A key factor related to economic development in the northern territories is the concept of governance, which encompasses many forms and involves many stakeholders. For the purposes of this report, in accordance with witness testimony, the concept of governance includes comprehensive land claim and self-government agreements, regulatory regimes, devolution, resource revenue sharing and fiscal arrangements among federal, territorial and Aboriginal governments in the territories.

8.1       Comprehensive Land Claims and Self-Government Agreements

Control of decision-making is essential to economic development. When a body outside of an Indigenous nation makes the decisions, economic development does not work

Steve Nitah, Chief of the Lutsel K’e Dene First Nation, Akaitcho Treaty 8 Dene

Comprehensive land claims are negotiated in areas where Aboriginal land rights have not been addressed by previous treaties or through any other legal means. These modern treaties define a government-to-government relationship between the Aboriginal signatory, the relevant territorial government, and the Government of Canada. They are intended to improve the social, cultural, political and economic well-being of Aboriginal people, while providing all signatories a mutual foundation for the beneficial and sustainable development and use of Aboriginal peoples’ traditional lands and resources.

8.1.1   Establishment Issues

The development of a modern land claims policy in Canada began with a landmark decision in the Calder case in 1973, in which the Supreme Court of Canada acknowledged the existence of Aboriginal title in Canadian law. Existing Aboriginal and treaty rights of Aboriginal peoples were subsequently recognized and affirmed under section 35 of the Constitution Act, 1982, which was amended in 1983 to explicitly confirm that this protection extends to modern land claim agreements.[162]

Self-government agreements allow for power-sharing arrangements between territorial, federal, and Aboriginal governments in law making and administration of human services. These agreements recognize the jurisdiction of Aboriginal governments over such things as education, health, justice, and social services.[163] Although not specifically recognized in the Constitution, since 1995 federal policy has generally recognized an inherent right of Aboriginal self-government as an existing section 35 right. Under the federal policy, negotiated self-government rights can attain section 35 protection as treaty rights in new treaties, as part of comprehensive land claim agreements or as additions to existing treaties, but might also be implemented in other, non-treaty forms. The federal policy outlined differing approaches to self-government for First Nations, Inuit and Métis, stipulating that provincial/territorial governments must be parties to agreements in which subject matters addressed fall within their jurisdiction.[164]

Since comprehensive land claim agreements and self-government agreements set out governance rights including matters such as the ownership of land and resource rights, they are therefore important to economic development. They can help to provide a level of certainty and predictability for business, industry, communities and governments. Almost all land in the northern territories either lies within the boundaries of settled land claims or is the subject of ongoing negotiations.

Currently, a total of 16 comprehensive claims have been settled in the northern territories, which include (see Table C-2, Appendix C for more details on each of these agreements):

• 1984 Inuvialuit Final Agreement, west Arctic;
• 1992 Gwich’in Comprehensive Land Claim Agreement, northwest NWT and northeast Yukon;
• 1993 Nunavut Land Claims Agreement, east Arctic;
• 1993 Council for Yukon Indians Umbrella Final Agreement, through which 11 of 14 Indian bands have settled agreements;
• 1994 Sahtu Dene and Métis Land Claim Agreement, Mackenzie Valley, NWT; and
• 2003 Tlicho Land Claim and Self-Government Agreement, North Slave region, NWT.

Figure 8.1: Modern Treaties in Canada[165]

Although land claims agreements have been concluded with the majority of Aboriginal peoples in the northern territories, these agreements have resulted in differing degrees of control and types of arrangements among the federal, territorial and Aboriginal governments. In general, the agreements have involved some measure of relinquishing of their title or claim to certain portions of the traditional lands by the affected Aboriginal communities, in return for which the federal government provides cash compensation and other provisions related to the following issues:

• Ownership and use of lands, waters and natural resources including the subsurface;
• Management of land, waters, and natural resources, including fish and wildlife;
• Harvesting of fish and wildlife;
• Environmental protection and assessment;
• Economic development;
• Employment;
• Government contracting;
• Capital transfers;
• Royalties from resource development;
• Impact benefit agreements;
• Parks and conservation areas;
• Social and cultural enhancement;
• The continuing application of Aboriginal and other programming and funds; and
• In some cases, self-government and public government arrangements.

The degree to which comprehensive land claim agreements have been established, and the circumstances under which they have been negotiated, differs within each land claim region, however.

In Yukon, the territorial government has assumed most province-like powers, including control over the use of its lands and resources, and most First Nations in Yukon have acquired self-governing powers that serve to facilitate economic development on their lands. In particular, First Nations in Yukon that are self-governing have the authority of municipalities, with many of the powers of the territorial Government of Yukon, including: ownership of and jurisdiction over settlement lands and residents; authority over culture, heritage and social services; direct involvement in decision-making through resource management boards, in most cases with 50% representation; and taxation powers over occupants of settlement lands.[166]

In comparison with First Nations in Yukon, many governance issues remain to be resolved for First Nations and Métis in NWT. While Yukon land claim settlements were achieved though a single Umbrella Final Agreement, which served to streamline the settlement process for First Nations in Yukon, a single agreement was not reached among First Nations and Métis peoples in NWT. The federal government accepted claims from the Dene (1976) and Métis (1977) on the condition that a single settlement would be negotiated, which led to a final agreement being drafted but not accepted by the Dene/Métis. Since a NWT-wide process was not feasible, the federal government agreed to negotiate on a regional basis. The Gwich'in, Sahtu and Tlicho have all settled their regional claims, while negotiations with the Akaitcho, Dehcho and Northwest Territory Métis Nation are currently ongoing.[167]

For the Inuvialuit and the Inuit of Nunavut, although comprehensive land claims agreements have been signed, neither community has a self-government arrangement, such that they are not involved in law making or the administration of human services on their lands through the establishment of their respective land claims alone. Although the Inuvialuit Final Agreement and the Nunavut Land Claim Agreement differ in many ways, they both share similar fundamental components[168]—in addition to cash payments to their representative corporations (i.e. presently known as Inuvialuit Regional Corporation and Nunavut Tunngavik Incorporated, respectively[169]), the federal government specifically granted the following rights and benefits to these representative corporations:

• Ownership of large tracts of land through fee simple title[170], with subsurface rights on a small portion of these lands;
• Hunting, fishing and trapping rights;
• Participation in co-management boards with jurisdiction over wildlife and the environment;
• Several other benefits common to these types of agreements, such as mineral royalties, preferential hiring in government, and involvement in national parks.

As stated in a 2009 study by the Institute for Research on Public Policy (IRPP), the lack of comprehensive land claims agreements that provide for self-government in the North stems from “a long-standing preference [on the part of the territorial and federal governments] for public rather than Aboriginal governments at the local and regional levels,”[171] such that governance responsibilities would be shared among local residents in general, both Aboriginal and non-Aboriginal. The 2009 IRPP study notes, however, that a framework for self-government based on developments in Yukon is beginning to emerge in more recent self-government negotiations, in which “the agreement is made with rights holders rather than government-defined aggregations,” such that public government would be limited to an administrative concept rather than a legal governing authority. The single comprehensive land claim agreement outside of Yukon that includes a self-government agreement—the 2003 Tlicho Land Claim and Self-Government Agreement in NWT—serves as an illustration; as the 2009 IRPP study notes, “The Tlicho agreement has residual public government dimensions, but it too reverts to the principle that the First Nations government controls the decisions of the new community governments.”[172]

During the Committee’s study of the issue, many witnesses provided comments on the economic benefits for northern communities through the settlement of comprehensive land claims. Although a recent audit of land claim agreements in NWT by the Auditor General of Canada found that federal government efforts to settle land claim and self-government agreements represent a significant achievement and an important step towards sustainable and balanced development, the conclusion was drawn that “much remains to be done” to resolve outstanding claims and fully establish self-government agreements.[173]

