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Economy

Ottawa’s Regulatory Assault on the Extraction Sector and Its Impact on Investment

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9 minute read

From the Fraser Institute

By Kenneth P. Green

Business investment is a foundational requirement for a prosperous economy. It provides the resources to establish new companies, expand existing ones, and invest in new factories, machinery, and technologies. Business investment in Canada has declined markedly for over a decade. It is a major reason why Canadian living standards are stagnating in absolute terms and declining relative to many peer countries, particularly the United States.1

One factor behind declining business investment is the heavy regulatory burden imposed by the current federal government on the extraction sector, which includes: mining, quarrying, and oil and gas. Since 1990, this sector averaged 17.3 percent of total non-residential business investment, and reached as high as 28.7 percent of the total in 2013.2

The federal government has been particularly critical of the oil and gas sector. As an example of such sentiment, in a 2017 speech Prime Minister Trudeau said it would take time to “phase out” the oil sands, indicating the long-term goal of the federal government to eliminate the fossil fuel industry (Muzyka, 2017). The prime minister’s comments were followed by a number of new regulations that directly or indirectly targeted the oil and gas sector:

• In 2019, Bill C-69 amended and introduced federal acts to overhaul the governmental review process for approving major infrastructure projects (Parliament of Canada, 2018). The changes were heavily criticized for prolonging the already lengthy approval process, increasing uncertainty, and further politicizing the process (Green, 2019).

• In 2019, Bill C-48 changed regulations for vessels transporting oil to and from ports on British Columbia’s northern coast, effectively banning such shipments and thus limiting the ability of Canadian firms to export (Parliament of Canada, 2019).

• Indications from the federal government that a mandatory hard cap on GHG emissions would eventually be introduced for the oil and gas sector. In 2023, such a cap was introduced (Kane and Orland, 2023), excluding other GHG emitting sectors of the economy (Watson, 2022).

• In early 2023, the government announced new fuel regulations, which will further increase the cost of fuels beyond the carbon tax (ECCC, 2023).

• In late 2023, with limited consultation with industry or the provinces, the Trudeau government announced major new regulations for methane emissions in the oil and gas sector, which will almost inevitably raise costs and curtail production (Tasker, 2016).

The growing regulatory burden has a number of implications that impede or even prohibit oil and gas investment, by increasing costs and uncertainty, making it less attractive to invest in Canada. Both a 2022 survey of mining companies and a 2023 survey of petroleum companies identified the same three risks as inhibiting investment in Canadian provinces—uncertainty over disputed land claims, protected areas, and environmental regulations.3

It is also important to recognize that the Trudeau government introduced a carbon tax in 2016, which conceptually should replace regulations related to greenhouse gas (GHG) emissions such as those listed previously rather than be an additional policy lever used to manage GHG emissions.4

The regulations discussed above, as well as direct decisions by the federal government had tangible effects on the oil and gas sector:

• In late 2016, the Northern Gateway pipeline running from northern Alberta to Kitimat, British Columbia was cancelled by the Trudeau government, further limiting the ability of firms in Alberta to get their products to export markets (Tasker, 2016).

• In 2017, TransCanada Corp. cancelled its $15.7 billion Energy East pipeline, which would have transported oil from Alberta to Saint John, New Brunswick. The project was cancelled in large measure due to changes in national policy regarding the approval of large infrastructure projects (Canadian Press, 2017).

• While the Trans Mountain pipeline from Edmonton to Burnaby, BC was approved, Kinder Morgan exited the project in 2018 due to uncertainties and questions about the economics of the project, forcing the Trudeau government to take the ownership. The cost of the project has since increased by more than four times the original estimate to $30.9 billion (Globe and Mail Editorial Board, 2023).

• In 2019, US-based Devon Energy announced plans to exit Canada’s oilsands to pursue more profitable opportunities in the United States (Healing, 2019).

• In 2020, Teck Resources abandoned its $20 billion Frontier oilsands mine in Alberta because of increasing regulatory uncertainty (Connolly, 2020).

