination — both within the federal government and among orders of government.

Coordination Between Federal Departments

When federal environmental assessment legislation was first created, the responsibility for environmental assessments was appended to departments' existing activities. As a result, project proponents and stakeholders may have to interact with many departments at the same time. This feature contributes to the complexity of the environmental assessment process and the lack of consistency of environmental assessment requirements. That said, this approach, referred to as "self-assessment," has the benefit that the responsible department is usually well positioned to understand the intricacies of a proposed project and the ways that adverse environmental effects can be mitigated. This process contrasts with the typical approach of provinces, where one agency leads environmental assessments.

At the same time, several stakeholders have raised the issue of environmental assessment procedures being applied unevenly within departments at the regional level. Specifically, the same regulation can be inconsistently interpreted and applied, resulting in similar types of projects receiving markedly different treatment from regional office to regional office within the same federal department.

Coordination Among Federal, Provincial and Territorial Governments

Projects can fall under the jurisdiction of federal and provincial/territorial governments, triggering review by both. The Committee heard that the current framework of overlapping and duplicative environmental assessment processes between orders of government had to be improved. Involving various orders of government in the same project does not necessarily lead to the environmental sustainability of the project. Moreover, this intergovernmental overlap seems to reflect a lack of trust among federal-provincial-territorial governments and an unwarranted preoccupation with jurisdiction, which does not serve the public interest. As identified in Part I, Section 3.2 "Federal-Provincial-Territorial Regulatory Cooperation," Canadians are expecting governments to work together to deliver high standards of protection and service.

One means of improving the coordination of multi-jurisdictional environmental assessments has been provided by the Sub-agreement on Environmental Assessment under the Canada-Wide Accord on Environmental Harmonization. It promotes the effective application of environmental assessment when two or more governments are required by their respective laws to assess the same proposed project. It includes provisions for shared principles, common information elements, a defined series of assessment stages and a single assessment and public hearing process.⁴⁰

Despite encouraging signs of progress in the federal-provincial coordination of environmental assessments (e.g. the joint review of two recent oil sands projects by the federal government and the Alberta Energy and Utilities Board), the Committee heard from industry representatives, particularly those in the oil and gas and electricity-generation industries, that problems remain in coordinating timing, information requirements and public participation. For example, one province expressed concern that it was difficult, and sometimes impossible, for the federal government to recognize data collected through previously conducted provincial assessments and to use it in federal assessments.

A New Approach

The coordination challenge and other issues related to environmental assessments could be improved by accelerating implementation of the CEAA amendments and by taking steps to improve coordination within the federal government and with provincial and territorial governments. However, the Committee feels that this would take considerable time and effort to implement and it would only marginally improve the situation.

If the environmental assessment process is not meaningfully improved, the Committee is concerned that the credibility of the assessment process will continue to erode and its effective use will be jeopardized. Therefore, it believes that environmental assessment is an area where it is time to move beyond harmonization and towards a single, nationally integrated approach encompassing federal, provincial and territorial processes. This idea was generally supported by both industry representatives and non-governmental organizations during our consultations. The Committee advocates a national environmental assessment system that is:

• coordinated, both within the federal government and between the different jurisdictions;
• results-based;
• timely and predictable
• cost-effective; and
• accessible

More specifically:

• There should be one set of documents prepared per project, which would be used by all the government organizations involved, whether they are federal or provincial.
• When necessary, there should be one hearing, one time, per project.
• Results should be monitored to demonstrate that environmental assessments lead to appropriate environmental protection.
• Timelines should be set at the outset of the project for the different steps in the environmental assessment process and these timelines should be respected.
• All triggers for assessment should be identified from the outset in order to allow for concurrent — if not single — processes to take place.
• All stakeholders (e.g. citizens, non-governmental organizations and Aboriginal peoples) should have a fair opportunity to present their views.
• Multiple assessments on a single project should be conducted concurrently.

This approach would be desirable from the standpoint of clarifying and streamlining the process, conducting a more holistic assessment of a project and enabling the development of expertise in this area, while ensuring environmental protection and promoting economic development. This approach could also improve the consideration of cumulative impacts of several projects on a single ecosystem and ensure that the environmental assessment process adapts to new scientific advances and changing circumstances. One potential means of achieving this vision could be the creation of a single national environmental assessment agency in which the federal, provincial and territorial governments would be equal partners.

The Committee recognizes that such an undertaking would require significant legal and political considerations to be addressed, but feels that the time is right for the federal government to take a leadership role in initiating discussions with the provinces and territories on how to develop and implement this national approach.

Recommendation 56: The federal government should begin discussions with the provincial and territorial governments to develop a nationally integrated environmental assessment process for Canada in which the different jurisdictions would collaborate as partners.

1.4.3 Other Issues

In addition to the previous analysis, the Committee has also put forth a number of other suggestions on how to improve the environmental assessment process in Canada. The following recommendations may be implemented as part of the proposed national environmental assessment approach or as stand-alone initiatives.

A Single Federal Agency

In the absence of an agreement to establish a national approach to environmental assessment, priority must be given to improving coordination efforts within the federal government and among orders of government. As a first step, the federal government should accelerate the amendments to the CEAA. In addition, the government should establish a single federal agency responsible for carrying out environmental assessments under federal jurisdiction. As a single window for the federal government on environmental assessments, this agency would provide a more effective and simpler process for project proponents and other interested parties. It would also better support the development of expertise within the federal government in this area. A single federal agency would also be better positioned to work with multiple jurisdictions (e.g. provincial/territorial governments) and stakeholders (e.g. Aboriginal peoples, citizens and conservation groups) to deliver high-quality assessments that reflect the public interest in a timely manner.

Recommendation 57: The federal government should create a single environmental assessment agency in order to carry out assessments under federal jurisdiction and collaborate with other orders of government.

At the same time, the federal government should work closely with the provinces and territories to improve the operation of current cooperative environmental assessment agreements in order to ensure that the assessments are seamless and incorporate aspects such as single project proposals based on harmonized information gathering and reporting, the use of shared data, single hearings and common timelines. In the context of these improvements to current cooperative processes, the federal government should consider focusing its efforts on large projects (e.g. projects which take place in more than one jurisdiction) and on those with potentially greater risks to the environment.

