Final Report

Submitted To:
The Canadian Environmental Assessment Agency

Submitted By:
RIAS Inc. and Gartner Lee Limited

September 2000

Executive Summary

Objective

The objective of this study was to determine where Canada ranks in relation to eight selected competitor nations with regard to the impacts (benefits and costs) each country's EA regime has on:

• an international firm's decision to invest in a country;
• the firm's subsequent project planning and implementation processes;
• a firm's ability to enter into and compete in international tendering and bidding processes; and,
• the bottom line costs of products that compete for share in the marketplace.

A second objective of the study was to survey a small sample of multi-national firms to determine their views regarding the potential competitiveness impacts on Canadian firms if the export credit financing of Canada's Export Development Corporation (EDC) were to be subject to the requirements of the Canadian Environmental Assessment Act (CEAA).

Approach and Caveats

To achieve these objectives, we used two research tracks, which proceeded simultaneously because of a time constraint.

1. A comparative analysis of the EA regimes of the eight selected countries (Canada, the US, the UK, Germany, France, Australia, Japan and Chile) was undertaken. The EA regimes were compared and rated against 15 key factors, through desktop research, interviews and follow-up emails/discussions.
2. A set of interviews was completed with representatives of multi-national enterprises (MNEs) to determine whether EA regimes were a component of national competitiveness, and to collect views from affected firms about any real-world impacts (positive and negative) of national EA regimes on the competitiveness of the affected firms.

The MNE's were selected from sectors currently subject to the Canadian Environmental Assessment Act. They represented the mining, energy, manufacturing, chemical, forest products and telecommunications sectors. For the issue of export credits and EA, we selected multinational firms in the fields of consulting engineering (design/build) and manufacturing (power equipment, pulp and paper equipment, etc.)

The following caveats to our findings are important to note.

• The research is preliminary only. We accept that there will be differences in opinions as to where a country should be placed in our simple scoring frameworks, and whether the 15 critical elements that we selected a priori are complete or the most important indicators of competitiveness. To this end, we identify some useful research topics at the end of Chapter 6.
• National EA regimes are examined from a competitiveness perspective only. Other aspects of EA (e.g., sustainability, equity, effectiveness) are not considered.
• Elements of EA regimes are not directly comparable. The differences in EA regimes due to differences in national political and judicial systems are not fully considered.
• The company research involved only large multinational enterprises (MNEs). EA regimes are likely to have different competitiveness effects on smaller companies. A total of 18 MNEs participated. Each had only a small number of projects that had undergone national EAs recently.
• For this study, we could not make some important distinctions. For example, we could not distinguish between projects that experienced difficult EAs because of deficiencies in a company's approach or project design, and those that encountered problems due to the EA regime itself.

Conclusions

Overall Comparison of National EA Regimes

Each country has developed its own EA regime within its own national political and judicial system, and each EA regime has its own unique qualities, custom features and deviations, its own set of advantages and disadvantages. The following provides some general conclusions regarding the EA regimes examined in this study.

• Canada, the United States and Australia share many of the same characteristics or features in term of the EA regimes. To date, each has established non-statutory mechanisms for EA co-ordination and harmonization among its jurisdictions. Australia's new EA legislation, on the other hand, is intended to address many of the issues facing Canada and the United States regarding competitiveness and EA. However, substantial experience with this new Act has not yet been demonstrated.

• The European Community nations (United Kingdom, France and Germany) examined in this study have similar EA regimes due to their move towards EA harmonization through the adoption of European Commission directives concerning EA and other international initiatives. Differences among these nations exist, however the fundamental premises of their EA regimes remain similar.

• The EA regimes of Japan and Chile are unique in many respects. The focus of environmental assessment in Japan is different from other developed countries as the environmental assessment regime in Japan tends to be less concerned with procedural detail than with the technological capacity to deal with environmental impacts. Chile, on the other hand, has developed a centralized one-window approach to EA and project approvals by placing the burden of implementing and administrating the EA regime on the National Environmental Commission(CONAMA) and its Regional Environmental Commissions (COREMAS).

The approach taken by Canada differs from most of the other countries examined in this study in terms of the following factors:

• Type of EA Process - Opportunities to 'scope' the assessment are not as formalized in Canada as elsewhere;

• Scale of Projects Subject to EA - The Canadian EA regime can apply to small scale, medium and large scale projects. Most other EA regimes focus more on medium to large scale projects.

• Nature of Approvals Received - Final project approvals need to be obtained through permitting processes of individual federal authorities in addition and subsequent to the EA process. Other (but not all) EA regimes offer a more integrated approach to project approvals.

• Prescribed Steps - The steps that need to be taken to complete the EA process are partially prescribed in legislation or regulations. Most other countries prescribe the steps to complete an EA within statutory instruments.

• Timelines - The Canadian EA regime offers a mix of both EA start-up and completion timelines depending on the EA track. Other EA regimes either do not specify any timelines or prescribe timelines for both EA start-up and completion.

• Roles and Responsibilities - Non-statutory mechanisms are relied upon for harmonization among jurisdictions and coordination of the EA process within the federal government. Other EA regimes either rely more on statutory mechanisms or do not need to harmonize EA processes with other jurisdictions due to their national political structures.

• Decision Levels - Other EA regimes tend towards completely decentralized or centralized systems for decision-making. In Canada, decision levels vary depending on EA tracks.

