Environment

Bill 5,1 An Act to accelerate the granting of the authorizations required to carry out priority national-scale projects (Bill 5), tabled by Finance Minister Éric Girard, is part of a broader government strategy to accelerate the completion of strategic projects in Quebec. Inspired by federal law C-5,2 Bill 5 aims to streamline the administrative process behind major projects so that they can be rolled out more rapidly. Purpose of Bill 5: make it easier to grant authorizations for strategic projects The government’s stated intention is to stimulate the Quebec economy by accelerating the administrative process underlying strategic economic and energy projects to be designated by it. These projects must: generate major economic spinoffs; create jobs; and further the energy transition. During his opening speech of the session, Premier François Legault stressed the fact that lead times need to be shortened and administrative processes need to be streamlined, while maintaining high standards. The goals are clear, but does Bill 5 actually make it possible to achieve them? Framework and scope of Bill 5: transition to a single authorization for large-scale projects Bill 5 will allow the government to change how various laws are applied to accelerate national-scale projects in Quebec without circumventing environmental assessment processes and the rights of Indigenous communities. It provides for the granting of a single authorization allowing both the project and all of the operations necessary for its completion to be carried out. In the context of a mining project, this means the granting of environmental authorizations under the Environment Quality Act (“EQA”)3 and mining titles under the Mining Act,4 as well as the approval of a preliminary version of the rehabilitation and restoration plan required by the Mining Act5 and any other authorization required by the Natural Heritage Conservation Act6 of the Act respecting the conservation and development of wildlife,7 among others. Indigenous communities Why James Bay and Northern Quebec are excluded Section 2 of Bill 5 stipulates that the Bill applies subject to any act aimed at implementing the Agreement concerning James Bay and Northern Québec8 and its amendments,9 as well as the Northeastern Québec Agreement. These agreements are put into practice in particular under Title II of the EQA, which establishes an environmental and social impact assessment and review procedure in which Indigenous communities must participate, as prescribed by the agreements. Title II of the EQA is part of the list of provisions that the government cannot add to the list of laws having an authorization process that can be replaced by the authorization granted under Bill 5. The constitutional obligation to consult Indigenous communities Bill 5 stipulates that it must be interpreted in a manner consistent with the obligation to consult Indigenous communities, and that these communities must be consulted separately when circumstances warrant doing so.10 Consulting Indigenous communities is one of the government’s constitutional obligations. As such, it could not in any case have set that obligation aside. In short, an authorization cannot be granted more rapidly under Bill 5 at the expense of the obligation to consult the Indigenous communities of southern Quebec. Also, in its assessment of an application for the designation of a project, the government may in particular consider whether the project takes the interests of local and Indigenous communities into account.11 This implies prior consultation work by the project proponent, further to which it can document the concerns and interests of Indigenous communities and adapt its project accordingly. In James Bay and Northern Quebec, mining projects are generally subject to the environmental and social impact assessment and review procedure provided for in Title II of the EQA. They fall completely beyond the scope of Bill 5.12 Contradictions in Bill 5 and implementation challenges The challenges of the two-year implementation deadline Although the Bill is presented as a way to fast-track projects, not a way to circumvent the law, a number of issues remain where mining projects are concerned. Exclusion of mining projects in James Bay and Northern Quebec The text of Bill 5 is clearly intended to apply to mining projects. Take section 4 para. 2(1) which mentions, among the points that can be considered for the designation of a project, the fact that it would consolidate Québec’s autonomy and resilience, in particular as regards energy, critical and strategic minerals or infrastructure. However, Bill 5 cannot apply to projects governed by Title II of the EQA, that is, those located in the territory covered by the James Bay and Northern Quebec Agreement. As such, many mining projects are excluded by default. This contradiction raises questions about the overall effectiveness of the Bill for mining projects, the implementation of which it claims to accelerate. Prerequisites for granting authorization maintained By its very nature, Bill 5 is intended to apply to large-scale projects, and section 1 of the Bill describes these as priority, national-scale projects. However, large-scale projects such as these are likely to be subject to the environmental impact assessment and review procedure or, at minimum, to the EQA’s ministerial authorization regime. It is important to note that, in order for an authorization to be granted under Bill 5, all the steps prior to that authorization must have been completed. Section 10 of Bill 5 stipulates that the application for authorization “must mention the permissions allowing the proponent to carry out the project ... and must be accompanied by the information and documents required as well as the payment of the duties and fees payable for the granting of those permissions.” If the project is subject to the environmental impact assessment and review procedure, the procedure must be completed before an authorization under Bill 5 can be granted. The only difference in the procedure is in section 30 of Bill 5, which stipulates that, when the impact statement for a designated project is deemed admissible, the Minister of the Environment mandates the BAPE to hold a public hearing, and the BAPE then proceeds without holding an information period. With the recent amendments made to the EQA by the Act to amend various provisions relating to the environment (also known as Bill 81), which, according to representations made by representatives of the MELCCFP, aim to reduce the impact assessment and review procedure from 18 months to 9 months, we wonder whether Bill 5 will actually contribute to