Concurrent Processes

In addition to having many departments involved in environmental assessments, some departments' requirements are not triggered at the outset of the environmental assessment process, leading to sequential assessments on a single project. This situation adds to the uncertainty of the business environment and delays decisions by regulators, without necessarily adding benefits to the protection of the environment.

For example, this has been raised as a major issue, particularly by the offshore oil and gas industry, in the context of administering the Fisheries Act. In order to address these concerns, Fisheries and Oceans Canada is taking steps to implement an "automatically in" approach whereby the Fisheries Act review would take place at the same time as other required environmental assessments. This approach would be taken in the case of large projects that would very likely cause the triggering of an assessment under the Fisheries Act.

The government should take steps to ensure that when more than one environmental assessment is required by federal departments, they are conducted concurrently and not sequentially, while maintaining the high quality and analytical rigour of the process. The Committee feels that improving coordination and integration in this area could lead to some significant efficiencies. Moreover, such a concurrent approach could extend to the entire regulatory process, whereby the regulatory approval mechanisms can be launched even before the environmental assessment has been completed.

Recommendation 58: Multiple environmental assessments on the same project conducted by different authorities should be conducted concurrently, not sequentially.

Substitution

The CEAA has always included a provision for the Minister of the Environment to allow the public hearing process of another federal authority to be used as a substitute for a review panel. This could help to reduce the administrative complexity of environmental assessment in cases where public participation is required. The Act allows this substitution where the Minister is satisfied that the substituted process meets the conditions specified under the CEAA, including those for public participation.

Substitution would give the substitute authority greater control over the project design and the broader regulatory approval process. For example, the National Energy Board would conduct an approval review for a proposed pipeline as well as the environmental assessment. Review processes could be made more efficient and timely without reducing the quality of the environmental assessment or compromising the public's ability to participate. The applicant and other interested parties would receive clearer communication and would be more certain of the entire regulatory review process, including the environmental assessment component.

Many stakeholders cited the use of substitute authorities as a means of helping to streamline this process. To date, however, substitution has never been granted due to technical issues such as arrangements for participant funding for consultations. In most cases, these issues could be resolved through an administrative arrangement.

Recommendation 59: The Canadian Environmental Assessment Agency and potential substitute authorities, such as the National Energy Board, should negotiate an agreement to enable substitution when an environmental assessment by a review panel and other project approval processes are both required.

Monitoring and Evaluating Results

The Committee heard that the benefits of environmental assessment to the ecosystem are generally assumed but rarely measured. Industry representatives are frustrated that there are few effective tools to determine whether the mitigation measures they have been asked to undertake by a regulator actually help the environment. Environmental groups are equally concerned about the inability of government agencies to evaluate a project's environmental impact and to enforce compliance with the results of the assessment. This situation, combined with a procedure that is perceived as unduly complex, has started to affect the legitimacy of the environmental assessment process.

The contribution of environmental assessments to protecting natural ecosystems and improving the sustainability of projects must become more measurable and transparent to project proponents, affected communities and other stakeholders. The Committee recognizes that it can be difficult to attribute post-project changes in the environment to a specific project, particularly with species subject to natural cycles in their population levels. However, methods must be developed to show that the mitigation measures taken by proponents, as a consequence of the environmental assessment process, do produce results.

To ensure that environmental protection objectives have been achieved, the recent CEAA amendments provide for follow-up programs, which are defined as programs for verifying the accuracy of the predictions of environmental effects and determining the effectiveness of any mitigation measures against specified indicators. The Quality Assurance Program being designed and implemented by the Canadian Environmental Assessment Agency will also serve to confirm results. Lastly, building on recommendations of the National Roundtable on the Environment and the Economy, the federal government plans to incorporate key indicators on clean water, clean air and emissions reduction into its decision making.

Departments are required to consider whether a follow-up program is warranted for screening assessments and, if so, they must design and implement such a program. Follow-up programs are also mandatory for projects that are subject to a comprehensive study, mediation or assessment by a review panel. The Agency will be establishing an electronic repository for follow-up results to share information and act as a clearinghouse for best practices. It should be noted that at least one department has expressed a reservation about participating in the repository due to workload.

Recommendation 60: Specific targets, performance measures and indicators for monitoring a project's environmental impacts and the effectiveness of mitigation measures should be considered essential elements of environmental assessments. This approach would incorporate lessons learned from past assessments, post-approval audits and reports on monitoring. These elements need to be developed in consultation with the provinces, territories and other regulators, particularly if a national environmental assessment process is eventually established.

Enhancing the Use of Strategic Environmental Assessments

As discussed earlier, the environmental assessment process is viewed by many interveners as the most effective means of accessing decision makers on a given project. However, the Committee often heard that the consultation process for many assessments has become bogged down in discussions over broader public policy issues (e.g. whether to drill for oil and gas off Canada's Atlantic coast at all), rather than focusing on the environmental viability of a specific project (e.g. studying the impact of a specific drill-site, the use of seismic testing in a specific section of the Atlantic coast, etc.). These broader public policy debates not only divert attention from the specific project at hand, but further add to the time delays inherent in many environmental assessments.

One means of addressing this concern is the use of strategic environmental assessments. The strategic environmental assessment of a government policy, program or planning proposal is required when such an initiative requires a Cabinet decision and when the implementation of a project may result in important environmental effects, whether they be positive or negative. This process enables environmental issues to be considered more fully in the development of public policies. The Commissioner of the Environment and Sustainable Development is currently auditing the implementation of this process.

Strategic environmental assessments present an opportunity to examine proposed federal policies and programs in a manner that is transparent and supports effective, focused environmental assessments for specific projects. The Committee considers that the government could enhance the use of this process if it were to conduct these assessments before considering development projects and before significant capital is invested. Strategic environmental assessments would enable interested parties, such as Aboriginal representatives and local communities, to intervene early in the process to address public policy decisions and would help to create an atmosphere of regulatory certainty for industry when it subsequently comes forward with specific project proposals. Following the strategic environmental assessment, industry could proceed with the project without further revisiting public policy decisions, subject to the subsequent requirements of the CEAA and regulatory compliance with technical matters.

