Fisheries Committee on June 12th, 2019

[The Chair, Liberal, Ken McDonald]

I call the meeting to order.

Pursuant to Standing Order 108(2), in our study of the implementation in Canada of a third party habitat banking framework, we have several witnesses here today. We have a couple by video conference and one in person.

By video conference we have Marian Weber, Professor, Department of Resource Economics and Environmental Sociology, University of Alberta. Welcome.

We also have, from Poulton Environmental Strategies Incorporated, Mr. David Poulton, Principal. He is here by video conference as well.

Here in person we have a witness who is well known to all of us Newfoundlanders anyway—and to people from the mainland, as we call it—the Honourable David Wells, Senator.

Thank you for being here, all three of you, by video conference and in person.

We'll begin with presentations by our witnesses. We'll go first to video conference. I'd like to get that out of the way first, in case there's a problem with the connection later.

Ms. Weber, when you're ready, please, you have seven minutes or less.

[Dr. Marian Weber, Adjunct Professor, Department of Resource Economics and Environmental Sociology, University of Alberta, As an Individual]

Thank you for inviting me to testify on the feasibility of third party habitat banking in Canada. I am a researcher at Alberta Innovates and an adjunct professor at the University of Alberta, and I am speaking independently.

Today I would like to outline key components of a framework for third party banking, first by providing a high-level summary of the history and benefits of third party banking; second, by illustrating desirable elements of a framework through two case studies, and finally, by summarizing lessons from these and implications for third party banking under Bill C-68.

First, here is a brief history of banking, which arose 40 years ago out of the U.S. Endangered Species Act and the U.S. Clean Water Act.

Wetland banking under the Clean Water Act identifies three mechanisms for offsets: permittee-responsible mitigation, third party banking and in-lieu fee mitigation. Since 2008, these options have been prioritized, with third party banks being the most preferred option, followed by in-lieu fee mitigation. Third party mitigation is preferred because of improved oversight and ecological outcomes.

Both in-lieu fee and banks are third party mechanisms. The difference is that for in-lieu fees, developers pay a fee to an agent and the development takes place prior to restoration. Banking is associated with up-front restoration, and credits are sold to companies prior to development. In-lieu fees can be preferred when there are few potential buyers, but they have also been criticized because of lack of accountability.

Alberta's wetland compensation program, prior to 2013, was an example of a poorly administered in-lieu fee program whereby charges for wetlands compensation were directed to Ducks Unlimited, with limited accountability in linking the payments to wetland losses and gains. The program was criticized by the Alberta auditor general and has since evolved to become more transparent.

The first case study I wish to highlight is the New South Wales Biodiversity Offsets Scheme. Under this scheme, biodiversity impacts from development are offset through permanent private land agreements. Prior to 2016, the offset scheme was known as BioBanking. BioBanking was a voluntary program that ran in parallel with regulated offsets. The Biodiversity Offsets Scheme combined both regulated and voluntary programs to leverage dollars and provide standardization and accountability.

The critical elements of the Biodiversity Offsets Scheme are the Biodiversity Conservation Trust and the biodiversity offset management system. The conservation trust is a statutory not-for-profit body that administers the in-lieu fee program. Its role is to deliver offsets through landowner agreements. The biodiversity offset management system sets standardized roles for registering and exchanging credits and includes a science-based online assessment tool that is used by both landowners and developers to assess credit obligations prior to entering agreements.

A unique aspect of the fisheries offsets is that many of the activities that cause harm to fish take place on public lands and are temporary in nature. Third party offsets would require some sort of disposition on public lands and in waterways.

These issues are considered in the second example, the U.S. lesser prairie chicken offset program, which is a multi-state program to improve habitat through a combination of permanent and temporary offset agreements. These range from five to 10 years in length.

The emphasis on mobile sites explicitly recognizes the temporary nature of many development projects in habitat enhancement activities. Credits are established under an umbrella of the range-wide conservation plan, which explicitly accounts for the dynamics of temporary and permanent activities over the next 50 years.