• In 2020, Warren Buffett’s Berkshire Hathaway decided not to invest $4 billion in Saguenay LNG, a liquified natural gas plant and pipeline, due to political and regulatory risks (CBC News, 2020).

The divestitures above are not an exhaustive list. Other companies including Norwegian Equinor (formerly Statoil), France’s TotalEnergies SE (formerly Total SA), US-based Murphy Oil, and ConocoPhillips have all reduced their investments in Canada’s oil and gas sector.

The government’s mounting regulations and hostilities towards the oil and gas sector did not go unnoticed outside of Canada. A 2018 article in The Economist listed the many failures to develop pipeline infrastructure in Canada to bring much-demanded oil and gas to market. Indeed, the piece called it a “three-ring circus” that risked “alienating foreign investors who are already pulling back from Canada” (Economist, 2018).

It is first important to acknowledge the overall decline in business investment in Canada since 2014. Overall, total non-residential business investment (inflation-adjusted) declined by 7.3 percent between 2014 and 2022.5, 6

The decline in business investment in the extractive sector (mining, quarrying, and oil and gas) is even more pronounced. Since 2014, business investment excluding residential structures and adjusted for inflation has declined from $101.9 billion to $49.7 billion in 2022, a reduction of 51.2 percent (figure 1).7


A similar decline in business investment of 52.1 percent is observed for conventional oil and gas, falling from $46.6 billion in 2014 to $22.3 billion in 2022 (inflation-adjusted) (figure 1). In percentage terms the decline in non-conventional oil extraction was even larger at 71.2 percent, falling from $37.3 billion in 2014 to $10.7 billion in 2022.8

Simply put, the declines in the extraction sector are larger than the total decline in overall non-residential business
investment between 2014 and 2022, indicating the magnitude of the overall effect of the decline in business investment in this sector.

The importance of business investment to the health of an economy and the rising living standards of citizens cannot be overstated. One of the major challenges facing Canadian prosperity are regulatory barriers, particularly in the oil and gas sector.

In that light, much of the regulatory burden added over the last eight years to the oil and gas sector should simply be eliminated. In some ways this is already being forced on the federal government through court decisions. For instance, in October of 2023, the Supreme Court of Canada ruled that parts of Bill C-69 were unconstitutional as they infringed on areas of exclusive provincial jurisdiction, requiring revisions to the Act (Dryden, 2023).

A careful and clear analysis is needed of the costs and benefits of the regulatory measures imposed on the oil and gas sector, including Bill C-48, the recent methane regulations, and the emissions cap. Based on this analysis, the regulatory measures should be adjusted to help improve the ability of Canada’s energy sector to attract and retain investment.

Business

Canada may escape the worst as Trump declares America’s economic independence with Liberation Day tariffs

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Quick Hit:

On Wednesday, President Trump declared a national emergency to implement a sweeping 10% baseline tariff on all imported goods, calling it a “Declaration of Economic Independence.” Trump said the tariffs would revitalize the domestic economy, declaring that, “April 2, 2025, will forever be remembered as the day American industry was reborn.”

Key Details:

  • The baseline 10% tariff will take effect Saturday, while targeted “reciprocal” tariffs—20% on the EU, 24% on Japan, and 17% on Israel—begin April 9th. Trump also imposed 25% tariffs on most Canadian and Mexican goods, as well as on all foreign-made cars and auto parts, effective early Thursday.

  • Trump justified the policy by citing foreign trade restrictions and long-standing deficits. He pointed to policies in Australia, the EU, Japan, and South Korea as examples of protectionist barriers that unfairly harm American workers and industries.

  • The White House estimates the 10% tariff could generate $200 billion in revenue over the next decade. Officials say the added funds would help reduce the federal deficit while giving the U.S. stronger leverage in negotiations with countries running large trade surpluses.

Diving Deeper:

President Trump on Wednesday unveiled a broad new tariff policy affecting every imported product into the United States, marking what he described as the beginning of a new economic era. Declaring a national emergency from the White House Rose Garden, the president announced a new 10% baseline tariff on all imports, alongside steeper country-specific tariffs targeting longstanding trade imbalances.