In the case of offshore waters, the use of strategic environmental assessments could directly contribute to the development of plans to guide the location and intensity of all marine activities, thereby increasing operational security and environmental protection. In the specific example of reviewing offshore oil and gas development, conducting a strategic environmental assessment would allow subsequent exploratory and development activities to be assessed solely on technical grounds without revisiting the issue of whether the industry should operate in this area or not. If the assessment were done before the government released parcels for development, it would identify the conditions and mitigation measures that project proponents would be expected to take. Subsequently, this process could also enable the use of screening assessments rather than comprehensive assessments, which require more resources and time.

Because provincial and territorial governments have responsibility for broad land use planning and resource management, they should be involved in these strategic environmental assessments.

Recommendation 61: The government should conduct public strategic environmental assessments to provide people with an opportunity to discuss overall development issues in the offshore regions or on federal lands, or issues related to a potential new federal policy or policy change.

The Fisheries Act

The Fisheries Act represents a significant trigger for an environmental assessment when a project could damage fish habitats. Many of the greatest irritants cited by stakeholders were related to the Fisheries Act and its administration and enforcement by Fisheries and Oceans Canada. In some regions, this sentiment has been compounded by the use of armed fisheries officers monitoring freshwater locations. The major concerns related to environmental assessments conducted through the Fisheries Act include:

• a lack of clarity and transparency in the definition of some terms contained in the legislation (e.g. "harmful alteration, disruption or destruction" in the Fisheries Act and "significant adverse environmental effect" in the CEAA);
• imprecision as to which activities and practices are considered harmful and which are the acceptable mitigation measures under the Fisheries Act;
• identification of the need for an environmental assessment under the Fisheries Act late in the process, leading to sequential assessments; and
• the often inconsistent interpretation and enforcement of regulations between regions or sometimes within a region, lack of predictability and lack of transparency, which can lead to decisions by regulatory officers which are perceived as capricious and abusive.

Given these concerns, it is therefore more difficult for project proponents to plan a project and be certain that it meets regulatory requirements.

In particular, these challenges hamper hydroelectric generation and transmission projects, which are also often affected by the need for coordination between federal and provincial authorities. However, the Canadian Electricity Association and Fisheries and Oceans Canada have developed an MOU which shows real promise as a means of achieving mutual understanding and ensuring clarity, consistency and coherence in the implementation of federal environmental laws and regulations. In addition, Fisheries and Oceans Canada has developed a plan to resolve these issues, as explained in the sidebar.

Recommendation 62: Fisheries and Oceans Canada should accelerate its implementation of planned improvements to its fish habitat system and related involvement in environmental assessment.

Risk Management

The scope and complexity of environmental assessments should reflect the nature and inherent risk of a project. Accordingly, risk management principles should be used to focus the government's efforts on assessing projects with potentially greater risk to the environment while taking into account impacts of small projects that can generate greater risks. The Exclusion List Regulations under the CEAA have been reviewed and will be expanded so that many small projects that are known to have insignificant environmental effects will be exempted from the requirement for an assessment. This measure and the new use of class screening reports are expected to reduce the number of environmental assessments by one-third.

In addition to this recent review, the Comprehensive Study List Regulations under the CEAA should be similarly reviewed to ensure their efficacy. The Committee notes that the CEAA gives the Minister of the Environment the power to approve changes to the Comprehensive Study List Regulations and it feels that the government's quick action to review these regulations could have significant impacts on regulatory efficiency and effectiveness.

Recommendation 63: The Comprehensive Study List Regulations should be evaluated to ensure that the greater complexity of the process (compared with screening) would result in improved environmental protection. Consideration should also be given to modifying the list of projects or altering thresholds where experience has demonstrated that a comprehensive study is warranted because there is a potential for significant adverse environmental effects.

Consultation

Public participation is a key element of the environmental assessment process. Communities that could be affected by projects need an opportunity to ask questions when significant issues arise or major new developments are proposed. As these groups often have limited resources, participant funding for comprehensive studies and review panels plays an important part in ensuring that such communities can contribute to the process.

Aboriginal traditional knowledge has been explicitly recognized in the CEAA and may be considered in conducting an environmental assessment. There is currently no guidance for responsible authorities on the consideration of this knowledge in environmental assessments.

Recommendation 64: Participant funding must be recognized as an essential element of environmental assessment to enable citizens to participate in the assessment process. Guidelines for participant funding should provide clear criteria as to who should receive participant funding in the environmental assessment process and for what purposes.

Recommendation 65: The federal government, in consultation with Aboriginal communities, should provide guidance on how Aboriginal traditional knowledge can be factored into an environmental assessment, while ensuring the balance necessary to maintain viable project timeframes.

1.5 Oil and Gas Exploration and Development

The upstream (exploration and development) oil and gas industry is the single largest private investor in Canada, with capital investments of over $28 billion in Canada in 2003. The sector's companies were valued in revenues in excess of $75 billion in 2003 and are currently responsible for 500,000 jobs in Canada.⁴¹ Canada currently ranks as the world's third largest natural gas producer and ninth largest oil producer. However, Canada's exploration and production costs for these resources are among the highest in the world.⁴²

The conditions under which oil and gas companies are operating in Canada are changing. Reserves in western Canada are maturing and future exploration will increasingly be focused on relatively new developments — such as the Oil Sands, the North and the offshore — and new extraction innovations such as the coalbed methane production of natural gas. The structure of the industry is also changing as it is becoming increasingly integrated at the global level and Canada is competing with other foreign jurisdictions for investment capital to sustain the industry. Moreover, Canada's international obligations on climate change will have major implications for this and other industries, as well as for their customers in the future.

Concurrently, Aboriginal communities and non-governmental organizations have expressed concerns about these new developments, for example the potential impact of seismic testing, drilling and the construction of pipelines on environmentally sensitive areas such as Canada's North.

The Committee believes that regulation of the upstream oil and gas sector should allow for the development of this resource in Canada in a manner that respects the environment and is sustainable for future generations. At the same time, regulation must enable an economically competitive and innovative industry that contributes to Canadians' quality of life, and must ensure the development of a secure, reliable and safe supply of this resource for all Canadians.