I would like to summarize by highlighting two lessons from these case studies.

The first is the need to establish an agency with appropriate oversight and accountability for administering the offset system. This agency should be accountable to regulators, but be at arm's length to ensure that there is no conflict of interest.

Second, both programs illustrate the importance of standardized systems and metrics applicable to all offsets, whether they are proponent-led, third party banks or in-lieu fees.

In conclusion, third party frameworks have been implemented in other jurisdictions and are feasible in Canada.

One concern I have under Bill C-68 offsets is that they are evaluated on a case-by-case basis, with proponents using different methods. I would urge the committee to consider the need for standardized administrative systems and assessment protocols within an umbrella of a fisheries conservation plan.

Enabling third party offsets is a critical element of a successful offset program. Leaving this off Bill C-68 could hamper the development of the necessary administrative infrastructure for a credible and efficient offset program for several years.

Thank you.

[The Chair, Liberal, Ken McDonald]

Thank you, Ms. Weber.

We'll now go to Mr. Poulton for seven minutes or less, please.

[David Poulton, Principal, Poulton Environmental Strategies Inc.]

Thank you, Mr. Chairman and members of the committee.

My name is David Poulton. I am the principal of Poulton Environmental Strategies Inc., a small consulting firm here in Calgary. I am also the director of the Alberta Land Institute, which is a land use policy research institute at the University of Alberta, and I am the executive director of the Alberta Association for Conservation Offsets, a multi-stakeholder forum for advancing offset thinking here in Alberta. I wish to make clear, though, that all my comments are my own individually, and not necessarily representative of the members of the groups that I am affiliated with or of the groups themselves.

Bill C-68, as originally presented, included provisions for banking arrangements whereby a development proponent could arrange to undertake conservation actions to produce habitat credits and then bank those credits for application against future offset obligations from future development plans. This is dealt with in proposed section 42.01, as I am sure the committee members are well aware.

This is known as first party banking, because the party that creates and banks the credits is the same as the party that ultimately uses them. It's also known as self-banking or, in some of the documents, as proponent banking.

First party banking has occurred selectively for several years under the existing Fisheries Act. It has been largely restricted to a few proponents with repetitive or ongoing projects that require a flow of offset measures. I expect that committee members are familiar with the report from SENES Consultants from a few years ago that reviewed those arrangements.

I have comments on banking generally and then third party banking, and some suggestions about how we might ease into this business. In my comments, I should make clear that I completely agree with everything that Dr. Weber has said with respect to the administration of banking, and I wouldn't want my comments to be seen to be detracting from what she said at all.

With respect to banking generally, it's generally acknowledged that it has three advantages over proponent-led offsets and also over in-lieu fees.

First, and what really distinguishes it, is that it allows for the development and maturation of offset measures prior to the corresponding development.

A common problem in offset arrangements is that there is a time lag between the negative impact of the development and the positive impact of the offsets. With banking, the offsets precede the development, and therefore the negative aspects can be minimized or even reversed. It also allows an opportunity, because it is done in advance, to ensure that the conservation measures are actually successful in achieving their goals, thereby mitigating the risk that there would be some failure in the offset measure when it is too late for any accounting for it in the development process.

Finally, because banking of banked offsets credits is pursued in a proactive way, it allows for an opportunity to match those actions with land use planning and species planning in order to pursue strategic priorities, something that may not happen if offset measures are pursued on an ad hoc basis, with developers each designing their own specific measures.

Let me turn now to third party banking.

The amendments that are currently under consideration would expand habitat banking to include third party bankers, those who do not intend to use the credits for development projects of their own. This opens the prospect of a community of professional fish habitat bank sponsors whose business model is based on the creation of fish habitat for the purposes of generating habitat credits for commercial sale. This could lend a community with both expertise and efficiency to the activity of habitat restoration, enhancement and creation.

Further, I believe it is the intention that there would potentially be several banks of credits available at any one time in a region, which would bring competition and market pressure on those habitat bankers to be cost-efficient and produce quality work.