• Participant Funding - Canada is unique in that the CEAA includes provisions for participant funding for Panel reviews and mediations.

• Institutional Capacity Building - Institutional capacity building is viewed as a core activity of the federal government. Most other countries rely more on academia and the private sector to provide training to EA practitioners.

National Competitiveness and National EA Regimes

• National EA regimes are not a primary factor in corporate investment location decisions for these MNEs. The MNE representatives were of the view that EA regimes should not expect to be a positive factor. The best EA regime would be more likely to be viewed as the absence of a negative, rather than as a positive.

• Project profitability is the single most important factor in industry investment location decisions. Corporations measure project profitability in different ways and consider different factors in calculating it, but it is the primary factor. The secondary factors most often cited in investment location decisions were: economic environment, proximity to customers/raw materials, construction costs, land/property rights and political factors.

• Although national EA regimes are not a primary factor in national competitiveness, EAs can affect the profitability of a project, usually by causing or contributing to project delays. None of the companies had estimated economic costs of project delays that were contributed to by EA delays.

• There were no serious disconnects identified between the national EA regimes and normal project planning and implementation activities of the firms. In some projects, the companies reported doing significantly more than the national EA regime had called for. About 1/3 of the companies used the World Bank's standards as the basis for their corporate EA policies.

Company Competitiveness and National EA Regimes

• The participating MNEs did little international tendering and bidding, and so we were unable to draw conclusions as to whether EAs had an effect on that measure of competitiveness.

• EAs were reported to affect the second measure of competitiveness used, i.e. the ability of a firm to access markets and compete for market share. The US and Canadian EA regimes were the only two countries to receive significant negative ratings on this competitiveness measure.

• National EAs did not cause significant increases in the prices for the products/commodities that resulted from the projects. Many of the firms were price takers in their markets, rather than makers. Profitability would be affected before prices.

• In general, EAs did not cause significant incremental costs for project planning and implementation. Three exceptions were identified: two EAs in Canada and one in the US . All three had resulted in significant increases in the anticipated project planning and implementation costs.

Relative Impacts on Firm Competitiveness of National EA Regimes

We used two approaches to rank the eight countries in terms of their relative impacts on the competitiveness of the affected firms. The first approach was based on the de jure comparison of EA regimes against 15 key factors; the second was based on the e facto assessments of the MNE representatives. We caution again that this ranking uses simple arithmetic to do complex comparisons. It is intended to be directional only, indicating possible areas for further research.

In both approaches, Chile came out on top as having the highest ranking on competitiveness. Chile had the smallest number of factors that impeded competitiveness, and the largest number of factors that promoted competitiveness. The practical experiences of the companies supported that finding. France and the UK were generally in second place, for both the de jure and the de facto analyses.

The USA occupied mid-to low rankings in the de jure analysis, with a fairly low number of factors promoting competitiveness and a high number of factors impeding competitiveness. However, the USA ranked the lowest in the de facto findings based on the companies' experiences. The negative US rankings arose from the experiences of two companies in a State that was reported to have a long history of antagonism towards primary industries, and a third company that had decided that EAs, and environmental permitting in general, had become too difficult in the US.

Canada, in the de jure analysis, had a relatively small number of factors impeding competitiveness but few factors promoting it. Canada scored the highest number of entries in the middle of the competitiveness scale. Canada rated the second lowest in the de facto competitiveness scoring, just ahead of the USA. The negative Canadian rankings by three companies arose from their concern about timeliness of the Canadian processes and a perceived lack of technical and process knowledge on the part of the Departments that had been designated as Responsible Authorities.

Benefits to Companies of National EA Regimes

The companies identified a small number of cases in which they had gained some benefit from participating in national EAs but they were minor. Their view was that, generally, their own environmental assessments went beyond most national EAs. The companies believed that, frequently, they provided technical support to the agencies carrying out the national EA.

Export Credit Financing And Domestic EA Regimes

The USA (through the EXIM bank) was identified as the only OECD country that, in the companies' views, applied a formal EA regime to its export financing projects. One of the Canadian companies identified 12 projects (a total value of about $1 billion) that its international parent did not source out of US manufacturing facilities because of concerns about the long time and cost of EXIM processes. The EAs of EXIM contributed to the time and cost. Host countries representatives frequently raised sovereignty concerns about subjecting a project in their country to the EA laws of the financing country.

The company representatives urged the Federal Government not to impose the requirement that export credit financing be subjected to CEAA, nor to any other environmental review framework that went significantly beyond what was requested of their international competitors and sister companies. Exports were more important to the Canadian economy than to the US. These Canadian firms competed against companies from countries such as China that had no environmental requirements as part of their export credit financing that was already concessional when compared to the OECD norms that bound Canada. One company estimated that it would lose about 50% of its export sales (30% of total sales) of Canadian-manufactured equipment if such a change were to be made. The international parent would source the manufacturing from a sister company in another OECD nation that did not place such a requirement on its export financing.

The representatives recommended strongly that the Government support the EDC in its efforts to lead the OECD to adopt a common set of environmental assessment standards for all export credit agencies. This would still leave Canadian industry at a competitive disadvantage to the non-OECD firms, but at least the export financing of the OECD nations would be on a level basis. They also urged the government to resolve quickly the current uncertainty surrounding export credit financing and environmental reviews.