This section of the report will focus on the so-called "frontier" sectors of development: the North and the offshore. It should be noted that only selected regulatory issues pertaining to oil and gas exploration and development will be discussed. Readers should also refer to Section 1.4 "The Environmental Assessment Process," which presents a number of recommendations of relevance to the oil and gas sector.

1.5.1 Northern Oil and Gas Development

Key Challenges

Resource-based economic development in the North, particularly in the oil and gas industry, is poised for an exceptional period of growth. This important sector, in addition to the burgeoning mining industry, could significantly affect the northern and national economic landscape. It also represents a challenge to promoting sustainability and achieving balance between economic growth and social and environmental protection.

The Committee has heard that the development potential of the North is at risk due to the complex and unpredictable cobweb of regulations involving multiple federal government departments, and territorial and Aboriginal authorities.

At the federal level, for example, the management of northern resource development falls for the most part under the Northern Affairs Program (NAP), which is the responsibility of the Minister of Indian Affairs and Northern Development. Responsibilities under NAP include mines, oil and gas, economic development, and a range of issues related to First Nations and the Inuit. The Minister also has extensive responsibilities with respect to land, water and environmental assessment. It should be noted that the role of DIAND in the North, and the limitations of its role, is not clearly understood by many outside the federal government. In April 2003 the federal government devolved federal NAP responsibilities to the Yukon government. In the Northwest Territories, devolution discussions are progressing, although a Yukon-type approach does not appear likely in the short term since the communities involved lack a common approach to regulatory matters.

Other federal bodies also have regulatory mandates that relate to the North, including the National Energy Board, the Canadian Environmental Assessment Agency, Fisheries and Oceans Canada, Natural Resources Canada, Environment Canada, and even Foreign Affairs Canada for projects with international dimensions.

Aboriginal rights protected under section 35 of the Constitution Act have important implications for northern resource development. Often, First Nations and Inuit participation in the development and management of northern projects is not considered early enough by project proponents or governments, resulting in delays in regulatory decision making.

This complex situation has created an environment of regulatory uncertainty among northern regulators, regulated industries and the public in general which could jeopardize environmental protection and the development of rich and promising natural resources in the North. There are projects which could be considered in the broader national interest due to their significance and impact on the country, but which are currently beyond the capabilities of the existing regulatory framework to address efficiently and predictably. As the federal government is both the current regulator in many instances and the designer of the regulatory system in others, the Committee feels that it must show leadership and commit to resolving these issues.

This section will focus primarily on issues relating to the Mackenzie Gas Pipeline project for illustrative purposes, given its magnitude and potential impact on the region. That said, several of the recommendations put forward in the report can also apply generally to regulations pertaining to other sectors in Canada's North.

The Mackenzie Gas Pipeline and Alaska Pipeline Projects

The MGP is significant for many reasons. First, it will stimulate ongoing exploration, development and connection of new gas fields from the Mackenzie Delta-Beaufort Sea area to southern markets. Second, the primary source of natural gas in Canada comes from western reserves, which are maturing and of limited potential for increased production.

Third, development of gas reserves in Alaska's Prudhoe Bay is anticipated in the next four years. The projected pipeline serving those reserves could cross Canadian territory. Given the magnitude of the two pipeline projects, it is extremely unlikely that they would proceed concurrently. As the Alaska project is the larger of the two, the MGP has only a brief window of opportunity to get under way and be completed (assuming it receives regulatory approval) before the Alaska project is initiated. If the MGP gets delayed until after the Alaska pipeline is completed, the economies of the MGP may have shifted to a point where the project is no longer viable. An efficient regulatory framework governing the MGP would provide investors with greater confidence in the selection of a Canadian route for Alaska gas, rather than selecting a cross-Alaska/liquefied natural gas alternative to ship gas to southern states.

The MGP Regulatory Framework

The North presents unique challenges as some of its regulatory regimes are based on claim settlement agreements that reflect the constitutionally protected rights of Aboriginal peoples.

Land claim negotiations in the Northwest Territories that are directly impacted by the MGP have involved four major groups: the Inuvialuit, the Gwich'in, the Sahtu and the Deh Cho. Three of these groups, the Inuvialuit, Gwich'in and Sahtu, have settled their land claims and actively take part in discussions to plan the future development of northern resources. The Deh Cho First Nations, which represent 13 Dene and Métis governments, have yet to settle land claims with the federal government and have expressed dissatisfaction with their role in evaluating the potential pipeline route. Forty per cent of the proposed 1,300-km MGP would stretch into the traditional lands of the Deh Cho First Nations.

During the negotiation of these land claims in the Northwest Territories, Aboriginal groups expressed a strong desire to play a greater role in regulating land and water use and in environmental assessment. As a result, the federal government enacted the Mackenzie Valley Resource Management Act (MVRMA), which establishes a resource management system built on a foundation of joint public boards.⁴³ Half the members of each board are nominated by First Nations, and half by the Minister of Indian Affairs and Northern Development or the designated territorial Minister.

The large number of boards involved in the MVRMA led to regulatory complexity. In response, the parties involved created the Cooperation Plan for the Environmental Impact Assessment and Regulatory Review of a Northern Gas Pipeline Project through the Northwest Territories (the Cooperation Plan). The plan involves 13 organizations:

• Canadian Environmental Assessment Agency
• National Energy Board
• Mackenzie Valley Land and Water Board
• Mackenzie Valley Environmental Impact Review Board
• Northwest Territories Water Board
• Gwich'in Land and Water Board
• Sahtu Land and Water Board
• Environmental Impact Review Board for the Inuvialuit Settlement Region
• Resources, Wildlife and Economic Development of the Northwest Territories
• Indian Affairs and Northern Development
• Environment Canada
• Fisheries and Oceans Canada
• Transport Canada

The Cooperation Plan includes a unique joint environmental assessment process and coordinated approaches between regulators in the administration of other regulatory requirements pertaining to the MGP project. It also encourages regulators to consolidate information requirements and promotes shared technical support and public involvement.