This audit also provides evidence on the impact that settled land claims can have on the prospects for economic development in the North. The Auditor General’s report stated that:

Agreements with Aboriginal peoples setting out governance rights and the ownership of land and resource rights are important for environmental protection and economic development because they help provide a level of certainty and predictability for business, industry, communities, and governments.[174]

As Ronnie Campbell, Assistant Auditor General, mentioned in his testimony to the Committee regarding applications for development projects in NWT:

In areas where there was no land claim settlement, there were a considerable number of applications referred to the crown for additional consultation, which I think reflected the fact that aboriginal groups did not feel that they had been properly consulted. We compared that with areas where there had been a land claim settled, and we found that in none of those cases did they have to be further referred for consultation.[175]

The general consensus expressed by witnesses before the Committee who commented on the issue of land claims, was that the settlement of land claims was beneficial for northerners as it sets the stage for economic development to occur. For example:

• Hugh Wilson, of Tyhee Development Corporation, states that, although land claims do not solve all problems, they make negotiation and cooperation easier, as can be seen in the case of Nunavut with the Nunavut Land Claims Agreement.[176]
• Donald Balsillie, of Dezé Energy Corporation states that, in relation to the land claims settlement process in NWT, “if people knew the rules and the road map, it would be a lot quicker and fewer costs would be associated with that.”[177]
• Steve Nitah, Chief of the Lutsel K’e Dene First Nation, Akaitcho Treaty 8 Dene, mentions that, in relation to a withdrawal of land “[t]here is an opportunity to have an economic project on some of the withdrawn lands. In the three years since the withdrawal, we have not been able to take advantage of this unique feature, since we are unable to get an interim economic package from the federal government, which we were negotiating as a companion to this withdrawal.”[178]

To help expedite economic development, Floyd Roland, the Premier of NWT, states that what is needed is “a comprehensive plan for the NWT, one that is developed by northerners and supported by Canada,... [including] the negotiation of government systems through land, resources, and self-government agreements.”[179]

Given the overwhelming evidence provided to the Committee on the benefits that settled comprehensive land claims and self-government agreements can have in facilitating economic development, the Committee recommends:

Recommendation 22:

That the Government of Canada work in partnership with Aboriginal organizations, territorial governments, and federal departments and agencies to expedite the resolution of all outstanding land claims and self-government agreements in the northern territories.

The 2010 Spring Report of the Auditor General also reveals a key issue in terms of federal government funding to Aboriginal governments in support of their efforts to achieve self-government. In her testimony to the Committee, Sheila Fraser, Auditor General of Canada found that:

On average, the agreements we looked at were signed more than six months after the beginning of the fiscal year, and several were signed in the last month before the agreement expired. Officials told us that this situation has resulted in overdraft charges and penalties, damaged business relationships, delays in meeting payroll, and the loss of experienced staff. These issues can affect First Nations' ability to participate in negotiations... For us, the solution to all of this consists of multi-year [funding] agreements.[180]

In communities that have not yet settled their land claim agreements, to resolve this issue, the Committee agrees with the findings of the Auditor General that the establishment of mechanisms such as multi-year funding arrangements is required to support Aboriginal communities in their efforts to negotiate self-government agreements, and therefore recommends:

Recommendation 23:

That the Government of Canada identify and implement mechanisms, such as multi-year funding for contribution agreements, where possible, to ensure timely and adequate funding for the activities of Aboriginal communities in relation to their negotiations on self-government.

8.1.2 Implementation Issues

It has been proposed by Aboriginal signatories to comprehensive land claim agreements, as well as other bodies that, although the federal government has fulfilled the letter of the existing comprehensive land claim agreements with respect to the transfer of funds and the recognition of rights to land to the Aboriginal signatories, the spirit of the objectives specified in the agreements have not yet been reached:

• In 1998, the Auditor General issued a report critical of the federal role in land claim implementation on various counts;[181] while a second report in 2003 observed ongoing shortcomings in the government’s implementation practices with respect to the Gwich’in and Nunavut agreements.[182] It cautioned against unresolved disagreements over treaty interpretation or implementation.
• Aboriginal signatory groups in Canada formed the Land Claims Agreements Coalition in 2003 to advocate for improved implementation policies and practices.
• In May 2008, a report of the Standing Senate Committee on Aboriginal Peoples recommended a number of reforms to federal implementation policy and practice, including greater collaboration with the Land Claims Agreements Coalition.[183]

This view is also shared by many witnesses who appeared before the Committee during the course of its study. For example:

• Darrell Beaulieu, of the Northern Aboriginal Business Association, stated that “one of the issues [The Land Claims Agreement Coalition] bring up is that the Gwich’in and the Sahtu [sic] and the Tlicho have finalized their agreements, but they're not fully implemented to benefit them as they understood they would when they were negotiating.”[184]
• Belinda Webb, of Inuit Tapiriit Kanatami, suggested that a collaborative approach is necessary in order to fulfill the spirit and intent of land claims agreements: “all key areas of responsibility within Inuit Nunangat agreements, such as wildlife management, land use planning, environmental assessment, and project review regimes, are based on principles of co-management.[185]

There has been a general recognition among all parties to the agreements that further efforts are needed in order to rectify the shortcomings in land claims agreement implementation. For example, in February 2009 INAC released an internal impact evaluation on comprehensive land claim agreements, which recommended that:

In partnership with Aboriginal organizations and other federal departments and agencies, consider leading the establishment of a policy for the implementation of comprehensive land claims which would clarify roles and responsibilities and the federal approach to implementing CLCAs.[186]

As well, in March 2009 the Land Claims Agreement Coalition released a model treaty implementation policy, stating that:

The core commitment of this policy is that the Government of Canada will work with Aboriginal signatories to ensure that each modern treaty is fully implemented consistent with its spirit and intent, the developmental objectives of treaty-making in Canada, and the honour of the Crown.[187]

Given the general recognition that a collaborative approach is needed to resolve issues among all parties in relation to comprehensive land claim agreements, the Committee therefore recommends:

Recommendation 24:

That the Government of Canada, working in partnership with relevant organizations, which could include the Land Claims Agreement Coalition, outline concrete steps to resolve implementation issues, and seek to provide adequate resources to ensure effective transition and on-going implementation, to the agreement of all parties.

The following sections describe some of the more significant issues raised by witnesses before the Committee in relation to governance and the implementation of land claims agreements. Implementation issues not strictly related to governance (i.e. general economic development, skills development and labour market outcomes, health, and support for Aboriginal business) are dealt with in other sections of this report.

8.1.3   Impact Benefit Agreements (IBAs)

According to the National Aboriginal Health Organization, an IBA is defined as “a confidential agreement negotiated in the context of resource development between a company, the relevant provincial or territorial government and affected [Aboriginal] organizations.”[188] Its main purpose is to establish the terms under which Aboriginal people will benefit from a development project. An IBA can focus on either specific economic benefits, or it can refer to broader socio-economic and environmental aspects, such as capacity building, Aboriginal traditions, or concerns related to minimizing the ecological impact of development projects.[189]

One of the main concerns expressed by witnesses in relation to IBAs was the lack of conformity in its provisions, and the role to be played by each party of the agreement to fulfill these provisions. Industry representatives also point to a lack of transparency with respect to benefit arrangements as an explanation for the difficulties they have when promoting a given project to northern communities, as these agreements are confidential to the parties involved with the agreement. As Mike Peters, of the Canadian Association of Petroleum Producers, stated:

Communities are not always well informed on the full range of benefits, and this leads to circuitous discussions and escalation of demand.[190]

To resolve the issue of clarity in roles and responsibilities for governments, industry, Aboriginal organizations, and the general public, Hugh Wilson, of Tyhee Development Corporation, suggested that the federal government develop a policy that would serve as a roadmap to guide all parties through the development of an appropriate IBA arrangement.[191]

The Committee is in general agreement of the need to clarify roles and responsibilities for the purposes of arriving at effective implementation of IBAs in the development process. The Committee therefore recommends:

Recommendation 25:

That the Government of Canada work with Aboriginal organizations and industry to develop a template for the development of effective Impact Benefit Agreements, which could include a clarification of the roles and responsibilities of the parties.