accelerating the administrative process underlying projects already subject to the impact assessment and review procedure. Short-term implementation criterion The requirement for short-term implementation (approximately two years taking into account the combined effect of sections 4 para. 2(5) and 20 of Bill 5) seems unrealistic for large-scale projects requiring comprehensive consultations and assessments. In the case of mining projects, the granting of an authorization including a mining lease must be preceded at a minimum by the approval of a preliminary version of the rehabilitation and restoration plan and the payment of a provisional financial guarantee. Despite the fact that section 46 of Bill 5 scales down requirements,13 the preparation, even of a preliminary version of such a plan, requires time and the collaboration of experts in the field to meet the expectations of the MRNF. Thoughts and outlook While it may be appealing to think it possible to reduce the time required to grant the necessary authorizations for large-scale projects that could generate major economic spinoffs for Quebec, it appears that, in terms of environmental protection, Bill 5 does little to address a key issue, namely the time it takes to prepare application files, whether for a ministerial authorization or as part of the environmental impact assessment and review procedure. Add to this the fact that, to complete these processes, additional studies are generally required, depending on the questions and requests for clarification raised during the analysis phase. Bill 5 offers no solution to the issue, which, however, is probably the most significant issue when we consider the time and energy that project proponents must devote to the file preparation phase. Conclusion: We don’t know whether proponents will see greater efficiency Bill 5 shows that the government is indeed trying to increase government efficiency and spur economic growth. However, it leaves mining project proponents hanging by immediately excluding projects located in the James Bay area and further north, and by not addressing the time it takes to prepare environmental impact assessment and review files or applications for authorization. Takeaways Does Bill 5 make it possible to avoid BAPE hearings? In a word, no. The BAPE process continues to apply to designated projects, but the public information stage is eliminated to jump directly to the hearing stage, slightly reducing the time needed to complete the process. Which mining projects will benefit most from Bill 5? Primarily projects involving critical and strategic minerals located in southern Quebec, provided that proponents can demonstrate that short-term implementation is possible (approximately two years). Why does Bill 5 not apply to James Bay and Northern Quebec? Because the separate environmental and social assessment processes (Title II, EQA) that apply to these territories were established by agreements that Bill 5 cannot unilaterally amend.  Bill 5, An Act to accelerate the granting of the authorizations required to carry out priority national-scale projects: https://www.assnat.qc.ca/en/travaux-parlementaires/projets-loi/projet-loi-5-43-2.html Federal Bill C-5: https://www.parl.ca/documentviewer/en/45-1/bill/C-5/first-reading Environment Quality Act: https://www.legisquebec.gouv.qc.ca/fr/document/lc/Q-2?langCont=en Mining Act: https://www.legisquebec.gouv.qc.ca/fr/document/lc/m-13.1?langCont=en Section 46 of Bill 5 scales down requirements regarding the rehabilitation and restoration plan, providing for the granting of an authorization instead of a mining lease without such a plan having been approved—that is, if a preliminary version of such plan has been approved by the Minister of Natural Resources and Wildlife and a provisional financial guarantee has been paid. The rehabilitation and restoration plan will likely still need to be considerably advanced. A mining authorization establishes the time limits within which the rehabilitation and restoration plan must be approved and the financial guarantee paid. Natural Heritage Conservation Act: https://www.legisquebec.gouv.qc.ca/fr/document/lc/C-61.01?langCont=en Act respecting the conservation and development of wildlife: https://www.legisquebec.gouv.qc.ca/fr/document/lc/c-61.1?langCont=en James Bay and Northern Quebec Agreement: https://www.canada.ca/en/impact-assessment-agency/corporate/james-bay-northern-quebec-agreement.html Section 2 of Bill 5 refers to section 1 of the Act approving the Agreement concerning James Bay and Northern Québec, which states the following: “In this Act, unless the context indicates a different meaning, the expression “Agreement” means the Agreement reached between the Grand Council of the Crees (of Québec), the Northern Québec Inuit Association, the Government of Canada, the Société d’énergie de la Baie James (the James Bay Energy Corporation), the Société de développement de la Baie James (the Société de développement de la Baie James), the Commission hydroélectrique du Québec (the Commission hydroélectrique du Québec) and the Gouvernement du Québec, dated 11 November 1975, and the Amending Agreement dated 12 December 1975, tabled in the National Assembly, 9 June 1976, as Sessional Documents, Nos 101 and 102.” Section 2 of Bill 5 also refers to section 1 of the Act approving the Northeastern Québec Agreement, which states: “In this Act, unless the context indicates otherwise, the expression “Agreement” means the Northeastern Québec Agreement reached between the Band of Naskapis of Schefferville and its members, the Gouvernement du Québec, the Société d’énergie de la Baie James (the James Bay Energy Corporation), la Société de développement de la Baie James (the James Bay Development Corporation), the Commission hydroélectrique de Québec (the Québec Hydroelectric Commission) (Hydro-Québec), the Grand Council of the Crees (of Québec), the Northern Québec Inuit Association and the Government of Canada, dated 31 January 1978, tabled in the National Assembly on 18 April 1978, as Sessional Papers, No. 113.” Section 3 of Bill 5 Section 4 para. 2(3) of Bill 5 Schedule A of the EQA provides that “all mining developments, including the additions to, alterations or modifications of existing mining developments” are subject to the mandatory assessment and review procedure provided for in sections 153 to 167 and 187 to 204 of the EQA. Section 46 of Bill 5 provides for the approval of a preliminary version of the rehabilitation and restoration plan and the payment of a provisional financial guarantee instead of the financial guarantee established on the basis of the final version of the rehabilitation and restoration plan.