In case you can't tell, I am certainly in favour of the amendments for creating the third party banking. I do understand, however, that the department is concerned with the extent of the policy and administrative infrastructure that third party banking may require. I'd like to offer a couple of suggestions in that regard.

Again, I endorse Dr. Weber's suggestion that there be an agency responsible for this, with standard metrics and so on, and I believe there may be some interim measures that we can take in the short term while we are developing that infrastructure.

However, even if full implementation is delayed, I think the passage of the amendments would be an important signal to the department and to the Government of Canada as a whole that habitat banking is a path worth following and that resources should be dedicated to developing it.

My first suggestion is that we look to the U.S. for guidance as to how a system might be developed. The United States has had a system of wetland banking in place for over 30 years, but it is important to note that during a lot of that time it was developed on an ad hoc and relatively informal basis. Indeed it was only formalized into a set of federal regulations in 2008. Prior to that, it developed largely on the basis of practices that were accepted informally in regional offices of the U.S. Army Corps of Engineers, and as those practices proliferated and greater dependence upon banking arrangements grew, the federal authorities thought it was important to provide uniform guidance in order to assure consistency across the system.

That example does indicate that this sort of activity can occur on a small scale and a relatively informal basis, providing that there is an acceptance of the notion that a habitat credit is a transferable asset and not something that is bound to a particular proponent or a particular project.

Second, I would suggest that we could start putting our toe into these waters—no pun intended—by allowing the first party bankers that currently exist or that are contemplated under the new legislation to transfer their credits to third parties. Those would be other developers in the region in which the first party bankers are operating, and those third parties would have a need for credits to mitigate and offset their own impact.

Why do I suggest this? The first party bankers that we either have or are contemplating are presumably established, sophisticated entities that are well known in their regions and that have an ongoing relationship with the Department of Fisheries and Oceans. As such, they are likely to be a source of information for those others in the region that may be looking to solve their fisheries challenges. We already have a process to certify their first party credits as being valid and bankable. That process exists, and may undergo further development. All we need then is to allow them to transfer credits, and conversely to accept transferred credits as valid when submitted for use by the third party recipients of the credits.

This relatively informal process would allow us to gain some initial knowledge as to where demand for credits may come from, how buyers and sellers can effectively connect, how transfers can be effected and what issues might arise with transferring credits. As those issues arise, we can indeed deal with them through a regulatory framework.

My understanding is that Port Metro Vancouver is currently the only first party bank that is allowed to transfer its credits. I don't know if that has ever actually been done, but it does indicate that there has been some contemplation of this model and that perhaps there may be some experience with it of which I'm not personally aware.

I just want to make a couple of remaining points here. One is that in creating third party banking, the legislation would effectively create transferable habitat credits as a new form of tradable asset, one whose value lies in its satisfaction of a regulatory offset requirement.

As Dr. Weber indicated, this carries with it certain expectations that the credit must be backed by some system that assures its performance environmentally and establishes some liability for ensuring that the performance is actually seen through.

Further, we need some clear system in order to establish when a credit actually comes into existence and when it is used and extinguished so that there is no fuzziness around what is and is not a valid credit.

Perhaps the best way to achieve this is through the use of a registry, an approach that is often used for intangible forms of property. Indeed, the legislation does provide for a registry of projects under the Fisheries Act. It does not specify that it would carry information with respect to banking and credits, but I think if it did, it would be a very valuable tool for validating the process.

With that, I think I will close my comments. I look forward to hearing from the committee in due course.

[The Chair, Liberal, Ken McDonald]

Thank you, Mr. Poulton.

We will go now to Senator Wells for seven minutes or less, please.

[Senator David Mark Wells, Senator, Newfoundland and Labrador, C]

Thank you, Chair.

Good afternoon, colleagues.

I want to start off by thanking the chair and the members of this committee for inviting me to speak here today about implementing third party habitat banking in the Canadian context.