8.1.4   Dispute Resolution Mechanisms

Comprehensive land claim agreements in the North include chapters that specifically identify a range of processes that would resolve disputes among parties when they arise. These mechanisms include arbitration panels with the authority to make binding decisions. With the exception of the Inuvialuit Final Agreement, the consent of each affected party is required to refer disputes to arbitration.

Many witnesses from the business sector appearing before the Committee noted that, in relation to land claim implementation, there is a lack of clarity in what the requirements are for Aboriginal consultation prior to establishing a development proposal. Many witnesses, such as Hugh Wilson, of Tyhee Development Corporation, state that this lack of clarity leads to increased disagreement and conflict among all parties involved.[192]

As well, other industry representatives mentioned that, when disputes arise through the process of negotiating an agreement for a development proposal, due to a lack of an effective dispute resolution mechanism, often applicants have no other option than to make concessions so that the project can be approved. In particular, Mike Peters, of the Canadian Association for Petroleum Producers mentioned that:

Dispute resolution was provided for in the land claims settlements in the Mackenzie Valley, but no such mechanism has been introduced.[193]

A 2008 study by the Standing Senate Committee on Aboriginal Peoples examined the lack of a commitment by the federal government to resolving impasses over funding and other implementation matters, stating that the federal government’s lack of referring disputes to arbitration has undermined the renewed relationships that treaties sought to establish:

Aboriginal signatories are left with no meaningful recourse to the arbitration mechanisms available to them under their Agreements, and, as a result, forces disputes to the courts.[194]

The views expressed by witnesses before this Committee, as well as the examination by the Standing Senate Committee on Aboriginal Peoples, is supported by statements made by the Office of the Auditor General of Canada. In relation to dispute resolution mechanisms, a 2003 report stated:

Our review of the work of the arbitration panels found that no cases had come before them since the claims were settled over 10 years ago. Yet disputes continue to remain unresolved. Furthermore, if it is true that Canada cannot agree to be bound by a decision of a third party on funding matters, then any money dispute can never be resolved through arbitration. Therefore any belief that arbitration is there to resolve money-related disputes, and make land claims work more effectively, is an illusion.[195]

Given the evidence presented above, the Committee believes that in cases where disputes arise in the implementation of treaties, resolution must be found through appropriate alternative dispute resolution mechanisms, including through such means as mediation and arbitration. To help inform all parties in their efforts to streamline development projects and minimize conflicts, the Committee believes that it is necessary for the federal government to develop and implement a formal dispute resolution mechanism, in accordance with provisions in the land claims agreements. The Committee therefore recommends:

Recommendation 26:

That the Government of Canada work with Aboriginal peoples and northern industry to ensure that a formal dispute resolution mechanism is established prior to the submission of a development proposal in the northern territories.

8.1.5   Procurement in the North

Comprehensive land claim agreements often contain provisions for economic development that oblige Canada to conduct procurement, or the purchase of goods, services or construction, in such a way that is fair, transparent, and opens the bidding process to Aboriginal groups in comprehensive land claim agreement areas.

In relation to contracting requirements under the comprehensive land claim agreements, the federal government’s Procurement Strategy for Aboriginal Business (PSAB) is meant to: “stimulate Aboriginal business development; and increase the number of Aboriginal firms competing for and winning federal contracts.”[196] The PSAB seeks to achieve greater participation by Aboriginal businesses in federal contracting through several means, such as supplier development activities[197] and mandatory and voluntary set-asides, which generally limit public bidding on federal government contracts to Aboriginal businesses.

Through various internal evaluation studies by the federal government, it is generally recognized that the PSAB is an underutilized tool for growing Aboriginal business.[198] This view is validated by the comments of various witnesses that appeared before the Committee. In general, witnesses stated that, as the PSAB is a set of voluntary guidelines, there is a lack of commitment by the federal government to actively promote and pursue increased involvement in federal contracts by Aboriginal businesses.
For instance, Nicole Sikma, of Arctic Cooperatives Limited, stated that: “INAC, the department responsible for the program, does not adhere to the policy.”[199]

In relation to Article 24 of the Nunavut Land Claims Agreement, which states in general that the Government of Canada must develop Aboriginal procurement policies for all contracting in Nunavut,[200] Paul Kaludjak, of Nunavut Tunngavik Incorporated, referred to an issue related to preference for southern, non-Aboriginal businesses:

We're constantly impacted by southern contractors. On many occasions, the local contractor loses out, because they failed to be recognized by the policy of the land claims agreement... If you're going to do business in Nunavut, [southern business] have a 21% advantage over a contract review at any time...[201]

A 2007 report by the Office of the Auditor General, on the Inuvialuit Final Agreement, provided support for the view that, despite the PSAB, Aboriginal businesses continue to be at a disadvantage in opportunities for federal contracting.[202] The audit focused on Section 16 of the Agreement, which obligates federal organizations to inform the Inuvialuit of contracts being offered for tender, and includes provisions for the preference of their Inuvialuit businesses during the bidding and evaluation process. The audit found that there was a lack of communication of the contracting obligations across federal government departments, little guidance on how departments should fulfill these obligations, and a lack of monitoring for compliance.

Some possible reasons to explain the preference of southern businesses for federal contracting in the North was offered by testimony by Tony Butler, of Pan Arctic Inuit Logistics Corporation. Mr. Butler offers two main reasons in relation to the federal government’s bidding process:[203]

• Bid evaluation: Firms that invest time, money, and effort to meet or exceed their Aboriginal employment commitments are judged on an equal footing with firms that do not, since bidders' past performance in achieving their aboriginal benefits targets are assessed solely on whether or not there is an outcome, not on whether the outcome was a success or a failure—this encourages firms to make significant commitments when bidding, without any concern towards meeting those commitments, and this fact reduces the incentives for firms to invest in developing meaningful Inuit participation of lasting benefit.
• Awareness of opportunities: As some crown agencies and federal initiatives are not subject to the procurement review process, obligations under the land claims may not be considered or may be considered too late in the process, thus making Inuit procurement less likely, and more difficult for the Inuit to mount timely efforts to establish partnerships or joint ventures.

To remedy this situation, Mr. Butler stated that, through the evaluation process of selecting a bidder, the federal government needs to apply a graduated approach to evaluating past performance to account for degrees of success, including a mechanism to evaluate both quantitative and qualitative results, and to establish lead time in the bidding process to allow for the development of corporate capacity within Aboriginal businesses.[204]

Although the federal government has taken some positive steps in resolving the issues highlighted above, especially those in its responses to the findings of the Auditor General of Canada, evidence presented to the Committee strongly suggests that there continues to be a lack of success in the procurement of Aboriginal businesses in the North. The Committee therefore makes the following recommendation:

Recommendation 27:

That the Government of Canada work to enhance its current contracting policy to more effectively award contracts to businesses that achieve their Aboriginal benefits targets, as provided under the relevant land claim agreements, and provide more lead time in the bidding process to allow better preparation by northern businesses.