The main objectives behind this agreement are to coordinate reviews, eliminate duplication and provide certainty regarding the processes for the MGP. Implementation of the Cooperation Plan within its pre-established timeframe would demonstrate the efficiency of a cooperative approach and help to ensure timely decision making by regulators regarding the review of the MGP.

Building on the Cooperation Plan

The MGP Cooperation Plan represents an encouraging collaborative effort by diverse regulatory authorities to address the complexity of the northern regulatory environment. It is essentially a critical short-term measure while a more robust strategy to fix the current framework is identified and developed.

However, the Cooperation Plan is not binding and is based on the good will of multiple regulators. The April 2004 signing of a "Regulators' Agreement" is a good step towards the formalization of the Cooperation Plan by reducing duplication and promoting regulatory cooperation.⁴⁴ However, some provisions of the Agreement may not go far enough. For example, parties do not face significant consequences for withdrawing from the Agreement. While it is too early to assess the Plan and the subsequent Regulators' Agreement, the Committee notes that project proponents are quite concerned that the process outlined in the Cooperation Plan will not be completed in the defined timeframe.

Recommendation 66: The government should continue to play a leadership role in building on the shared vision embodied by the Cooperation Plan to create a broader, long-term regulatory cooperation framework among northern regulators that offers timeliness, transparency, predictability, clarity and certainty.

Consistency and Timeliness among Federal Regulators

Without compromising the protective elements of the northern regulatory framework, the pipeline and the oil and gas exploration industries need regulatory certainty, clarity and cooperation among key partners. The regulatory system must also be able to handle the increased workload and demand arising from these new development activities.

These industries have indicated that they are committed to fulfilling regulatory requirements (e.g. with regard to environmental assessments) but they are asking for timely and consistent decisions on whether or not they meet these requirements. The numerous regulatory authorities operating in northern regions contribute to delays in licensing and approvals, and can lead to disagreements or inconsistencies between regulatory authorities. For projects of cross-jurisdictional nature, such as pipelines, delays tend to grow in proportion to the number of regulatory authorities involved.

As described in Part I, Section 3.3 "Federal Regulatory Coordination," the use of single windows would greatly benefit both industry and citizens in terms of interacting with federal regulators. Implemented to serve an individual industry sector (e.g. pipeline industry, oil and gas exploration and development industry, etc.) the single window approach would provide a single point of contact with the entire federal government for each northern industry sector in order to provide efficient and timely service.

Recommendation 67: The federal government should implement a single window approach to coordinate the involvement of federal regulators in the regulation of industry sectors in the North (e.g. oil and gas, mining), incorporating mandatory timelines for regulatory responses to project submissions to ensure timeliness and certainty.

While the use of the single window approach would streamline interaction with specific industry sectors, the use of a federal coordinator could enable the federal government to speak with one voice on issues related to specific, large-scale investment projects in the North, such as the MGP. In the case of the MGP, a coordinator could also work with other regulators outside the federal jurisdiction to ensure the constant and careful nurturing of the Cooperation Plan, foresee obstacles and work towards consensus-based solutions that will ensure timely decision making.

The Committee is encouraged by the recent federal announcements regarding the establishment of a northern energy office to act as a "storefront" to the federal government, and the appointment of a ministerial representative who will provide advice to the ministers of Indian Affairs and Northern Development and Natural Resources Canada on issues related to the MGP. While the ministerial representative will play a vital role in facilitating public communications among all stakeholders related to the project, the Committee feels that a federal coordinator role is also required. This coordinator would have clear decision-making authority and accountability in order to implement a coherent regulatory environment for the MGP and ensure public transparency.

Recommendation 68: To encourage the efficient regulation of the Mackenzie Gas Pipeline, it is proposed that a federal coordinator be appointed as soon as possible with clear decision-making authority vis-à-vis the various departments and accountability to implement a coherent regulatory environment for the MGP.

Capacity Building

Given northern demographics, there is a need to develop regulatory capacity in Aboriginal communities in line with the federal Aboriginal self-government policy. Aboriginal approval boards are faced with complex and time-sensitive issues with important consequences for the future of their communities and for Canada. These boards, for example, are required to carry out extensive and complex environmental assessments. In general, they have been formed only recently as a result of the devolution of power from the federal government. Many stakeholders expressed concern that the federal government does not fully appreciate the impact of these developments on the regulatory environment in the North. Significant measures are needed to help build Aboriginal skills and capacity so that Aboriginal communities can be full and productive participants in regulatory processes (see also Section 1.3. "Enabling First Nations Economic Development").

Recommendation 69: The federal government should provide training for all new northern regulatory board members as a condition of appointment and as ongoing support. The federal government should also work with similar boards and tribunals across northern Canada to create a network to share best practices and solutions to the challenges facing them.

1.5.2 Offshore Oil and Gas

Over a few decades, in excess of $40 billion has been spent in exploration and development activities in Canada's offshore. Oil production contributed to Newfoundland and Labrador recording the fastest-growing economy in Canada in 2002, while industry spending offshore of Nova Scotia hit almost $1 billion in 2002.⁴⁵ Nevertheless, the level of exploration activity on the East Coast has been sporadic and too low to create a vibrant industry. It is a high-cost area of uncertain potential.

Offshore oil and gas exploration and development is potentially broader than just the waters off Nova Scotia and Newfoundland, where development has been concentrated to date. The Committee focused its attention on the Atlantic offshore, but that region may offer lessons for other areas as well.

Interest in East Coast exploration, for example, is extending into new areas like the Gulf of St. Lawrence and the Bay of Fundy. While development in these new offshore areas would benefit from clear regulatory structures, these regulatory frameworks should not add to the complexity of the East Coast offshore by diverging from the existing Newfoundland and Nova Scotia regulatory approaches.

In British Columbia, the offshore is currently subject to a federal moratorium, which is under review. A key issue is to identify, based on scientific data, the areas in which the moratorium could be lifted safely if this was the policy choice for this region. Aboriginal claims regarding the resource must also be taken into account. The Committee was encouraged that the province has put in place a team to examine the experience in Atlantic Canada and in other offshore production regions around the world to identify regulatory best practices for adoption in B.C, should a decision be taken to allow offshore oil and gas development in this region.

