Vol. 140, No. 11 — May 31, 2006

Registration
SOR/2006-104 May 18, 2006

CANADIAN ENVIRONMENTAL ASSESSMENT ACT

Crown Corporations Involved in the Provision of Commercial Loans Environmental Assessment Regulations

P.C. 2006-403 May 18, 2006

Her Excellency the Governor General in Council, on the recommendation of the Minister of the Environment, pursuant to paragraph 59(j.2) (see footnote a) of the Canadian Environmental Assessment Act (see footnote b), hereby makes the annexed Crown Corporations Involved in the Provision of Commercial Loans Environmental Assessment Regulations.

CROWN CORPORATIONS INVOLVED IN THE PROVISION OF COMMERCIAL LOANS ENVIRONMENTAL ASSESSMENT REGULATIONS

INTERPRETATION

1. The following definitions apply in these Regulations.

"Act" means the Canadian Environmental Assessment Act. (Loi)

"responsible authority" means the Business Development Bank of Canada continued and named in subsection 3(1) of the Business Development Bank of Canada Act and Farm Credit Canada continued and named in subsection 3(1) of the Farm Credit Canada Act. (autorité responsable)

APPLICATION

2. These Regulations apply in respect of projects for which the responsible authority exercises a power or performs a duty or function referred to in paragraph 5(1)(b) of the Act.

VARIATIONS

3. (1) The registry requirements set out in subsections 55.1(2) and 55.3(1) and (2) of the Act are varied in accordance with the schedule.

(2) Subsections 20(3) and (4) of the Act apply only if the responsible authority is of the opinion that, under subsection 18(3) of the Act, public participation in the screening is appropriate in the circumstances or if required by Regulations.

COMING INTO FORCE

4. These Regulations come into force on June 11, 2006.

SCHEDULE
(Subsection 3(1))

VARIATIONS

1. (1) The requirement set out in paragraph 55.1(2)( a ) of the Act is varied as follows:

(a) within 14 days after the commencement of an environmental assessment, notice of its commencement, except if a class screening report is used under subsection 19(5) or (6) or if the screening is to be conducted without public participation;

(2) The requirement set out in paragraph 55.1(2)( c ) of the Act is varied as follows:

(c) a description of the scope of the project in relation to which an environmental assessment is to be conducted as determined under section 15, except when the screening is to be conducted without public participation;

(3) The requirements set out in subsection 55.1(2) of the Act are varied by adding the following after paragraph ( d ) of that subsection:

(d.1) a statement of the projects in respect of which a responsible authority takes a course of action under subsection 20(1);

(d.2) before the responsible authority takes a course of action under subsection 20(1), any environmental assessment policies, procedures and guidance materials it used in the conduct of the environmental assessment;

(4) The requirement set out in paragraph 55.1(2)( f ) of the Act is varied as follows:

(f) in the case of a screening conducted with public participation or a comprehensive study, notice of termination of an environmental assessment by a responsible authority under section 26;

(5) The requirement set out in paragraph 55.1(2)( k ) of the Act is varied as follows:

(k) the screening or comprehensive study report taken into consideration by a responsible authority for the purpose of a course of action under section 20 or 37 or a description of how a copy of the report may be obtained, except if a class screening report is used under subsection 19(5) or (6) or if the screening is conducted without public participation;

(6) The requirements set out in paragraphs 55.1(2)( r ) and ( s ) of the Act are varied as follows:

(r) except if a class screening report is used under subsection 19(5) or (6) or if the screening is conducted without public participation, the course of action of a responsible authority, made under section 20 or 37 concerning the environmental effects of the project, and a statement of any mitigation measures the implementation of which the responsible authority took into account in making its decision;

(s) in the statement of projects referred to in paragraph (d.1), a notice of any follow-up program considered appropriate pursuant to subsection 38(1) if the screening is conducted without public participation;

2. The requirements set out in subsections 55.3(1) and (2) of the Act are varied as follows:

55.3 (1) A responsible authority shall ensure that the records referred to in paragraphs 55.1(2)(s) and (t) and, in the case of a screening or comprehensive study, the records or information referred to in paragraphs 55.1(2)(h) and (u) and any record or information referred to in paragraph 55.1(2)(v) are included in the Internet site as well as the records referred to in

(a) paragraphs 55.1(2)(a), (c), (f), (j), (k) and (r), in the case of a screening conducted with public participation;

(b) paragraph 55.1(2)(d.2), in the case of a screening conducted without public participation; and

(c) paragraphs 55.1(2)(a), (c), (f), (k) and (r), in the case of a comprehensive study.