8.2       Overview of Regulatory Regimes in the North

To attempt to achieve an efficient regulatory regime without a land use plan in place is to my mind probably impossible.[205]

Robert Overvold, Sahtu Land Use Planning Board

The regulatory systems in the North were developed to ensure the responsible management of the region’s significant renewable and non-renewable resources. They were created from the settlement of comprehensive land claim agreements in Yukon, NWT and Nunavut. Termed under the land claims agreements as “Institutions of Public Government”, as they are open to Aboriginal and non-Aboriginal membership, many regulatory bodies have been established based on these agreements. These regulatory bodies—which are co-managed among Aboriginal, territorial and federal governments—provide for the protection of heritage resources, the management of hunting/harvesting, land use planning, environmental assessment and land and water management (see Table 8.1 for a list of the various boards in the northern territories).

Table 8.1: Land and Resource Boards in the Northern Territories (selected)

Source: Adapted from Neil McCrank, Road to Improvement: The Review of the Regulatory Systems Across the North, Report to the Honourable Chuck Strahl, Minister of Indian Affairs and Northern Development, by the Minister’s Special Representative, May 2008, Table 1.

Although there are many complicating factors and differences in treatment across settlement region, for illustration purposes, a simplified representation of the regulatory process in the northern territories can be presented in the following manner:

1. Proponent and regulator determine if an assessment is required by law.
2. Proponent submits the proposal to the advisory board.
3. Advisory board reviews the proposal to ensure that enough information is included to conduct an assessment.
4. Advisory board begins the assessment and gathers and reviews relevant information from the public, governments, experts in the field, and other stakeholders that have a vested interest in the proposed activity.
5. After taking into account all available information, the advisory board determines potential environmental and socio-economic effects of proposed project, and provides a recommendation to relevant regulatory board, and ultimately to final decision-making bodies at the federal, territorial and Aboriginal government level.
6. Regulatory bodies review the advisory board’s recommendation, and either accept/reject/amend the proposal.

Any disputes that occur in terms of a project proposal may be forwarded to the respective dispute resolution board in each settlement region, where applicable (as shown in Table 8.1).

Each region in the northern territories has unique circumstances and institutional development issues to address. As regulatory systems in each territory have evolved independently, differences exist in the roles and authorities attributed to each regulatory body. Under the Inuvialuit Final Agreement, for example, separate boards exist for fish and game, while in Nunavut one board has jurisdiction over both.[206] Similarly, Nunavut, Yukon and the Inuvialuit region each have boards dealing solely with water issues, while in the Mackenzie Valley land and water management are combined into single boards. Other differences exist for the legal foundations of these boards, in terms of their structure and mandate. Added to these varying roles and structures is uncertainty in terms of how these arrangements may evolve further along with the transfer of responsibilities for land and resource management through further land claims settlements with Aboriginal governments and devolution agreements between the federal, territorial and Aboriginal governments. The following provides an overview of the regulatory regimes in place in each territory.[207]

Yukon[208]

In comparison with regulatory regimes in other territories, the process in Yukon is deemed to be relatively streamlined. This is made possible through several factors—a single comprehensive land claim agreement that covers essentially the entire territory (i.e. the Umbrella Final Agreement), devolution of decision-making responsibilities for land and natural resource use from the federal government to the Yukon territorial government, except in cases where development is to occur across political boundaries, and a single regulatory body for conducting assessments (i.e. Yukon Environmental and Socio-economic Assessment Board (YESAB)).

Chapter 12 of the Umbrella Final Agreement and Yukon First Nation Final Agreements called for the establishment, through federal legislation, of an assessment process that would apply on all lands within Yukon: federal, territorial, First Nation and private. The Council of Yukon First Nations (CYFN) and the Yukon Government agreed to work with the Government of Canada to establish a unique development assessment process for Yukon; the Yukon Environmental and Socio-economic Assessment Act (YESAA).

An assessment under YESAA is required when a project activity is listed in the regulations and requires a permit or authorization, when there is a transfer of land, or if the project utilizes federal funding. The assessment process is initiated when an individual or organization submits a project proposal to YESAB. Once the proposal is received, assessors look at the potential environmental and socio-economic effects of proposed activities by gathering and analyzing relevant information. The assessor then recommends under what conditions the project should proceed, if at all. The recommendation is then submitted to the relevant decision bodies, which can be federal, territorial and/or First Nation governments. The decision bodies make a final determination on whether to accept, reject or vary the YESAB recommendation.

NWT[209]

In the Mackenzie Valley region of NWT, environmental considerations and the issuing of licences and permits fall under the Mackenzie Valley Resource Management Act (MVRMA), the Sahtu and Gwich'in land claims legislation, and the Tlicho agreement of 2005. The MVRMA was originally created to meet a federal obligation under the Sahtu and Gwich'in land claim agreements and implementing legislation. It called for the creation of public boards to manage the application process for the development of renewable and non-renewable resources in the Mackenzie Valley.

The application for non-renewable resources development begins when a developer applies to an MVRMA-created board for a land use permit and/or water licence. Once an application is received, several organizations become involved.

• The MVRMA assigns to the Minister of Indian Affairs and Northern Development (IAND) several responsibilities for resource management in the Mackenzie Valley. These include operational and governance responsibilities. At the operational level, responsibilities include adopting, with or without modifications, or rejecting recommendations of the Mackenzie Valley Environmental Impact Review Board (MVEIRB), as well as approving water licences issued by the land and water boards for larger projects.[210]
• Gwich'in, Sahtu, and Mackenzie Valley land and water boards. These federally created boards are responsible for regulating the use of land and water and the deposit of waste in the Mackenzie Valley. The boards receive applications for the land permits and/or water licences needed before such projects can proceed. If a project is limited to Gwich'in or Sahtu land, the board for the region in question manages the application process. If the project crosses boundaries or is on land not covered by a settled land claim, the Mackenzie Valley Land and Water Board is responsible.
• Gwich'in and Sahtu land use planning boards, which ensure that the application complies with the land use plan for the area responsible for preparing land use plans.
• Before the land and water board can proceed with an application, it must notify any organization or individual affected by the proposal. This could include any number of federal and territorial organizations and local governments, as well as land claim settlement organizations.

The steps in the approval or rejection of an application for a permit or licence as set out in the MVRMA are similar to steps 1 to 6 outlined above. This process involves four boards: the Mackenzie Valley Land and Water Board; its two panels, the Gwich'in Land and Water Board, the Sahtu Land and Water Board; and the MVEIRB.

On completing an environmental assessment, the MVEIRB will determine whether the project is likely to have a significant adverse impact on the environment or to be the cause of significant public concern.

The course of action open to the minister upon receiving a report from the MVEIRB is limited. He or she can adopt the recommendations, refer them back to the board for further consideration, reject them, or after consulting the MVEIRB, adopt the recommendation with modifications. The minister cannot modify the recommendations without consulting the MVEIRB.

Under the Inuvialuit Final Agreement, the process of conducting a regulatory review follows a similar pattern as for the Mackenzie valley. In general, two committees were created to consider the environmental impacts of most types of proposed developments, ranging from the Mackenzie Gas Project to the commercial filming of grizzly bears and caribou in Ivvavik National Park. The Environmental Impact Screening Committee (the Screening Committee) screens proposed development projects within the region for their impact on the environment and wildlife. When the Screening Committee determines that a full environmental review of a proposed development is warranted, these can be referred to the Environmental Impact Review Board, also created under the agreement. Both the Screening Committee and the Environmental Impact Review Board are made up of equal numbers of appointees from the Inuvialuit and the federal government.

The agreement also provides for two wildlife management advisory councils, one for the North Slope, in the Yukon, and the other for the Region's lands in the Northwest Territories. The councils’ role is to provide advice concerning the state of the Region’s wildlife and natural habitat.