This wasn't part of my speaking notes, but I think it's important that I am here not just as a senator who proposed amendments on third party habitat banking and had them accepted in the Senate. I have also appeared at the House fisheries committee before as a subject matter expert, and I have 35 years of experience in the fishery, managing fish processing plants. I was chief of staff at DFO, director of policy at DFO and author of more than 100 technical reports on the fishery. I have direct experience in habitat banking, and I am also a member of Canada's team in the delegation to NAFO.

As I'm sure you are aware, Bill C-68 recently passed in the Senate, with amendments to expand habitat banking to third parties, to introduce an offset payment system and to ensure habitat banking benefits remain local in comparison to a work, undertaking or activity.

I would like to use this opportunity today to urge your committee to recommend the passage of these amendments into law.

While I'm aware that your committee is simply exploring the possibility of implementing third party habitat banking sometime in the future, I want to make it very clear that Bill C-68 may be the only opportunity to get this done right and done within a reasonable period of time.

The Fisheries Act is one of Canada's oldest pieces of legislation, brought into force right after Confederation. When this act is changed, the process is quite lengthy, as we are seeing now with Bill C-68 and as we've seen with all other attempts to pass legislation regarding the Fisheries Act.

I think we all recognize and appreciate the complexities involved in establishing an effective third party habitat banking regime in Canada. Those complexities, though, colleagues, are not legislative; they are regulatory. The amendments to Bill C-68 only come into force upon proclamation of cabinet, and not with royal assent as they typically do. This would provide DFO and the relevant federal agencies the time to get it right so that nothing would be forced onto the Canadian public without it being ready, and I think that's an important point to make.

What the Senate is recommending with the habitat banking amendments is the early work involved in setting the stage for DFO to consult widely and bring in the proper regulations. This could take over a year, two years or five years—however long it takes to bring in a system that's based on international best practices and generates the best possible ecological and economic outcomes.

Third party habitat banking is not new. Other countries, including the United States, already have third party habitat banking systems in place. These systems work, and they work well.

The international debate on this topic is not about whether third party habitat banking should be permitted within a jurisdiction; it's about how regulations should be designed and administered.

The benefits of including third party groups in a habitat banking regime are substantial, and so are the costs of excluding these groups.

Expanding the habitat banking system would create an entirely new habitat banking economy that creates jobs, incentivizes innovation and encourages more and better environmental protection.

Not all proponents—and currently it's in the legislation that it would be just proponents—have the resources or knowledge to build a physical offset. Under a third party habitat banking system, as you have heard from the other witnesses, the proponents would be able to purchase a habitat credit instead of designing and building their own physical offset. The offset must still be created, but under third party habitat banking it could be created by a group with specific conservation expertise. The proponent would essentially be, in these cases, funding the construction of an improved physical offset. This would not replace the mitigation aspects required under the environmental protection aspect of any development.

Third party habitat banking is a win for industry and a win for the environment. Companies won't have to divert attention from the core aspects of their business and the jobs that come with it. All they have to do is buy the credit for the habitat bank established by a third party group and, of course, the mitigation required.

With a new market for the credits, there is an incentive for third parties to join the habitat banking program, thus leading to additional ecological protection.

Who are these third party groups? These third parties include, but aren't limited to, indigenous groups, conservation specialist groups like Ducks Unlimited, wetlands advocates, private sector firms and municipalities. All of those, colleagues, currently do not have the right to be part of the proponent protection. When we say that only a proponent can create a habitat bank, as Bill C-68 did before we amended it in the Senate, we are deliberately excluding groups that have direct experience protecting our environment.

These stakeholders all want to be on the front lines of habitat restoration and enhancement, and they should be. That's why the amendments I proposed at committee to expand habitat banking to third parties, which had broad support across all groups and caucuses in the Senate, also had broad and diverse stakeholder support. Environmental NGOs and industry groups like the Ontario Waterpower Association and the Canadian Ferry Association, for example, as well as first nations, municipalities, conservation authorities and provincial government agencies want to see the expansion of habitat banking to third parties become law. The Senate amendments in Bill C-68 regarding third party habitat banking are cross-partisan amendments, and they're reasonable amendments in terms of implementation, given DFO will have more than enough time to consult widely and bring the system into effect.