(2) A responsible authority shall ensure that the statements referred to in paragraphs 55.1(2)(d) and (d.1) are included in the Internet site every three months or with any other greater frequency to which it agrees with the Agency.

REGULATORY IMPACT ANALYSIS STATEMENT

(This statement is not part of the Regulations.)

Description

These Regulations under the Canadian Environmental Assessment Act (the Act) vary the environmental assessment (EA) process for Crown corporations involved in the provision of commercial loans. The Regulations apply to two federal parent Crown corporations: Business Development Bank of Canada (BDC) and Farm Credit Canada (FCC).

These Regulations vary the public notification requirements of the federal EA process, particularly those related to the Canadian Environmental Assessment Registry, and apply only to screening-type EAs when there is no participation of the public under subsection 18(3) of the Act. These changes address the challenges BDC and FCC would face if they had to comply directly with the Act, by balancing their EA obligations under the Act with their client confidentiality requirements and their ability to deliver services in a timely manner. The remaining procedures and requirements of the Act and its regulations remain applicable to BDC and FCC.

These Regulations also require BDC and FCC to post their EA policies, procedures and guidance material documents (including any forms used in the assessment of projects) on the Canadian Environmental Assessment Registry Internet site (Registry Internet site) before any screening-type EAs are conducted.

Background

Under the federal regime, EA is a planning tool to ensure that projects undertaken by federal authorities are considered in a careful manner before irrevocable actions are taken in connection with them, in order that such projects do not cause significant adverse environmental effects. A project can be either an undertaking in relation to a physical work, or an activity not related to a physical work that is described in the Inclusion List Regulations established under the Act. Physical works are things that are constructed and have a fixed location.

The Act also promotes sustainable development in federal decision-making and supports public participation in the EA process.

An Act to amend the Canadian Environmental Assessment Act (Bill C-9) came into force on October 30, 2003. The bill strengthened the federal EA process by ensuring a more certain, predictable and timely process for industry, government authorities and the public, by offering a higher degree of quality for EA, and by providing more meaningful public participation opportunities.

Bill C-9 addressed a gap whereby projects undertaken by federal parent Crown corporations did not require an EA unless regulations to this effect were developed and in force. By modifying the definition of "federal authority" (the federal body that may have expertise or a mandate relevant to a proposed project) to include federal parent Crown corporations, Bill C-9 extended the coverage of the Act and eliminated this gap. This amendment to the definition of "federal authority" comes into force on June 11, 2006. The effect of this amendment is to automatically require parent Crown corporations to conduct EAs the same way as other federal departments or agencies. A "federal authority" triggers the Act by being the proponent of a project or if it intends to enable a project to proceed by providing funding, by transferring federal lands, or by issuing a permit, license or approval listed in the Law List Regulations established under the Act.

Export Development Canada (EDC), the Canada Pension Plan (CPP) Investment Board and wholly owned subsidiaries of Crown corporations remain excluded from the definition of "federal authority".

As of June 11, 2006, Crown corporations are required to conduct EAs either by direct compliance with the Act or through a modified EA process set in regulations. In recognition of unique and diverse circumstances encountered by Crown corporations, Bill C-9 gave new regulatory authorities to the Governor in Council to allow for the development of tailored processes as necessary. The 3-year period between the royal assent of Bill C-9 and the time the amendment to the definition of "federal authority" becomes effective on June 11, 2006 was intended to provide time to deliver training and guidance to all Crown corporations to assist them in implementing their new obligations under the Act and its existing regulations and to develop any necessary new regulations.

These Regulations come into force on June 11, 2006, the same day federal parent Crown corporations become "federal authorities" under the Act.

Business Environment of BDC and FCC

These Regulations apply specifically to BDC and FCC. BDC and FCC are national financial institutions whose activities are focused respectively on small- and medium-sized enterprises and the agricultural sector. They are distinguished among federal parent Crown corporations by their involvement in the provision of commercial loans.

BDC focuses on the technology, exporting, manufacturing and services industries. It delivers joint financial services in partnership with other financial institutions and government agencies, but does not provide retail banking services. It offers a variety of commercial products including loans, venture capital, and consulting services. Loans are provided for a broad range of activities, including the purchase of land, building, machinery and equipment, construction or renovation of buildings, acquisition of businesses, and refinancing and working capital. BDC serves Canadian companies through a network of 85 branches. Its decentralized approach allows for 95% of credit decisions to be made at the local level. BDC fulfills a role complementary to private-sector financial institutions.