Overall, due to the varying land claim jurisdictions and lack of settled land claims across many regions, the regulatory system in NWT is considered to be the most complex of the three northern territories, especially when project proposals cut across jurisdictional boundaries, either within NWT or across territorial or provincial boundaries.

Nunavut

Through articles 5.2.1 and 10.1.1 of the Nunavut Land Claims Agreement, a system was established for issuing land use permits and water licences, and a process was developed for dealing with environmental concerns. This system includes relatively clear provisions for the regulatory process, establishment of timelines, reporting responsibilities, and dispute mechanisms.

As with the Umbrella Final Agreement in Yukon, Nunavut has one settled land claim agreement, although it is more integrated than in Yukon since there are no outstanding agreements to be finalized in any particular settlement region.[211]

The NLCA provides for the screening of project proposals to: determine whether or not a review is required; gauge and define the extent of the regional impact of a project; review the ecological and socio-economic impacts of proposals; determine whether proposals should proceed, and if so, under what terms and conditions; and monitor projects as they proceed.

Overall, the regulatory system in Nunavut is considered to be challenged in comparison to its counterpart in Yukon, as there is currently no central land use plan. Although there are regional land use plans for the Kivalliq and North Baffin regions of Nunavut, the Nunavut Planning Commission states that they “are old and largely obsolete.”[212]

The following section presents some of the major concerns expressed by witnesses before the Committee in relation to the current regulatory process in the northern territories, along with their suggestions on how the federal government could address these concerns.

8.2.1   Regulatory Process

Although the current regulatory process in the northern territories has developed in a manner that helps to ensure a balanced approach to economic development and environmental protection, it is generally viewed by project proponents and other stakeholders as in need of substantial improvements to better address the economic development potential of the northern territories, especially in NWT where multiple layers of approval exist, and in which competing demands often make the system inefficient and cumbersome.

In light of these concerns, the federal government announced the Northern Regulatory Improvement Initiative (NRII) on November 7, 2007.[213] The objective of the NRII, which was developed through a April 1, 2007 Cabinet directive on Streamlining Regulation, is to “initiate the establishment of Canada as a best-in-class regulator, based on the concepts of efficiency and effectiveness.”[214] To achieve this goal, the Cabinet directive further states that “regulators will be directed to improve timelines by focusing resources on larger, more significant regulatory proposals while holding the government accountable and ensuring the safety of Canadians.”[215]

The NRII has two main goals: in the short and long term, operational-level improvements to areas of federal responsibility; and in the long term, implementation of an improved regulatory agenda. The longer-term approach includes a plan to examine the current regulatory systems for non-renewable resources in Northern Canada and to develop a process to make improvements.

Many of the criticisms expressed by witnesses before the Committee on the existing regulatory system in the North relate to a desire to create a more streamlined process to minimize overlap in decision-making bodies across federal-territorial jurisdictions. This overall theme is compatible with the views expressed by Neil McCrank, the Minister of IAND’s former Special Representative on the Review of the Regulatory Systems of the North, in his testimony before the Committee. In reference to his May 2008 report to the Minister of IAND, Mr. McCrank mentions a series of proposed solutions for improving the northern regulatory environment in the northern territories. The most relevant of which for the Committee’s study are the following:

• Complete all land use plans, incorporating the views of northerners, and with federal government approval;
• Amalgamate the land use permitting and water licensing functions under a single board for the Mackenzie Valley, with final decision-making authority; and
• Provide regulatory bodies with sufficient support and a structured plan for orientation, training, and continued education.[216]

8.2.1.1      Completion of Land Use Plans

More generally, the Committee has received many comments from witnesses on the increased clarity and efficiency that can be achieved through the completion of land use plans. In addition to the findings of the McCrank report, similar conclusions were reached through the 2010 Spring Report of the Auditor General of Canada,[217] the 2005 NWT environmental audit,[218] and the 2009 Report of the Joint Review Panel for the Mackenzie Gas Project.[219] Ken McKinnon, of the YESAB, provided an illustration:

In the Champagne-Aishihik traditional area, there's a block of land where we're getting application after application for agricultural purposes, on an almost daily basis. We've now refused about 15 applications, but our staff has to go through the total process of assessing every application because there's no land use plan.[220]

As well, Robert Overvold, of the Sahtu Land Use Planning Board, viewed the completion of land use plans as a necessary first step to attain regulatory efficiency:

The planning board works with communities to identify development opportunities and constraints and to find ways to maximize those opportunities and the benefits for communities, while protecting the values they have identified.[221]

8.2.1.2      Amalgamation of Permitting and Licensing

Streamlining the regulatory process by amalgamating existing board structures also received general support from witnesses before the Committee. Although this would essentially require a re-negotiation of comprehensive land claim agreements, a daunting task to say the least, many proposed that the potential increases in efficiency would far outweigh the possible risks. For example:

• Donald Balsillie, of Dezé Energy Corporation, stated: “I don’t think these claim agreements should be cast in stone, because as societies move on, things change, and there’s a necessity to go back to the mechanics of any agreement with understanding. Having used that vehicle, hopefully they can see improvements all the way around for everyone in this territory.”[222]
• Tim Zehr, Nunasi Corporation, remarked that: “exploration throughout the NWT has pretty much died off because of all the bureaucracy that’s been created. There are concerns about the same thing in Nunavut... the regulatory process for permitting should take anywhere from nine to 18 months, and right now it's taking up to four years.”[223]

8.2.1.3      Local Control of Final Decision-Making

Various witnesses also agreed with the McCrank report recommendation that control of decision-making authority be transferred from the federal government to a single local decision-making board in each settlement region. Some of the more pertinent examples offered by witnesses are the following:

• Randy Clarkson, of the Klondike Placer Miners’ Association, described how the lack of Transport Canada personnel and little coordination in federal stream regulation in Yukon are causing unnecessary regulatory delays. To expedite regulatory approvals, Mr. Clarkson suggested that the federal authority under the Navigable Waters Protection Act be moved from Transport Canada to local Yukon placer inspectors.[224]
• Stephen Mills, of YESAB, echoed the comments from Mr. Clarkson, adding that, to minimize confusion at the federal level, the Northern Major Projects Office should be encouraged to act as a facilitator to promote coordination among regulators during the assessment process.

Recently, the federal government introduced an initiative with the intention of addressing a key recommendation from the 2008 McCrank report on streamlining the regulatory process across Nunavut. The initiative, along with the comments received through witness testimony, provide a useful case-in-point in examining the measures required to ensure effective regulatory streamlining.

In support of the NRII and the completion of land use plans in Nunavut, the federal government introduced Bill C-25 (the Nunavut Planning and Project Assessment Act; NUPPAA) into the House of Commons on May 12, 2010. The legislation was developed by INAC in consultation with the Government of Nunavut, Nunavut Tunngavik Incorporated, the Nunavut Impact Review Board and the Nunavut Planning Commission. As stated by INAC in a background document, the legislation is intended to:

[p]rovide clarity, predictability, consistency and legal certainty to the planning and assessment processes in Nunavut that will foster economic investment for the benefit of Inuit, Northerners and industry.[225]

In general, the introduction of Bill C-25 was received by stakeholders as a positive first step towards improving the existing regulatory system in Nunavut, although some expressed concerns in relation to how these changes will be implemented. For example, Stephanie Autut, of the Nunavut Impact Review Board, mentioned that:

The draft legislation will create the one-window approach that is currently lacking,” although “additional resources will be required for the boards to participate in this implementation planning and in equipping the organizations to meet new requirements and timelines.[226]

In response to this issue, Michael Wernick, Deputy Minister of INAC, provided reassurance that, although “implementation will add to the workload of certain agencies in Nunavut, including the Nunavut Impact Review Board,... they will get the resources they need.” It was not mentioned, however, what funding would be dedicated for this purpose.