Lastly, the shallow waters offshore of the Mackenzie Delta in the Beaufort Sea present significant development potential once the Mackenzie Gas Pipeline project is confirmed. This area shares much of the same complex regulatory environment discussed previously in Section 1.5.1 "Northern Oil and Gas Development," as well as issues of regulatory interface between onshore and offshore development (e.g. linkage of offshore resources to onshore pipelines). Drilling at a significant scale cannot be expected until a clear decision has been made to proceed with construction of the Mackenzie Gas Pipeline, for fear of stranding investment dollars in unserviceable wells. As has been noted, the federal government must continue its efforts to clarify and provide leadership in the regulatory environment in the North, particularly in areas of sole federal responsibility.

In all these regions, the regulatory environment should help foster exploration and development activities in these new areas. At the same time, it must continue to take into account other ocean-based sectors, such as the fisheries industry, and overall environmental sustainability goals.

Key Challenges

As stated at the outset of this section, there is growing, intense competition both with more established and emerging offshore jurisdictions in places such as the Gulf of Mexico, Chile and the North Sea for investment dollars and commitment to offshore exploration or extraction activities. Given the capital required to maintain operations in sometimes extreme environments (such as the North Atlantic), the regulatory system for the offshore is an important component of project costing and scheduling and can affect underlying project economics. A government that can design responsive regulatory frameworks that encourage responsible and sustainable resource extraction while minimizing cost, uncertainty or delay will have a strategic advantage.

The Committee heard that the current regulatory framework for the offshore falls short of these objectives. For example, according to industry sources, the average regulatory approval time for projects in Canada's Atlantic offshore exceeds 600 days, compared to approximately 200 days in the United Kingdom and Norway and just under 400 days in the Gulf of Mexico.⁴⁶

The offshore regulatory environment reflects the realities of Canada's constitutional division of powers in the multiple approvals, authorities, and legislative and regulatory frameworks that exist (some of which are largely but not fully parallel to each other). These parallel approaches can lead to confusion about which regulations are paramount or to duplication, for example, where a rig going from Newfoundland to Nova Scotia must be certified by each jurisdiction.

The regulatory framework developed for the East Coast offshore oil and gas industry has a number of distinguishing features, for example:

• there are parallel federal-provincial legislation and regulations (the Canada-Newfoundland Atlantic Accord Implementation Act and the Canada-Nova Scotia Petroleum Resources Accord Implementation Act);
• joint management regimes exist, with independent boards created to manage development on behalf of both levels of government; and
• provinces set royalty levels and receive all revenues as if resources were on land.

The regulatory environment involves the Canada-Nova Scotia Offshore Petroleum Board and the Canada-Newfoundland Offshore Petroleum Board, which administer exploration, development, extraction, production operations, construction, certification, health and safety and pipeline facilities in their respective regions. The National Energy Board is responsible for international and/or interprovincial regulatory issues and certain operating certificates related to pipeline facilities, as well as regulation in all non-Accord areas. The Canadian Environmental Assessment Agency is responsible for administering the federal environmental assessment process in combination with relevant departments.

The protection of marine habitats and environments falls under the responsibility of Environment Canada, the Canadian Environmental Assessment Agency and Fisheries and Oceans Canada through the environmental assessment process, the principles set out in the Oceans Act, and the mandates for habitat conservation and protection. Further, in some cases, Marine Protected Areas (Fisheries and Oceans Canada) and Marine Conservation Areas (Parks Canada) are established to achieve this purpose. There is a large measure of shared responsibility, which leads to the potential for confusion and inefficient cross-jurisdictional oversight.

This complex structure has led to a lack of clearly applied timeframes for each step of the regulatory process, resulting in a lack of predictability and timeliness in decision making. The structure also acts as a disincentive, particularly for smaller firms, to invest in the region. The Committee heard that the presence of multiple regulators also makes it difficult for interested citizens to participate in the regulatory process.

The Oceans Act

The oil and gas industry is one of several users of the ocean resource. Others include fisheries, aquaculture, tourism and transportation. The federal government has created a mechanism, through the Oceans Act, to plan the activities taking place in Canada's oceans and establish criteria for sustainable economic development of ocean space in a way that considers the interests of all of these users while protecting the marine environment. This approach is based on the premise that key players must be willing to cooperate on planning the use of oceanic space.

This represents a new approach whereby the federal government, in cooperation with all stakeholders, will promote the sustainable development of Canada's oceans and their resources. At the same time, this approach should increase operating efficiencies and business security through greater harmonization of approval and regulatory processes for marine and coastal use. For example, it should help to generate earlier awareness and understanding of exploration and development interests among regulators and other users as well as proactively identify those areas where activities, like oil and gas projects, will not likely be approved or will require additional research or protection measures.

Much of the ecosystem-based approach outlined in the Oceans Act is consistent with many of the Smart Regulation principles proposed by the Committee. As Fisheries and Oceans Canada implements the approach, it will address some of the concerns regarding the regulation of offshore oil and gas activities. For example, the use of strategic environmental assessments (as outlined in Section 1.4 "The Environmental Assessment Process") would advance planning and streamline management of marine-use activities like offshore oil and gas.

At the same time, the Committee notes that since it came into force in 1997, the potential benefits of the Oceans Act have not yet been fully realized. While it recognizes that the Act is being implemented in a planned and systematic manner, the Committee has heard from industry that the delay in its implementation has contributed to the regulatory uncertainty in the sector.

The legislated requirement for a national strategy for the management of Canada's oceans has been met with the release of Canada's Oceans Strategy (COS) in 2002. COS specifically recognizes the importance and contribution of the offshore oil and gas industry in supporting sustainable economic opportunities. Fisheries and Oceans Canada has implemented integrated management and planning initiatives in areas of importance to offshore oil and gas exploration and development in the Atlantic, Arctic and Pacific oceans. These priority planning areas have been selected (in part) due to existing or potential oil and gas development. Progress has been made in identifying and protecting environmentally sensitive areas. For example, as part of Fisheries and Oceans Canada's efforts to maintain environmental quality for living marine resources, it is focusing on the impact of noise on the marine environment, including seismic exploration. Existing regulations concentrate only on the health and safety aspects of seismic surveys.