FCC focuses on primary agricultural producers, ranchers, growers and on the full agriculture value chain including suppliers and processors. It offers a variety of commercial loan products and venture capital. FCC also delivers joint management programs and services in partnership with government agencies and other financial institutions. The corporation issues loans for a large variety of purposes, including the construction of farm buildings, the purchase of land, equipment and livestock, and the operation of feedlots and greenhouses. FCC conducts its business in competition with private-sector financial institutions.

Environmental Practices of BDC and FCC

While the Act focuses on proposed projects and their effects on the environment, the environmental and risk management policies of financial institutions tend to focus primarily on the existing environmental conditions of land offered as security for loans and on the operations of the businesses receiving the loans. Environmental site assessments as practiced by most financial institutions do not examine the impacts on the environment of the projects for which the loan monies are intended for; rather they tend to focus on whether there is currently any contamination on the properties used as collateral on the loan and whether this contamination could pose a liability to the lending institution. In order to fulfil the requirements of the Act as federal authorities, BDC and FCC have adapted their lending policies to include the examination of the effects of projects on the environment.

Types of EA under the Act

The Act describes four types of EAs that may be required: screenings, comprehensive studies, mediations, and panel reviews. Most assessments conducted under the Act are screenings, and it is expected that a vast majority of the EAs conducted by BDC and FCC will be of this type. Screenings allow the federal authority flexibility in determining the time, length and depth of analysis of the assessment depending on the existing environment and the likelihood of environmental effects, and whether or not public participation is appropriate in the circumstances.

Projects likely to have significant adverse environmental effects are described in the Comprehensive Study List Regulations established under the Act. These tend to be large projects, such as dams and reservoirs; oil and gas pipelines; and metal and uranium mines. A comprehensive study of a project must consider factors beyond those included in a screening assessment. Public participation is mandatory in a comprehensive study. BDC and FCC anticipate rare requests for projects appearing in the Comprehensive Study List Regulations.

Under the Act, the Minister of the Environment has the authority to refer a project to a panel review when it is uncertain whether a project is likely to cause significant adverse environmental effects, when a project is likely to cause significant environmental effects that may be justified or where public concern warrants it. Neither BDC nor FCC anticipates issuing loans for the types of projects that have undergone panel reviews to date under the Act.

Challenges for BDC and FCC of Complying Directly with the Act

When they are providing financial assistance to enable a project to proceed, both BDC and FCC would be unable to comply with specific elements of the Act relating to screening-type assessments. Most notably, requirements related to the Canadian Environmental Assessment Registry would significantly impact the competitiveness of FCC and limit the ability of BDC and FCC to conduct their core business and deliver their services in a timely manner.

The Canadian Environmental Assessment Registry is a government-wide mechanism facilitating public access to records related to EAs conducted under the Act and public participation in the federal EA process. It consists of two complementary components: an Internet site and a project file.

The Registry Internet site is an electronic registry administered by the Canadian Environmental Assessment Agency (the Agency). The responsible authority or the Agency contributes specific records to the site pertaining to an EA.

The project file is a file maintained by the responsible authority or the Agency during an environmental assessment, and made available to the public in a convenient manner. The project file includes all records produced, collected or submitted with respect to the environmental assessment of the project (including all records on the Internet site).

Responsible authorities are obligated to post certain information on the Registry Internet site during the period that an assessment is underway. For screenings, this information includes a notice of commencement and a description of the scope of the project. It would be impossible for BDC and FCC to meet these requirements while maintaining the necessary confidentiality of their clients and loan applications. The posting of certain documents would also result in details of BDC and FCC's loans being made publicly available during the loan application process.

The protection of client confidentiality is of paramount importance to BDC and FCC and their clients. As federal institutions, both are subject to the Access to Information Act and to the Privacy Act and areobliged to protect commercially sensitive and personal information. In addition, BDC has a statutory obligation under the Business Development Bank of Canada Act to withhold client information unless written consent is given by the client.

Releasing the particulars of loan applications on the Registry Internet site might discourage potential clients from seeking the services of either institution. In addition, the existing Registry requirements would enable other financial institutions to access details of the loan activities of BDC and FCC before final loan decisions are made, such as details of the person(s) to whom loans were being considered, for what purposes, and their geographic location. This unreciprocated window into the business of BDC and FCC would place them at a disadvantage against other financial institutions.