Some also expressed concerns that Bill C-25 does not go far enough to address regulatory streamlining. For example, Stephen Quin, of Capstone Mining, mentioned that:

The bigger issue is the parallelism of the federal process with the local process. In the current setting the minister has a legal liability and responsibility... I think that is a significant area that could be simplified and eliminated, as it has been in Yukon. The federal ministers do not sign off on territorial permits in Yukon.[227]

As well, Lawrence Connell, of Agnico-Eagle Mines Limited, in reference to the duplication in the regulatory process that would continue to exist following passage of Bill C-25 said:

If I take a project through the environmental assessment process and on through permitting in Nunavut, I will have gone through three distinct levels of public hearings. At the end of this five-year-long process, even the elders in the community are asking, ‘why are you coming back with the same project, with another public hearing round? Why can't these be rolled up and why can't we move forward?’... Right now it's a retreat back to what's entrenched in the land claim agreement, and we're stuck with a process that just isn't working for anybody.”[228]

Witnesses from the mining industry in general are of the opinion that the development of a single land use plan for Nunavut should incorporate their views to enable efficiency in the planning process. As Brooke Clements, of Peregrine Diamonds Limited stated:

The legislation should promote efficient and timely advancement of projects at all phases of the exploration and mining cycle. Industry should be recognized as a valuable partner in drafting and finalizing land use plans that will be developed under the legislation.[229]

Given the general agreement from witnesses on the measures required to ensure successful regulatory streamlining, the Committee recommends:

Recommendation 28:

That the Government of Canada work closely with territorial governments, local communities and Aboriginal organizations, with the goal of achieving the completion of land use plans.

8.2.1.4      Support for Regulatory Board Operations

As mentioned in the overview section (4.4.2), regulatory co-management boards, created as a part of comprehensive land claim agreements, are responsible for developing land use plans and balancing development with environmental needs through the issuing of permits for land and water use. In general, appointments are shared among federal, territorial and Aboriginal governments, with a board normally having no less than one-third Aboriginal representation.

Comments from witnesses in relation to federal government responsibilities in support of regulatory board operations focused on such issues as nominations and appointments, funding, and training.

Board Nominations and Appointments

Nominations and appointments to the regulatory co-management boards follow a similar process across the North. Federal, territorial and Aboriginal governments are responsible for suggesting nominations, with terms normally lasting for three years. Federal INAC officials are then tasked with making recommendations to the Minister of IAND based on this input, who then makes the final decision on appointments.

The Committee heard from various witnesses on their experiences with delays in board member appointments. Overall, witnesses stated that delays in this process were mainly due to appointment process, rather than for the nomination process. For example, Paul Quassa, of the Nunavut Planning Commission noted that:

Sometimes it takes about six months to a year, maybe sometimes two years, even, to appoint some of the members who have been nominated by the appropriate bodies.[230]

As a result of these delays, co-management boards often lose quorum, which limits a board’s ability to fulfill its land management duties in a timely manner. This view is also supported by a recent internal audit of the NWT regulatory process commissioned by INAC which found that the process:

Involves each nomination package passing through a minimum of 24 pairs of hands in five different government operating units before Ministerial approval is finalized. In total, the current process requires more than fifty discrete activities and steps. Appointments that do not follow the “standard” process invariably pass through additional steps and hands.”[231]

The Auditor General of Canada arrived at a similar conclusion in a 2007 study on the Inuvialuit Final Agreement.[232] The audit found that delays, although also occurring through the nominations process, were found to be most significant in relation to the ministerial appointment process.

As an alternative to altering the board appointment process, Stephanie Autut, of Nunavut Impact Review Board, proposed a strategy of staggered appointments and lengthened terms:

By legislation or amendment to the NLCA, the following be implemented: that transitional provisions be made to restore the staggering of terms of appointments for members, with future appointments to be made only to fill the balance of the term of the predecessor; that each chairman be given the authority, in defined circumstances, to extend the term of a member for expired appointments until new appointments are made; and that except in exceptional circumstances, all new appointments be made to each board once annually.[233]

Given the evidence that delays in regulatory decision making in the North are caused by a slow and inefficient board nomination and appointment process, and since these appointment processes cannot be easily modified, the Committee makes the following accommodating recommendation:

Recommendation 29:

That the Government of Canada, to minimize the risk of failing to meet quorum for regulatory boards, stagger appointments and extend the term of existing board members, where possible, until new appointments can be made. As well, the Government should seek further enhancements to streamline the nomination and appointment process, to the satisfaction of all parties.

Funding Issues

The federal government is mainly responsible for funding the co-management boards. As is common under provider-receiver relationships, conflicts can and do occur between the need to restrain costs and requirements for sufficient funds. Prior to fiscal year 2000-2001, co-management boards were funded through annual contribution agreements. Following complaints by board members that a lack of multi-year funding restricted their ability to perform their on-going work as regulatory bodies, federal funding was thereafter provided through multi-year, or “flexible transfer” arrangements, coupled with the development of accountability through budgets and workplans.

In recent testimony provided to the Committee, the regulatory co-management boards expressed concerns in relation to the absence of adequate resources and human resource capacity, resulting in difficulties in assessing development proposals in a timely manner. Dionne Filliatrault, of the Nunavut Water Board, provided an illustration:

The Government of Canada has committed billions of dollars to Canada's northern strategy, yet the boards have not been informed of parallel increases in the funding to respond to this increased development. To be effective, the Nunavut Impact Review Board and the water board must have adequate financial and administrative resources to hire, train, and retain qualified staff and to ensure that the necessary systems are developed to communicate requirements and track a wide range of project proposals and related applications.[234]

According to the land claims agreements, funding arrangements for the operations of co-management boards require periodic renewal of funding (i.e. every five or ten years) to satisfy on-going commitments. This process is consistent with INAC funding policy, as stated within its implementation handbook:

Where a need for additional funding has been established, the federal implementation manager must seek either a reallocation from within the Implementation Plan or additional comprehensive land claim funding from INAC or from Treasury Board.[235]

Despite the stated federal policy, witnesses pointed out that delays are occurring in the process of re-negotiating funding arrangements with co-management boards with the result that local communities are left in a state of uncertainty as to whether they will have sufficient funds to deliver on their responsibilities to manage the development process. Along with the proposed introduction of a single land use plan in Nunavut, Paul Quassa, of the Nunavut Planning Commission (NPC) referred to a pre-existing deficiency in federal funding (estimated at $1.5 million), which would be even higher with the introduction of a single land use plan through NUPPAA (estimated at $2.5 to $3 million):

Implementation of NUPPAA will cost a lot because the NPC has to develop, implement and maintain a public registry, which will require additional staff and a new database program. The core funding is based on 1993 levels [with an annual adjustment for price increases][236]—which does not even cover cost of living increases. The government needs to provide funding allocation to cover [pre-existing and new] financial deficiencies.[237]

The Committee finds that delays in renegotiating funding are a persistent and recurring problem. The Inuit of Nunavut have yet to renegotiate a renewal of their implementation contract which expired in 2003. Consequently, regulatory bodies in Nunavut agree that they are unable to properly discharge a number of their key responsibilities.[238]

Given the extensive evidence on this issue, the Committee is concerned that sufficient funding is not being committed to support the relevant organizations with the increasing responsibilities that will befall them. The Committee therefore makes the following recommendation:

Recommendation 30:

That the Government of Canada work closely with territorial governments, local communities and Aboriginal organizations to resolve issues of funding by the end of the 2010-2011 fiscal year, to ensure adequate support for the increasingly demanding requirements of regulatory co-management boards in the North.