I also want to clarify something for the record. As I imagine many of you are aware, I voted against Bill C-68 at third reading in the Senate. I voted this way because there are other aspects of the bill entirely unrelated to habitat banking that I could not support. Bill C-68 is an omnibus fisheries bill, and as I said in my third-reading speech in the Senate, it should have been split into different bills dealing with substantially different elements of the Fisheries Act.

Colleagues, I'm pleased that we have the opportunity here today to discuss the positive changes now in the bill and how they can be implemented in Canada. Third party habitat banking is a perfect example of a private sector solution to environmental challenges. The system is funded by the private sector and executed by specialist groups in the field of environmental and ecological preservation.

I hope your committee, and indeed the entire House of Commons, will use this opportunity to enable the regulatory work to bring third party habitat banking into effect sooner rather than later.

Thank you.

[The Chair, Liberal, Ken McDonald]

Thank you, Senator Wells.

We'll now go to rounds of questioning, and we'll start with the government side. I understand Mr. Morrissey was going to go first, so we'll go now to the second one. Mr. Rogers, you have seven minutes or less, please.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you, Mr. Chair.

Dr. Poulton, I have a couple of questions around your presentation. Can you speak to other jurisdictions that we can learn from when it comes to habitat banking?

Also, I have a couple of follow-up questions. How long has it been in place in these jurisdictions? Can you also speak to some of the legislative complexities that go with habitat banking systems?

[David Poulton]

There's certainly been experience in several of the Australian states. As well, I'm familiar with systems in Europe. However, I have to admit that I haven't studied in detail the legislative arrangements that have enabled them.

The state I'm most familiar with, Victoria in Australia, put in place a banking system for native vegetation. It went through several iterations. Legislatively, it was quite simple. It was based on a policy that required permitting for any destruction of native vegetation, and the policy behind that permitting indicated a commitment to no net loss, much like our policy has done for several years with respect to fisheries. It then laid out a system for classifying different types of vegetation in different regions of Victoria, and for the development of credits among third parties and for trading among parties.

It has had various levels of performance as the system has been tweaked. In some ways it was overly complex early on, with very fine distinctions between different vegetation communities, leading to a number of very thin markets. Then a change of political winds there led to quite an expansion of the classification scheme. I'm not familiar with exactly how it turned out, but I did hear early critiques that it may be too broad—that it was designed to encourage large markets but may have been ecologically inappropriate.

I think that points to a key challenge in this endeavour: to get a system that is administered efficiently and encourages private sector participation, yet still upholds environmental standards. That is a tricky balance to find. There may not be immediate success in finding that balance immediately when designing a system, but I think that just speaks to the need for some ongoing review and improvement of the system. It should not deter us from exploring how to do it as well as is feasible at any one time.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

In the U.S. it seems to be a fairly complex process. Legislation on habitat banking there is in excess of 100 pages. How complex is that system compared to the Victoria one that you talk about?

[David Poulton]

With respect, sir, I don't think that's a fair comparison. The legislation in the U.S. is a set of regulations that covers the whole suite of offset tools and principles. It includes administration of in-lieu fees, proponent-led banking and so on, and a fair number of those 100 pages are commentary from the corps of engineers and from the Environmental Protection Agency on how it might be implemented.

The actual substance of the American system is—and I say this somewhat guardedly—reasonably streamlined, in that a party that wishes to sponsor a habitat bank makes an initial proposal to the corps of engineers outlining what they had in mind and where they intend to do it, including a budget and a business plan. That is reviewed by a multi-party committee. The committee—I forget the particular acronym—is a combination of the different agencies that may be impacted by the project.

There's essentially approval in principle given at that stage. A more detailed plan is called for, and then the implementation of that plan is monitored, with approval and accreditation given as different thresholds are met and different stages completed.