For FCC, which is in direct competition with private-sector financial institutions in the conduct of its activities, the impacts of its clients' information being made available on the Registry Internet site could lead to its clients being approached directly by private-sector financial institutions in an attempt to underbid FCC on the terms of a loan.

If required to meet all the existing process requirements of the Act, BDC and FCC would also be obligated to wait fifteen days after the posting of the notice of commencement and the description of the scope of the project before making a decision on a loan. A mandatory fifteen-day waiting period could significantly affect the competitiveness of FCC and limit the ability of both institutions to conduct their core business and deliver their services in a timely manner, in addition of discouraging potential clients from seeking the services of either institution.

Intent of the Regulation

The Crown Corporations Involved in the Provision of Commercial Loans Environmental Assessment Regulations:

• preserve to the fullest extent possible the EA process prescribed by the Act;
• modify public notification requirements to respect client confidentiality and protect commercially sensitive and personal information;
• remove notification and decision delays to allow the conduct of BDC and FCC's core business to continue in a timely manner and to maintain the ability of FCC to compete and BDC to complement private-chartered financial institutions;
• require BDC and FCC to post quarterly on the Registry Internet site a statement of projects assessed under the Act and its regulations; and
• require BDC and FCC to post their EA policies, procedure and guidance material documents (including any forms used in the assessment of projects) on the Registry Internet site to enhance transparency and offset the fact that the regulations represent a departure from existing notification requirements prescribed by the Act.

The requirement to post quarterly a statement of the projects assessed by BDC and FCC under the Act is modelled on the existing class screening process under the Act.

As indicated above, the remaining requirements and procedures of the Act remain applicable to BDC and FCC, including the definitions, the triggers, the factors to be considered, the discretion of the Responsible Authority to invoke public participation in the conduct of a screening, the decisions to be taken following an assessment, the requirements related to maintaining a project file of each assessment, the powers of the Minister of the Environment, and the potential for comprehensive studies and panel review or mediation, as well as all requirement and procedures of the Act applicable to these two latter types of assessment.

If BDC or FCC is of the opinion that public participation in the screening of a project is appropriate in the circumstances as per subsection 18(3) of the Act, these Regulations do not apply and all procedures and requirements of the Act remain applicable.

Alternatives

Maintaining the status quo for Crown corporations involved in the provision of commercial loans, so that BDC and FCC come directly under the Act without regulatory variation, would have been unworkable. BDC and FCC would have been unable to comply with specific elements of the Act since it would have significantly impacted the competitiveness of FCC and would have limited the ability of BDC and FCC to conduct their core business and deliver their services in a timely manner.

Under the Act, the only mechanism permitted for varying the EA process is through a regulation.

The regulatory-making authority introduced in the Act by Bill C-9 does not allow for a complete exemption of EA obligations to address the concerns of BDC and FCC. Further, doing so would have contradicted the intentions of Parliament by maintaining the identified gap in the federal environmental assessment regime that Bill C-9 was meant to address.

A broader variation of the EA process through regulations is also not necessary in order to address the particular concerns of BDC and FCC.

Therefore, developing these Regulations was the best option for preserving FCC's competitiveness and BDC and FCC's ability to conduct their core business and deliver their services in a timely manner while ensuring that EAs of their projects are conducted under the Act.

Benefits and Costs

These Regulations modify rather than add requirements for BDC and FCC as "federal authorities" under the Act.

BDC and FCC issue a substantial number of loans per year, presently close to 8,000 for BDC and 24,000 for FCC. However, both corporations have EA obligations for only a portion of these, as many of their loans do not contain "projects" as the term is defined under the Act. Within this portion of each Crown corporation's loan portfolio, a further number of projects do not require EAs, as they appear in the Exclusion List Regulations established under the Act. Projects appearing in the Exclusion List Regulations are known to have insignificant environmental effects and therefore do not require an EA.

As part of their previous lending practices, BDC and FCC already required their loan applicants to comply with all applicable municipal, provincial and federal environmental legislation. However, both Crown corporations have developed specific EA expertise and have adjusted their lending practices to ensure that all of the obligations of the Act and its regulations in regards to assessing the environmental effects of projects are fulfilled in a satisfactory manner. The ongoing development of EA expertise will continue to require dedicated resource from BDC and FCC.