Training Issues

Many witnesses were of the opinion that INAC has not provided sufficient support for training to the boards to ensure they are adequately prepared to fully discharge their responsibilities. Most witnesses expressed that there needs to be a guarantee of adequate capacity and appropriate expertise of the members on regulatory co-management boards. As stated by Dionne Filliatrault, of the Nunavut Water Board:

Boards are committed to hiring and training Inuit beneficiaries, with more than 50% of employees in this category—but beneficiary training has been funded through outside sources, which is administratively complex and uncertain. This training has been provided by the Nunavut Implementation Training Committee (NITC), which received their funding through a single one-time grant negotiated as part of the NLCA. The boards were advised by NITC, in April 2010, that unless new funding could be negotiated (as was expected in 2003) all training programs would be discontinued within two years. This would severely limit the boards’ ability to train Inuit beneficiaries, especially to enter senior positions within the organization.[239]

The Committee believes that adequate training for regulatory co-management board members is crucial to facilitating an efficient and effective regulatory decision-making process in the northern territories. Therefore, the Committee recommends:

Recommendation 31:

That the Government of Canada work closely with territorial governments, local communities and Aboriginal organizations to provide regulatory bodies with sufficient support and training, including the development of federal-territorial-Aboriginal agreements and training programs.

8.2.1.5      Regulatory Monitoring

Regulatory monitoring provides important information for decision making by co-management boards and other regulators on development. Both INAC and Environment Canada have responsibilities for monitoring cumulative impact, or changes to the environment caused by an activity combined with changes caused by other past, present, and future activities.

Under the comprehensive land claim agreements in NWT, INAC is responsible for monitoring cumulative impact. Environment Canada currently conducts limited monitoring of weather, climate, water, stratospheric ozone, and air quality throughout the North under its national mandate derived from the Canadian Environmental Protection Act and the Department of the Environment Act. Some of these national programs provide data for assessing cumulative impact.

INAC conducted an environmental audit in 2005 as required by the MVRMA and reported that, despite years of planning, a program to monitor cumulative impact had not been implemented, as required under the Act and settled land claims.[240] The report identified the lack of long-term, multi-year funding as a limiting factor.

The Auditor General of Canada, in its 2010 Spring report, found that INAC had made little progress since 2005. The Auditor General stated that, in 2009, INAC developed a draft operational plan that identified tasks for a program to monitor cumulative impact and began to increase spending in this area, although, it is noted, the draft plan does not identify specific monitoring requirements, the resources needed to carry out the program, or timelines for key milestones. In its testimony before the Committee, the Auditor General found that:

11 years after receiving the mandate to do so, INAC had not yet put in place a program to monitor cumulative impact. Similarly, funding for Environment Canada’s program that would support cumulative impact monitoring ended in 2007. As a result, neither department had implemented this program.[241]

As referenced by the Auditor General of Canada, the lack of progress on the implementation of a cumulative impact monitoring program in the NWT limits the ability of co-management boards to understand baseline conditions, track and monitor environmental change, and ultimately identify the effect of development on the environment.[242]

Given the importance of a cumulative impact monitoring program in tracking the effectiveness of regulatory decisions, or their effects on the environment, and with evidence provided by the Auditor General and an internal INAC audit that the Department has not implemented this program, the Committee recommends:

Recommendation 32:

That Indian and Northern Affairs Canada should immediately develop and carry out a program to monitor cumulative impact in NWT. In so doing, INAC should work with Aboriginal groups to identify the information requirements of the co-management boards in the NWT for cumulative impact monitoring and provide a means of sharing this information among the federal and territorial governments, co-management boards, and Aboriginal communities.

8.3       Devolution, Resource Revenue Sharing and Fiscal Arrangements

Ottawa must come to the negotiating table and devolve control of this land and its resources to the Canadians who live here, as has been done in every province.

Robert Long, Government of Nunavut

8.3.1   Devolution and Resource Revenue Sharing

Devolution is the process of transferring province-like authority to the territorial and Aboriginal governments in the North, including control over such areas as health and social services and the regulation of lands and resources. In contrast to provinces, the federal government retains jurisdiction and ownership of lands transferred to a territorial government through a devolution agreement, while land already owned by Aboriginal peoples through comprehensive land claims agreements are excluded from this transfer process.[243]

Associated with devolution is a resource revenue sharing agreement, which is contained as a provision in comprehensive land claim agreements. In the case of devolution, the resource revenue sharing agreement sets out how revenues from the collection of royalties and fees through resource extraction are to be shared among federal, territorial and Aboriginal governments.

Although most province-like powers have already been transferred to the territories from the federal government through various devolution agreements over time, overall the transfer of control over non-renewable natural resources, such as oil and gas, has not. The current state of devolution for non-renewable natural resources, however, varies among the northern territories.

In all cases across the northern territories, the federal government has restricted devolution and resource revenue sharing negotiations to territorial onshore activities, while territorial and Aboriginal governments are seeking to obtain a share of the potential revenues generated from developing the Arctic offshore. To support their position, territorial governments cite provisions in their devolution agreements while Aboriginal governments cite offshore jurisdiction according to their comprehensive land claim agreements[244]—a recent Library of Parliament study estimates that Canada’s Arctic region holds about 25% of the remaining reserves of conventional crude oil in Canada, and 33% of its natural gas deposits.[245]

Yukon

Yukon is the only territory to have a devolution agreement with the federal government in relation to non-renewable natural resources. In 1998, the Yukon Oil and Gas Accord provided for the transfer of control over oil and gas, and collection of royalties by the Government of Yukon. Complete devolution, including other forms of natural resources, both non-renewable and renewable, occurred for Yukon by 2003.[246]

Through devolution, Yukon has the authority to set royalty rates and fees in relation to natural resources such as oil and gas, and collect the resulting revenues that accrue from onshore activities.

In general, the resource revenue sharing provisions of the devolution agreement result in the Government of Yukon receiving a “net fiscal benefit” with no impact on federal transfers through Territorial Formula Financing (TFF) for the first $3 million in annual royalties (note: further details provided in the following section).[247]

In terms of Aboriginal ownership of northern natural resources in Yukon, the 1993 Umbrella Final Agreement[248] with the Council of Yukon First Nations[249] includes provisions for such things as land rights and resource management, a portion of which includes subsurface land rights. The Agreement also sets out what portion of mineral resource royalties collected by the Government of Yukon are to be shared with Aboriginal land claimants; 50% for the first $2 million in annual royalties from mineral resources, less any royalties received by First Nations, and 10% thereafter.[250]

Northwest Territories

In the absence of devolution in NWT, the authority for management and regulation of non-renewable natural resources, and the right to collect royalties on them remain with the federal government. Although the federal and NWT governments, and Aboriginal organizations with settled land claims signed the Northwest Territories Lands and Resources Devolution Framework Agreement in 2004, which establishes the process for negotiating an agreement in principle for the devolution of onshore lands to the NWT government, a final agreement is yet to be concluded.[251] The main elements of the NWT Framework agreement include a transfer of INAC’s Northern Affairs Program to the NWT government, and possibly to Aboriginal and self governments, a transfer of land ownership and management to NWT territorial and Aboriginal governments, and a resource revenue sharing agreement.[252]

The latest terms of the resource revenue sharing agreement, as proposed by the NWT government, include a 50% share of resource royalties (with a cap as yet undetermined), and up to a 25% share of the net fiscal benefit of resource revenue sharing to be shared among Aboriginal governments, with eligibility for additional revenue to support the delivery of provincial-like programs under Aboriginal self government.