It's a system that seems to work. There are literally hundreds and hundreds of habitat banks under the U.S. fishery system, and they are selling credits on an ongoing basis. It does seem to work.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

I thank you for that comparison and clarification.

There have been concerns raised around jurisdictional issues as well. Who do you think is important to bring into the conversation in terms of indigenous groups and communities?

[David Poulton]

I think those are critical concerns in communities with respect to any development in this area. I think Senator Wells spoke to the opportunity that third party banking may create for municipalities and for indigenous groups. With any offset scheme, it's important that those communities, as stakeholders in the land, be closely consulted with respect to any change in land use, whether for economic benefits or environmental purposes, and that there be opportunities opened up for them to be involved and share in the benefits.

[Churence Rogers, Liberal, Bonavista—Burin—Trinity, NL]

Thank you.

[The Chair, Liberal, Ken McDonald]

Thank you, Mr. Rogers.

We will go to the Conservative side. We have Mr. Doherty for seven minutes or less, please.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Thank you, Mr. Chair.

Thank you to our guests.

Senator Wells, I'll direct my line of questioning to you.

Senator, knowing where we are with this bill and knowing that even prior to the Senate being finished with the amendments, the minister wrote to this committee and asked us to study third party banking, do you not find it ironic that we're sitting here today doing a study on it when we know that there's going to be time allocation on the bill tomorrow?

We know that the Liberals have now stripped out your habitat banking amendments. There was great work done by all sides on habitat banking. Do you not find it ironic that we're sitting here today?

[Senator David Mark Wells]

I'm here as a witness, so I don't want to get entirely political, but as much as it was ironic, it was disappointing, because third party habitat banking is a good idea. You've heard it from—

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Right.

[Senator David Mark Wells]

—our other witnesses, and we've heard it from stakeholder groups.

I'm unsure why. I have been part of the legislative process for a very long time, and not just as a senator but as a senior official at DFO who is knowledgeable about the industry. I know it takes a long time to get any legislation through the two chambers. There are the consultations and the other things that have to happen, and the legal review, obviously.

It's ironic maybe, but more than that, it's disappointing. There was an opportunity for first nations, for communities, for ecological conservation groups and for environmental groups that care about the environment and want to protect the environment, even through simple things like salmon ladders, but through the apparently deliberate rejection of these amendments, particularly on third party habitat banking, there was no respect given to those groups, and we all want to help the environment, especially in the natural resource industries.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

We have heard that the response to the habitat banking amendments that the Senate introduced was that they fall outside the scope of the bill.

[Senator David Mark Wells]

No. Actually, habitat banking is common in Canada. Our amendments regarding habitat banking were for third party habitat banking—first nations, conservation groups—which can only be described as a positive advance.

The other parts of the amendment were the offset, which were discussed, and finally the service area, whereby there was a defined region where the offsets could be used.

For instance, a mining project on the Avalon Peninsula in Newfoundland and Labrador would not be offset by ecological remediation in Saskatchewan. It would be as close as practicable to the area, ideally, and within the same province. Right now the service area is all of Canada, and I think that should be given some consideration.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Senator, one of the minister's responses to our questions regarding why the amendments were stripped out was that there would be jurisdictional challenges with respect to the habitat banking. How do you respond to that?

[Senator David Mark Wells]

Jurisdictional challenge occurs if something is being forced on a jurisdiction by another jurisdiction.

I think in any development where there is a benefit to the environment, where there are jobs created, where there is facilitation of a project that might involve a mining company or an agricultural project or forestry, no one would be forced to accept ecological remediation. If I were mayor of a town, I would welcome it. I would welcome the jobs. I would welcome the development of the wetlands or the establishment of a fish ladder in a river system, big time.

[Todd Doherty, Conservative, Cariboo—Prince George, BC]

Mr. Poulton, you mentioned first party habitat banking and certain groups in your presentation. Would that be Ducks Unlimited, or who would be a first party?

[David Poulton]

My understanding is that it generally is government agencies, such as transportation agencies or others.