However, the regulations themselves are not expected to significantly affect costs. The obligation to post project-by-project information is replaced by a streamlined notification process on the Registry Internet site accommodating the unique mandate of BDC and FCC as commercial lenders. In terms of transparency, the removal of certain requirements that could otherwise lead to a potentially substantial posting load for either institution is offset by the obligation for BDC and FCC to post their EA policies, procedures and guidance material documents (including any forms used in the assessment of projects) on the Registry Internet site.

Allowing BDC and FCC to conform with the requirements of the Act through a regulatory variation result in greater equity and ensure that their projects receive full environmental scrutiny while preventing the obligations of the Act from conflicting with their unique mandate as commercial lenders. These Regulations further ensure that this is done in the most efficient and effective manner possible given their distinctive characteristics as financial institutions.

Complying with the Act serves to minimize or avoid adverse environmental effects before they occur by incorporating environmental factors into the decision-making process of BDC and FCC. By themselves, these Regulations do not affect the way in which Eas are conducted and are not likely to cause environmental effects.

Consultation

There were numerous opportunities for public input during the progress of the Crown corporations initiative, including the regulatory development concerning BDC and FCC, via the Agency's Web site. Comments from the public were sought at the release of a status report on the initiative in February 2005 and a framework document in April 2005 explaining why the Agency had determined that a regulatory variation to the Act was necessary for BDC and FCC and outlining the proposed content of the regulation. On all occasions, there were no comments from the general public.

The Agency also sought comments on the initiative from federal departments and agencies through the Agency's Senior Management Committee on Environmental Assessment and from members of the Regulatory Advisory Committee, a multi-stakeholder advisory group to the Minister of the Environment. Based on the few comments received, the approach taken to vary the EA process for Crown corporations involved in the provision of commercial loans through regulations seemed reasonable. No negative comments were received.

Updates on the initiative, including the framework document outlining these Regulations, were also distributed to members of the Environmental Planning and Assessment Caucus of the Canadian Environmental Network but no comments were received from them. All other federal parent Crown corporations that will be subject to the Act after June 2006 were also regularly informed and asked to comment on this regulatory development initiative.

BDC and FCC were involved throughout the development of this regulatory proposal so that these Regulations address their needs and concerns. Both BDC and FCC consider the initiative part of their internal lending policy and therefore have not considered it necessary to consult broadly the public or their stakeholders.

These Regulations were pre-published in the Canada Gazette, Part I, on December 31, 2005 for 30 days and no comments were received.

As indicated above, these Regulations include a requirement for BDC and FCC to post on the Registry Internet site their EA policies, procedures and guidance material documents (including any forms used in the assessment of projects). In February 2006, there was an opportunity for public consultation on these documents to offset the removal of some public disclosure requirements regarding the posting of detailed project-by-project information. This approach to public consultation to ensure quality control and accountability at the front-end of the EA process is akin to the current class screening process under the Act.

Compliance and Enforcement

The Act is based on the principle of self-assessment; that is, the federal body that has a decision to make about a proposed project is also responsible for ensuring an EA is conducted. The results of the assessment must be considered before final decisions are made. However, the Agency has a clear and strong role in promoting and monitoring compliance with the Act.

The Act empowers the Minister of the Environment to provide advice and training to responsible authorities and other relevant federal authorities to enable them to be compliant with the requirements of the Act and its regulations. BDC and FCC, along with all other federal parent Crown corporations affected by the change to the definition of "federal authorities", have been invited to participate in training sessions offered by the Agency across the country. In addition, the Agency's regional offices are available to provide BDC and FCC's loan officers across the country with project-specific information, thereby assisting them in complying with their EA responsibilities under the Act and its regulations, including these Regulations.

The manner in which BDC and FCC conduct EAs under the Act and its regulations is subject to the Agency's Quality Assurance Program. Information generated by this program should assist BDC and FCC to ensure compliance with the Act and continuous improvements of the quality of their EA practices.

Finally, the Agency provided comments to BDC and FCC on the development of their implementation process, i.e. on their EA policies, procedures and guidance material documents (including any forms used in the assessment of projects) for the purpose of ensuring compliance with the legal requirements of the Act and its regulations and promoting best practices in EA.

Contact

John D. Smith
Director
Legislative and Regulatory Affairs
Canadian Environmental Assessment Agency
Place Bell Canada
160 Elgin Street, 22nd Floor
Ottawa, Ontario
K1A 0H3
Telephone: (613) 948-1942
FAX: (613) 957-0897

Footnote a

S.C. 2003, c. 9, s. 29(4)

Footnote b

S.C. 1992, c. 37

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