Nunavut

As with NWT, no final agreement has been reached between the federal- territorial governments and Aboriginal representative organizations on land and non-renewable natural resource devolution. Preliminary discussions between the federal and the Nunavut public government and Aboriginal organizations commenced in 2004, with a focus on the devolution of provincial-like authorities over management of lands and resources in Nunavut that are currently the responsibility of INAC.[253]

In terms of natural resource revenue sharing, the Government of Nunavut is seeking a more generous arrangement with the federal government in comparison with those of other territories. Citing the lack of a current net fiscal benefit from the development of non-renewable resources, as development projects in Nunavut are relatively minor, the Government of Nunavut is requesting 100% ownership, control and management of its natural resource revenues, with no revenue resource sharing or offsetting of TFF payments until the territory reaches an agreed upon level of development.[254]

Witness Comments on Devolution

Overall, input from witness testimony on the issue of devolution were generally positive. The general perception by many was that it allows local economies to develop in an efficient and effective manner. As well, there was general agreement that the process of devolution should be expedited in NWT and Nunavut. For example, Dr. Harvey Brooks, Deputy Minister with Economic Development, Government of Yukon stated that devolution should be applied to other territories as it happened in Yukon, since:

When [devolution] was put together, the idea was that there were tremendous benefits from the local management and harmonization of regulation around natural resources... Now we're coming right to the brink of that understanding, that yes, we've been very successful in terms of regulatory harmonization.[255]

Applying the Yukon model was also espoused by Stephen Quin, of Capstone Mining Corporation, who stated:

The concern that people often have with devolution is that standards are going to get relaxed, they're not going to follow the processes, and they're going to take shortcuts. Well, Yukon can't do that. Ottawa has set the rules under YESAA on how this works, and Yukon cannot change YESAA.[256]

As well, comments from NWT Premier Floyd Roland provided further clarity on the benefits of devolution:

Devolution creates a stable climate for industry and investment by providing clarity around land ownership, land management, and who needs to be consulted when and by whom, but devolution takes political will, the will to give northerners a fair share of the resource revenues made from their land.[257]

The Committee is in agreement with the views of witnesses on the benefits of devolution through greater control of local community decision-making. The Committee therefore makes the following recommendation:

Recommendation 33:

That the Government of Canada, as a priority, commit to work with the NWT and Nunavut governments, and with Aboriginal governments toward the achievement of full devolution agreements.

8.3.2   Fiscal Arrangements and Net Fiscal Benefit

Territorial Formula Financing

Since the economies of the northern territories are relatively underdeveloped in relation to the rest of Canada, they are largely dependent on federal government support for the provision of public services to their citizens. TFF, the main federal funding program that supports territories,[258] is intended to ensure a standard level of public services that is comparable to that offered in the provinces.[259]

According to the latest estimates from Finance Canada, in 2010-2011, the three territories will receive a total of $2.7 billion in TFF payments. Of this, the governments of Yukon will receive $653 million (62% of its total revenues), NWT will receive $920 million (68% of its total revenues), and Nunavut will receive approximately $1.1 billion (85% of its total revenues).

Table 8.2: TFF and Territorial Revenues, 2010-2011

Source: Calculations using data from the Conference Board of Canada, Territorial Outlook, July 2010; totals may not add due to rounding.

1.     Includes Canada Health Transfer and Canada Social Transfer, and targeted support for labour market training, infrastructure and health care wait-times reduction.

According to Finance Canada, each territory’s TFF grant is based on the difference between a proxy of its expenditure needs, termed the “Gross Expenditure Base” (GEB), and a measure of the capacity to generate own-source revenues,[260] excluding natural resource revenues. This mechanism is illustrated in Figure 8.2.

Figure 8.2: Mechanics of TFF Grant

Source: calculations using data from the Conference Board of Canada, Territorial Outlook, July 2010.

On a per capita basis, Nunavut receives by far the most in TFF support of any territory, as its gross expenditures relative to its revenue-generating (fiscal) capacity, excluding natural resource revenues, are estimated to be higher than for the other territories.

It is worth noting that the TFF grant calculation is not based on actual expenditures and revenues, but rather the GEB is a Finance Canada estimate of the funding needed to support territorial programs, and the revenue-generating (fiscal) capacity is a measure of the potential revenue that could be raised if each territory applied tax rates comparable to those of the provinces.

The fact that the calculation of the TFF grant is based on a proxy for territorial expenditure need, rather than actual need, was problematic for some witnesses. As mentioned by Elisapee Sheutiapik, Mayor of Iqaluit and President of the Nunavut Association of Municipalities (NAM):

In NAM's submission to the Expert Panel on Equalization and Territorial Formula Financing, we pointed out that the expenditure needs gap in... [Territorial Formula Financing] is not just a measure in accounting ledgers... The expert panel's report cited many examples of how Nunavut is even more challenged by conditions associated with poverty than are its sister territories and that an adjustment to the TFF is not sufficient to address gaps in programs, services, and infrastructure in Nunavut.[261]

Given available evidence on the mechanics of the TFF grant, and due to the relatively poor living conditions in the North as evidenced within this report, especially for Nunavut, the Committee is in agreement with the views expressed by Ms. Sheutiapik and that of the Expert Panel in relation to expenditure need. Therefore, the Committee recommends:

Recommendation 34:

That the Government of Canada explore more rigorous techniques to estimate expenditure need for the purposes of calculating the Territorial Formula Financing grant, including measures of relative living standards in the territories, before the next review of the Territorial Formula Financing program in 2012.

Net Fiscal Benefit and Devolution of Natural Resource Revenues

To provide an incentive for territorial governments to increase their own source revenues and develop their economies, as Finance Canada states, the TFF grant calculation excludes 70% of the territories’ measured fiscal capacity.[262] That is, for every dollar of potential revenue increase, the TFF grant would decrease by 70 cents, leaving a gain of 30 cents for the territory.

The fact that the TFF grant is clawed back as a territory increases its revenue-generating capacity is a matter of contention for territorial governments. As mentioned above, to help generate meaningful progress in economic development in Nunavut, the Government of Nunavut is requesting that initially none of its TFF grant be withheld as it begins to increase its revenue-generating capacity through the process of devolution.

This issue is related to the concept of net fiscal benefit, which measures the extent to which territorial natural resource revenues resulting from devolution are offset by reductions in the TFF grant. For the devolution agreement in Yukon, for example, the federal government incorporates a clawback in the TFF grant as the territory begins to collect annual oil and gas revenues above $3 million. The rate of the clawback grows progressively the more the territory’s natural resource revenue grows beyond $3 million, from 60% to 80%, thereby reducing the net fiscal benefit to the development of oil and gas in Yukon substantially. For other natural resources, which were devolved prior to the 2003 devolution agreement, the clawback is more restrictive as it reduces the TFF grant dollar-for-dollar for annual revenues beyond $3 million—meaning that there would be essentially no net fiscal benefit to the development of these other natural resources for revenues above $3 million per year.[263]

As Aboriginal comprehensive land claim agreements include provisions for sharing in the territory’s natural resource revenues, the TFF clawback has implications for their potential revenues as well. Similar issues would occur for NWT and Nunavut, if the federal government did not agree to a relaxation of these restrictions in their negotiations.
This issue is raised by many witnesses who provided testimony to the Committee. As stated by Robert Holmes, of Energy Mines and Resources, Government of Yukon:

With that $3 million that the Yukon gets to keep, there's a responsibility to share a portion with First Nations. This structure creates a problem in that the Yukon cannot provide capacity support for First Nations to participate in regulatory reviews or increase opportunities for them in resource management.[264]

Given the disincentives for economic development that would be introduced through the process of devolution as a result of the clawback mechanism in the TFF grant, the Committee believes that further discussion among federal, territorial and Aboriginal governments is warranted. The Committee therefore makes the following recommendation:

Recommendation 35:

That the Government of Canada continue to work with the territorial governments to improve the clawback provisions of the Territorial Formula Financing grant to better promote economic development.