“This is our Declaration of Economic Independence,” Trump said. “Factories will come roaring back into our country — and you see it happening already.”

The tariffs, which take effect Saturday, represent a substantial increase from the pre-Trump average U.S. tariff rate and are part of what the administration is calling “Liberation Day” for American industry. Reciprocal tariffs kick in April 9th, with the administration detailing specific rates—20% for the European Union, 24% for Japan, and 17% for Israel—based on calculations tied to bilateral trade deficits.

“From 1789 to 1913, we were a tariff-backed nation,” Trump said. “The United States was proportionately the wealthiest it has ever been.” He criticized the establishment of the income tax in 1913 and blamed the 1929 economic collapse on a departure from tariff-based policies.

To underscore the move’s long-anticipated nature, Trump noted he had been warning about unfair trade for decades. “If you look at my old speeches, where I was young and very handsome… I’d be talking about how we were being ripped off by these countries,” he quipped.

The president also used the moment to renew his push for broader economic reforms, urging Congress to eliminate federal taxes on tips, overtime pay, and Social Security benefits. He also proposed allowing Americans to write off interest on domestic auto loans.

Critics of the plan warned it could raise prices for consumers, noting inflation has already risen 22% under the Biden administration. However, Trump pointed to low inflation during his first term—when he imposed more targeted tariffs—as proof his strategy can work without sparking runaway costs.

White House officials reportedly described the new baseline rate as a guardrail against countries attempting to game the system. One official explained the methodology behind the reciprocal tariffs: “The trade deficit that we have with any given country is the sum of all trade practices, the sum of all cheating,” adding that the tariffs are “half of what they could be” because “the president is lenient and he wants to be kind to the world.”

In addition to Wednesday’s sweeping changes, Trump’s administration recently imposed a 25% tariff on Chinese goods tied to fentanyl smuggling and another 25% on steel and aluminum imports—revoking previous carve-outs for countries like Brazil and South Korea. Future tariffs on semiconductors, pharmaceuticals, and raw materials such as copper and lumber are reportedly under consideration.

Trump closed his remarks with a message to foreign leaders: “To all of the foreign presidents, prime ministers, kings, queens, ambassadors… I say, ‘Terminate your own tariffs, drop your barriers.’” He declared April 2nd “the day America’s destiny was reclaimed” and promised, “This will indeed be the golden age of America.”

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2025 Federal Election

Three cheers for Poilievre’s alcohol tax cut

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By Franco Terrazzano

The Canadian Taxpayers Federation applauds Conservative Party Leader Pierre Poilievre’s commitment to end and reverse the alcohol escalator tax.

“Poilievre just promised major alcohol tax cuts and taxpayers will cheers to that,” said Franco Terrazzano, CTF Federal Director. “Poilievre’s tax cut will save Canadians money every time they have a cold one with a buddy or enjoy a glass of Pinot with their better half and it will give Canadians brewers, distillers and wineries a fighting chance against tariffs.”

Today, federal alcohol taxes increased by two per cent, costing taxpayers about $40 million this year, according to Beer Canada.

Poilievre announced a Conservative government “will axe the escalator tax on wine, beer and spirits back to 2017 levels, ending the automatic annual tax increases.”

The alcohol escalator tax has automatically increased excise taxes on beer, wine and spirits every year, without a vote in Parliament, since 2017. The alcohol escalator tax has cost taxpayers more than $900 million since being imposed, according to Beer Canada.

Taxes from multiple levels of government account for about half of the price of alcohol.

Meanwhile, tariffs are hitting the industry hard. Brewers have described the tariffs as “Armageddon for craft brewing.”

“Automatic tax hikes are undemocratic, uncompetitive and unaffordable and they need to stop,” Terrazzano said. “If politicians think Canadians aren’t paying enough tax, they should at least have the spine to vote on the tax increase.

“Poilievre is right to end the escalator tax and all party leaders should commit to making life more affordable for Canadian consumers and businesses by ending the undemocratic alcohol tax hikes.”

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