By specifying in legislation when, where and how seismic activities can be undertaken, the government will give stakeholders a more predictable regulatory regime. These standards are intended to complement processes under the Canadian Environmental Assessment Act as well as future Regional Strategic Environmental Assessments.

That said, the Committee has heard concerns from provincial regulators and industry that the eventual development of these new seismic regulations by Fisheries and Oceans Canada under the Oceans Act could conflict with existing regulatory frameworks for offshore areas. The Oceans Act represents an opportunity to improve regulatory coherence for Canada's offshore regions, and any proposed legislation would be consistent with the principles of the Smart Regulation initiative.

Recommendation 70: As Fisheries and Oceans Canada proceeds to develop regulations under the Oceans Act, it should ensure that these measures are established in consultation and collaboration with other federal and provincial regulatory authorities, industry, First Nations and other stakeholders. This approach should complement existing regulations governing offshore oil and gas seismic activities.

Improved Regulatory Structure

While the multi-jurisdictional structure of the offshore is intended to achieve important policy goals and priorities, such as economic growth and environmental sustainability, its complexity has led to uncoordinated approaches that are costly, can limit access and flexibility for applicants, citizens, interest groups and even other levels of government, and create a lack of transparency and predictability. Given these challenges, an overarching regulatory policy framework is required to guide the activities of federal departments. This approach should align existing and proposed regulations and foster clear and integrated regulatory approaches in areas such as safety, environmental compliance, security and conservation of the resource. By establishing concrete policy objectives for the sector, a regulatory framework would also establish standards to gauge the effectiveness of the regulatory structure.

In an encouraging development, a process has been mapped out through the Atlantic Energy Roundtable to develop an agreement that would create definite timelines, standardize information requirements, create generic procedures and ensure public consultation under a joint or coordinated federal-provincial approach to project review. The work of the Roundtable has produced concrete results with the development of a Memorandum of Understanding (which recently completed the public consultation process) that seeks to implement environmental assessments and other regulatory processes in the offshore Accord areas (i.e. Nova Scotia and Newfoundland) in a concurrent and coordinated manner.

Many stakeholders have expressed a broader concern over the lack of "follow through" by the federal government once large-scale initiatives have been launched. This issue is discussed at greater length in Part I, Section 3.6 "The Regulatory Process." In the case of the Atlantic Roundtable, while the recently signed MOU represents a good start in coordinating regulatory activities in the Atlantic offshore, federal leadership and effort will be essential to achieving the goals of the MOU.

Recommendation 71: Federal government interaction with the offshore oil  and gas industry and other stakeholders should be guided by an overarching regulatory policy framework linking all relevant federal departmental responsibilities.

Performance-Based Approaches to Regulation

The regulatory approach to the industry is largely prescriptive in nature. It is based on specific requirements set by government for a host of expectations. Prescriptive regulation is typically based on the technology known at the time the regulations were drafted. In a sector like oil and gas exploration, where the technology is progressing rapidly, the prescriptive approach can discourage innovation as it has difficulty accommodating new technology that can improve environmental performance and project economics. The large number of requests from the offshore oil and gas industry to deviate from specific regulations and take different approaches is evidence of this problem. As a result, new technology is adopted in an ad hoc manner.

Performance-based approaches present an alternative, but will not be appropriate in all circumstances. A hybrid of prescriptive and performance-based approaches may be needed in some cases to provide prescriptive solutions for regulatees who cannot develop performance-based solutions (such as small and medium-sized enterprises) or who seek regulatory certainty. While performance-based regulation increases flexibility, it also increases the burden on regulators and project proponents, both of whom must demonstrate that regulatory objectives are being met. It is a complex challenge that will take time to address. A good starting point would be those regulatory areas where there have been a greater number of deviation requests.

Recommendation 72: Performance-based regulation should be developed in areas that would enable safety and environmental approaches to be adapted to specific risks as they are encountered, and new technology to be incorporated quickly, while meeting economic, social or environmental regulatory performance expectations.

Enhanced Environmental Assessment Procedures

In July 2003, the federal government extended application of the Canadian Environmental Assessment Act to cover East Coast offshore oil and gas drilling. It did so to ensure that in parts of Canada where offshore oil and gas activity is permitted federally, exploration and production activities will be subject to the same environmental assessment process. Under the CEAA, the first exploratory well in a new area of the offshore requires a comprehensive study, whereas the previous approach under the offshore boards had been equivalent to a screening review.

As discussed briefly in the section on the environmental assessment process, the primary differences between screening reviews and comprehensive studies are the complexity and length of the process and the extent of public consultations, which are greater for comprehensive studies. For example, unlike a screening review, a comprehensive study must look at alternative means of carrying out the project and the capacity of renewable resources to meet present and future needs. Monitoring requirements under a comprehensive assessment can also be more rigorous. However, industry representatives still question the rationale as to why these drilling activities require the additional rigour of comprehensive studies rather than screening reviews.

The Committee notes that the Canadian Environmental Assessment Agency is currently working with a subcommittee of the Minister of the Environment's multistakeholder Regulatory Advisory Committee to examine whether offshore exploratory wells should remain on the comprehensive study list. The subcommittee consists of representatives from industry, federal departments, environmental non-governmental organizations, provincial agencies and Aboriginal organizations.

Recommendation 73: The government should ensure that the multistakeholder Regulatory Advisory Committee studying the policy, which requires comprehensive study assessments of exploratory wells, completes its deliberations and takes appropriate action in a timely manner.

¹² Source: Canadian Vehicle Manufacturers' Association.

¹³ Source: Transport Canada, Road Safety: An Overview (March 2004).

¹⁴ Source: Transport Canada, Road Safety Vision 2010: 2002 Annual Report (March 2004). Figure varies depending on calculation method and does not include societal costs.

¹⁵ This sector consists of gasoline automobiles, light-duty gasoline trucks, heavy-duty gasoline vehicles, motorcycles, diesel automobiles, light-duty diesel trucks, heavy-duty diesel vehicles, and propane and natural gas powered vehicles.

¹⁶ Environment Canada, Canada's Greenhouse Gas Inventory – Overview 1990-2001.(October 2003), pp. 4-5.

