By Joseph Quesnel
Quebec’s Bill 21 – now passed into law and awaiting regulations – bans oil and natural gas exploration in the province and offers strategically worded and paltry compensation to resource companies operating in the province.
Resource companies say the government’s move will adversely impact future investment. They point out that at one point the province enthusiastically encouraged them to explore.
There are already American firms seeking to claim damages from the Canadian government for fair market compensation under the United States-Mexico-Canada Agreement (the new NAFTA).
These companies are guaranteed fair treatment if governments expropriate private investments. This Quebec law will almost certainly open our government to more claims of damage.
Quebec’s new law demonstrates the precarious nature of property rights are in Canada.
Its critics accurately describe Quebec’s law as akin to an expropriation. It is that, but it is more proper to refer to this action as a “regulatory taking.”
This is where a governing body creates a regulation that in effect reduces or even eliminates a property right but because it avoids the term expropriation it avoids that nasty compensation that would normally be due.
Governments often pass regulations that reduce property values. Compensation for all of them would bankrupt governments, but there are some moves that reduce property rights to such an extent that they ought to be compensated as outright expropriations.
These regulatory activities are often called de facto expropriations or more accurately called (and ironically because the term is used in the Quebec Civil Code) “disguised” expropriations.
In Canada, governments get around the presumption of compensation through laws and regulations – as they have done here in Quebec – that dimmish property rights but are not called appropriations.
This legal loophole, however, is handled differently in other countries. The Scandinavian countries, Germany, Israel, the Netherlands, and Poland, to name several, provide much broader rights to compensation in the event of direct and indirect takings.
Author and policy analyst Mark Milke in 2012 documented the problem of regulatory takings in his well-researched book Stealth Confiscation.
Property rights – like any rights – are not absolute or unlimited. Canada inherited a system that derived from old feudal relations where the Crown ultimately holds title to all lands and individuals are granted interests in land.
In 1909, one judge in Canada famously said, “The prohibition ‘Thou shalt not steal’ has no legal force upon the Sovereign Body.”
However, there is a common law presumption that governments will compensate in the event of an expropriation. The federal government and the provinces and territories all have laws dealing with direct expropriation. To limit liability, they limit when these laws are invoked.
This stands in contrast to the United States where the constitution’s fifth amendment guarantees fair compensation.
Quebec’s move extends beyond its own borders. Secure property rights are the foundation of economic activity as investors seek stable and predictable investments. Countries that politically interfere in private property rights scare away investment and economic opportunity.
This decision by Quebec will spook would-be investors in Quebec and may even cast a shadow over investment across Canada. Indeed, this move could damage Canada’s economic reputation. All Canadians should be alarmed by what has happened in Quebec.
The best course of action is for Quebec to reverse this ill-advised move. Quebec, Canada, and indeed the world need more reliable access to natural gas.
Natural gas produced in Canada is an environmentally sound “bridge” fuel that will only help Canada meets its carbon emission targets. European countries are begging Canada to provide stable natural gas to wean them off Russian sources.
While this move might make Quebec politicians and civil servants seem virtuous at cocktail parties, cutting off oil and gas from Quebec will only serve to increase imports of natural gas and oil from countries with more carbon intensities.
There is also evidence from credible polling that most Quebec residents prefer natural gas produced in their own province and some Indigenous leaders in the province have lambasted the province for failing to consult them on this extreme move.
However, short of doing the right thing and repealing this legislation immediately, Quebec politicians must minimize the economic repercussions by recognizing that this move functions as an expropriation and they must pay full market compensation to all resource companies that have spent so much time and resources in developing the province’s energy resources. This way, at a minimum, they are minimizing the harm caused by this blunder.
In this climate of hysteria over oil and natural gas, Canadians can expect that governments will take drastic steps against the resource sector.
Quebec’s move to imperil property rights and Canada’s economic reputation is one step in that direction. It needs to be reversed or at least the province must provide full compensation to reduce the damage.
Joseph Quesnel is an independent policy commentator on energy and Indigenous issues.