Fresnillo plc, the world's largest primary silver producer and a major player in the gold sector in Mexico, has entered into a definitive agreement to acquire Canadian company Probe Gold Inc. for a total consideration of approximately CAD 780 million. This transaction, carried out through a statutory plan of arrangement, marks a crucial step for Fresnillo in its international expansion strategy. Listed on the London and Mexican stock exchanges, Fresnillo strengthens its position as a global leader in precious metals with this acquisition. By integrating Probe's assets, including the flagship Novador project in the Val-d’Or gold district of Quebec, Fresnillo expands its project portfolio and establishes a presence in one of Canada's most promising mining areas. Lavery is proud to advise Fresnillo on the legal aspects of this acquisition in Quebec. Our team provided expertise in mining law, labor and employment law, real estate law, environmental law, and relations with First Nations. Under the leadership of Sébastien Vézina and Jean-Paul Timothée, our team included Valérie Belle-Isle, Jules Brière, Carole Gélinas, Eric Lavallée, Jessica Parent, Yasmine Belrachid, Siddhartha Borissov-Beausoleil, Radia Amina Djouaher, Eric Gélinas, Ghiles Helli, Jessy Menar, Nadine Giguère, Annie Groleau, Joëlle Montpetit, Ana Cristina Nascimento, Thomas Cazelais Turcotte, and Clara Fortin. This collaboration demonstrates Lavery's commitment to providing legal advice tailored to the complex issues of the mining industry in Quebec. The transaction is expected to close in the first quarter of 2026, subject to required approvals, thereby strengthening economic ties between Quebec and Mexico in the precious metals sector.

What is natural hydrogen? Natural hydrogen, also called native hydrogen, does exist. It refers to hydrogen found naturally in the environment, often as a gas trapped underground. Unlike industrially produced hydrogen, which results from chemical processes, natural hydrogen is extracted directly from nature. This naturally occurring resource is generating growing interest as a potential source of clean, renewable energy. However, exploration and large-scale production are still in the early stages. Discovery of natural hydrogen The first major discovery of natural hydrogen occurred in 1987 in Bourakébougou, Mali, by the company Hydroma Inc. In this village, a well revealed naturally occurring hydrogen in the subsurface. This discovery sparked global interest in hydrogen’s potential as an energy source. The region continues to be studied to better understand and develop this promising resource. Regulation and exploration in Quebec n Quebec, natural hydrogen exploration is not currently covered by the Mining Act, which governs the exploration and exploitation of mineral substances. Because natural hydrogen represents an emerging resource, it will eventually need to be addressed through new regulations or incorporated into an existing legal framework. For now, since hydrogen is mainly studied in the context of renewable energy, it may fall under environmental or energy-related regulations. Legal framework in France In France, the legal status of natural hydrogen differs significantly. Natural hydrogen is classified as a mineral resource, meaning that its exploration and extraction are governed by the provisions of the French Mining Code. Initiatives in Quebec Although natural hydrogen exploration in Quebec is not yet covered by the Mining Act, several companies have obtained exclusive exploration rights (formerly known as “claims”) and are actively conducting fieldwork. Through their efforts, they are helping to advance the legal and regulatory framework surrounding this new energy resource. The Government of Quebec is currently examining potential legislative amendments to the Mining Act to include natural hydrogen, or the adoption of a new, dedicated law to regulate it

Quebec has set ambitious energy transition and industrial decarbonization targets. The shift to greener practices has to be taken in a context where our energy consumption could rapidly grow under the combined effect of a number of factors, such as the reindustrialization of our economy, population growth, transport electrification and the potential for artificial intelligence to consume vast amounts of energy. Investing in the development of energy infrastructure is therefore critically important, as an abundance of energy is key to economic prosperity. The problem is that public finances are already stretched to the limit with the need to renovate our aging infrastructure, among other things. Encouraging private equity investment is thus vital, and tax incentives can be very effective in this respect. The American example In 2022, the United States passed its Inflation Reduction Act (IRA), with the goal of stimulating investment in the renewable energy sector, in particular. More specifically, the IRA altered or created a number of tax credits to encourage private investment.1 Over the past two years, US businesses have announced a total of almost US$276 billion in new investments in clean energy generation and the capturing or