Meeting commitments requires billions for transition, says Osler lawyer
Transitioning towards a “net zero” carbon future will require significant changes within all parts of the “energy value chain,” says Sander Duncanson, partner with Osler, Hoskin & Harcourt LLP.
“We’re talking many billions, of not trillions of existing infrastructures” that will need to be repurposed, says Duncanson in a recent interview with Lexpert TV. He specializes in environmental, regulatory, and Indigenous law issues for natural resource developers.
To make the required transition will not only mean making changes to already-built infrastructure, but it will also” require new technologies to allow this to happen.”
While companies are governments are embracing the need to make this transition and invest in such technology, Duncanson says, “we need to recognize that a transition fully away from carbon-based sources is still many years away.” As a result, carbon-based energy sources will still need to be an “important part of how we achieve our country’s climate objectives.”
He notes that companies have sunk billions into investing in existing infrastructure. Making the transition to new energy sources and repurposing the infrastructure to accommodate these new sources, will take “companies away from areas where they have significant long-standing expertise and into new areas where they may have very limited expertise.”
He adds that “there is a lot of financial and legal risk that comes with changing those types of investments and growth strategies. . . [As a lawyer], I can only imagine how difficult and risky those types of business decisions would be.”
Duncanson’s advice to companies going through such a shift is that they “make sure they are obtaining support from legal and financial advisors who have specific experience in those areas.”
Governments in Canada, especially the federal government, have provided several financial incentives for companies to engage in various aspects of the transition to a lower-carbon future. But Duncanson adds that one of the key issues he sees in his practice is that the regulatory and tax frameworks that exist today “don’t adequately address some of these new technologies and developments” and that they should be updated.
Despite the attention given to carbon-free or lower-carbon energy sources such as blue hydrogen and geothermal and lithium derived from petroleum brine, Duncanson says the current regulatory framework is “not ideal for these technologies because they weren’t specially contemplating those new technologies.”
To the extent that governments can provide regulatory clarity for those types of new technologies, Duncanson says, “that would certainly help facilitate new investment.”
As for the impact of environmental laws and the concerns of Indigenous communities on energy projects, Duncanson says that Canada has struggled in recent years to attract investment in the energy and large infrastructure sectors because of the perception that Canada has significant regulatory risks. The concern is that it often takes to deal with environmental issues and consult with Indigenous communities can add significant delays.
“In my experience, those risks can be successfully managed in most cases,” he says, “but, by and large, those risks still remain today.”
He adds that the large infrastructure projects needed to develop lower-carbon energy sources will likely have to clear the same regulatory and consultation hurdles, “so how business and governments manage those risks will likely be one of the key factors in how well Canada succeeds in this energy transition.”
Duncanson says that businesses interested in being part of the coming energy transition should consider working with legal and financial advisors to look at the risks associated with opportunities and advance specific initiatives without committing material capital. This work would happen alongside working with governments on changing the regulatory and tax regimes to accommodate these projects. To the extent that new opportunities are dependent on government funding or financial incentives to make economic sense, Duncanson says, “you can advance your initiatives until the appropriate time.”
Those companies with the farthest advanced projects will be “the most likely to secure” government funding and private capital. “It may pay to be proactive, even in the face of uncertainty.”
Duncanson notes that when he started his legal career, the term “energy law” was synonymous with oil and gas law and often focused on transactions.
“That’s changed. The term energy law can now encompass a whole lot of different things, including renewable energies, alternative energies, [and] various disciplines that are now at the forefront of advancing [lower-carbon] types of energy projects.” An energy law practice will also require knowledge of project financing, environmental issues, Indigenous consultation, tax law, and intellectual property law.
“It doesn’t mean energy lawyers are becoming generalists and less specialized,” he says. “To the contrary, these subject areas are becoming increasing complex. So there is a need to specialize within each of those different specific disciplines.”
Adds Duncanson: “For new energy projects, that requires having a cross disciplinary team of experts across all of those different areas, to make sure that the clients are obtaining seamless and coordinated legal advice across all areas of what is now coined energy law.”