¹⁷ Data provided by Health Canada's Therapeutic Products Directorate based on the Annual 2002 Drug Performance Report.

¹⁸ Centre for Medicines Research International, R&D Briefing #35, The Impact of the Changing Environment on Review Times.

¹⁹ Data provided by Health Canada's Therapeutics Products Directorate.

²⁰ "Time to first decision" refers to the time period from reception of a submission by the Therapeutic Products Directorate to first response, which could be either a Notice of Deficiency, Notice of Compliance or Notice of Non-Compliance.

²¹ Data from Health Canada, Health Products and Food Branch, Annual Drug Submission Performance Report – Part I. Therapeutic Products Directorate (TPD), 2003.

²² Health Canada, Health Products and Food Branch, Annual Drug Submission Performance Report – Part I, Therapeutic Products Directorate (TPD), 2003. In the report, generic drugs fall under the category of "Abbreviated New Drug Submissions" or ANDS.

²³ The actual proportions are relatively low in both cases: 3.1% of products for the U.S., compared with 1.8% of products for Canada.

²⁴ The EMEA carries out the regulatory approval on behalf of the entire European Union for medicinal products based on biotechnology only. The majority of conventional medicinal products are approved at the national level and these approvals are mutually recognized by other member states within the EU. If an EU state refuses to recognize the original approval of another EU state, the points of dispute are submitted to the EMEA for arbitration.

²⁵ Canadian Chemical Producers' Association, Canada's Chemical Industry: A Keystone to the Canadian Economy, p. 9.

²⁶ The DSL is a comprehensive compilation of all known substances falling within the scope of the NSN regulations that were in commercial use in Canada between January 1, 1984 and December 31, 1986, or that have subsequently been fully notified and assessed under CEPA 1999 and the NSN regulations. Accordingly, substances that are listed on the DSL are exempt from any reporting requirements under the NSN regulations.

²⁷ For example, the ongoing revisions to the NSN regulations are largely guided by consensus recommendations produced by a multistakeholder group consisting of representatives from the federal government, industry and public advocacy groups. Please see: Health Canada and Environment Canada, Consultations on the CEPA New Substances Notification Regulations and New Substances Program: Final Report of the Multistakeholder Consultations.December 2001.

²⁸ Source: Statistics Canada. Ninety-five percent of the federal biotechnology expenditures were devoted to R&D. These statistics exclude regulatory activities of the federal government.

²⁹ The Secretariat reports to the BMCC. Its two main functions are to coordinate horizontal decision making across departments and to provide secretariat services for the CBAC.

³⁰ The latest data available from Statistics Canada date back to 2001.

³¹ Public opinion research into biotechnology issues, Earnscliffe/Pollara, December 2003.

³² Royal Society of Canada Expert Panel on the Future of Food Biotechnology, Elements of Precaution (February 2001); Canadian Biotechnology Advisory Committee, Improving the Regulation of Genetically Modified and Other Novel Foods and Feeds (August 2002).

³³ Assisted Human Reproduction Act,S.C. 2004, c.2 (Bill C-6)

³⁴ In its 2002 Speech from the Throne, the Government of Canada committed to renew federal health protection legislation to better address emerging risks, adapt to modern technology and emphasize prevention.

³⁵ In June 2002, the CBAC recommended that higher life forms that meet the required criteria be patentable, provided that certain safeguards were introduced at the same time. In December 2002, the Supreme Court of Canada ruled that the Patent Act does not clearly indicate that higher life forms are patentable; Parliament should therefore determine whether or not they should be. Either way, the Patent Act is currently ill equipped to deal with issues related to complex higher life forms. Industry Canada and other departments continue to analyze the issue.

³⁶ The Notice of Compliance with Conditions policy allows manufacturers to market products before the end of clinical trials subject to certain conditions. The Special Access Programme – Drugs also exempts drugs from regulation by allowing practitioners to request access on a compassionate or emergency basis to drugs that are not sold in Canada. Authorization under the Special Access Programme does not guarantee that a drug is safe, efficacious or of high quality.

³⁷ Public opinion research into biotechnology issues, Earnscliffe/Pollara, December 2003.

³⁸ See http://plus.i-bio.gov.uk/ibioatlas/.

³⁹ While one of the Agency's functions is to administer the CEAA, it does not carry out environmental assessments.

⁴⁰ The Sub-agreement is implemented through bilateral agreements between the federal government and individual provinces and territories.To date, bilateral agreements have been signed with British Columbia, Alberta, Saskatchewan, Manitoba, Quebec and the Yukon Territory. Negotiations are under way with Nova Scotia and Newfoundland and Labrador, while a draft agreement with Ontario was under development during the preparation of this report. Where bilateral agreements are not in place, project-specific arrangements have been used to prevent duplication.

⁴¹ Source: Canadian Association of Petroleum Producers (CAPP), Policy Directions for Canada's Oil and Gas Industry (Submission to the Council of Energy Ministers – September 2003), p.1.

⁴² According to CAPP, exploration, development and operating costs in Canada are higher than in other oil and gas producing regions, such as the United States, Latin America and the Middle East. Source: CAPP, Policy Directions for Canada's Oil and Gas Industry,p.4.

⁴³ For example, the Gwich'in Land and Water Board is responsible for regulating land and water use throughout the Gwich'in Settlement Area,including Crown and Gwich'in private lands. The Board can amend, issue or renew land use permits and water licences, and set terms and conditions for the use of land and water in the Gwich'in Settlement Area.

⁴⁴ The signatories of the Coordination of the Regulatory Review of the Mackenzie Gas Project Agreement are: the Inuvialuit Land Administration and Inuvialuit Land Administration Commission, the National Energy Board, the Northwest Territories Water Board, the Mackenzie Valley Land and Water Board, the Gwich'in Land and Water Board, the Sahtu Land and Water Board, Fisheries and Oceans Canada, the Department of Indian Affairs and Northern Development, Environment Canada, the Government of the Northwest Territories and Transport Canada.

⁴⁵ Source: Canadian Association of Petroleum Producers.

⁴⁶ CAPP, Policy Directions for Canada's Oil and Gas Industry,p.6.