elimination of carbon dioxide and other forms of industrial decarbonization, an increase of 34% on the two years previous.2 The IRA is effective in that it takes the respective situations of various energy sector stakeholders into account in a creative, flexible and pragmatic way, especially where taxation is involved. Energy project promoters often have to wait many years for their projects to generate income and profits, even though the banks and other investment funds they solicit financing from can be presumed to be operating profitable businesses. The tax losses that occur in the years during which such projects are designed and built are therefore of little interest to developers, but of immediate interest to investors. And so, a tax equity market has emerged, in which businesses subject to taxes can invest in the shares of entities set up to develop such projects so as to benefit from tax credits and faster depreciation. Typically, the entity that cashes in the investment and develops the project distributes 99% of income, losses and tax credits to investors until a predetermined return is achieved. Once that return is achieved, the investor’s share of the benefits decreases, and the developer has the option of buying out the investor’s residual share. The IRA has transformed how federal clean energy tax credits are monetized, and it is now possible to buy and sell such credits without having to make a long-term investment. For businesses, this new way of doing things is an additional and attractive way to participate in the growing tax credit market.3 In 2023, the volume of the tax equity market for American projects was around US$20 to 21 billion, up about US$18 billion from the previous year.4 It appears that the trend will continue. It is estimated that the value of the current market, which is particularly attractive to banks, is set to double to US$50 billion a year by 2025.5 The equivalent of flow-through shares The Quebec and Canadian tax deductions mechanism that most closely resembles the US tax equity market is probably flow-through shares. Through these, businesses in the mining and renewable energy sectors can transfer their mining exploration expenses and other expenses—specifically designated as eligible—to investors, who can then deduct them from their own taxable incomes.6 These businesses can thus issue shares at a higher price than they would receive for common shares to finance their exploration and development operations. Investors are willing to pay a higher price in return for the tax deductions afforded by the eligible expenses incurred by the issuing businesses, which can amount to a maximum of 120% of the equity invested in the shares.7 Investors can also claim a 15% or 30% federal tax credit. However, because tax incentives cannot be transferred, our mechanism is more rigid than the American one, and it can only be applied to mineral exploration and development expenses and certain specific expenditures related to renewable energy and energy conservation projects, such as electricity generation using renewable sources like wind, solar energy and geothermal energy.8 With ambition and innovation comes the need to take action Quebec could draw inspiration from the IRA to increase the attractiveness of flow-through shares and broaden their scope of application, thereby creating a new tool to finance the energy transition. The renewable energy sector is similar to the mining sector in many respects, not least in terms of the considerable amount of capital required to build the infrastructure needed to operate a mine or energy generation facility. The flow-through share mechanism, which is well-established and popular with investors,9 could be just as successful in our energy transition context. Making such incentives easier to transfer would also drive the emergence of a market similar to the US tax equity market. A number of Québec flagship companies, such as Hydro-Québec,10 Innergex11 and Boralex,12 are also very ambitious when it comes to developing large-scale energy projects. They face major financing challenges, as do those in the industrial decarbonization and infrastructure renewal sectors. Innovation is necessary to meet these challenges and make the transition to a more sustainable, but just as prosperous, world, and to do so in good time.13 Link Rhodium Group and MIT’s Center for Energy and Environmental Policy Research (CEEPR), Clean Investment Monitor, link Brandon Hill, How to take advantage of tax credit transferability though the Inflation Reduction Act, Thomson Reuters Institute, April 16, 2024, link Allison Good, Renewables project finance to keep pace in 2024, but tax equity rule looms, S&P Global, January 12, 2024, link Lesley Hunter and Mason Vliet, The Risk Profile of Renewable Energy Tax Equity Investments, American Council on Renewable Energy, December 2023, link Link, page in French only Link Link Prospectors & Developers Association of Canada, Flow-through shares & the mineral exploration tax credit explained, link Link Link Link The authors would like to acknowledge the participation and the work done by Sophie Poirier in this publication