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The area of the Peace River where the proposed Site C hydroelectric dam project could be built near Fort St. John, B.C., on Jan. 17, 2013.Deborah Baic/The Globe and Mail

The British Columbia government has granted environmental approval to a massive dam that would flood thousands of hectares of land in the Peace Valley in northwestern B.C., saying the benefits of the $7.9-billion project outweigh the significant social and environmental costs of building it.

The project – known as Site C – on Tuesday also received a green light from the federal government, which said the environmental effects of the proposed dam are "justified in the circumstances" because it would generate clean, renewable energy for the next 100 years.

The Peace River already has two dams. Now, BC Hydro wants to build a third that would pump out enough electricity to power nearly half a million homes each year. With the environmental approval secured, the next step is for the B.C. government to decide whether to spend billions on an energy proposal that has been on and off the drawing board since the 1970s.

A final investment decision is expected in November.

There are questions around the final price for the dam. And Site C also faces fierce opposition from environmental groups, area farmers and First Nations, some of whom say mitigation measures outlined by the province would not go far enough to compensate for the loss of land, culture and historical sites. That opposition could lead to more court clashes between First Nations and federal and provincial governments – on the heels of a historic Supreme Court of Canada decision in June.

"We're deeply disappointed to hear that both British Columbia and Canada are supporting this ill-conceived project," Grand Chief Stewart Phillip, head of the Union of B.C. Indian Chiefs, said Tuesday. "We will use all means available to continue our opposition."

Support for Site C casts a shadow over a recent promise by Premier Christy Clark to begin a new relationship with First Nations after the Supreme Court of Canada's Tsilhqot'in decision in June, he added.

That decision, the culmination of a decades-long legal battle by the Tsilhqot'in Nation, confirmed aboriginal title to a specific tract of land and was widely seen as strengthening First Nations' role in land-use decisions.

"It's absolute hypocrisy of the part of the Premier and her ministers who paid lip service to moving forward with a full measure of respect of First Nations' rights, but then continue to deny our constitutional rights by pushing ahead with this grandiose energy plan," Mr. Phillip said.

BC Hydro, the provincially owned energy utility, says Site C is the cleanest, most cost-effective way to meet future energy demands.

The province included 77 legally binding conditions in its environmental assessment certificate, ranging from a $20-million fund to compensate for flooded agricultural land to a strategy to ensure aboriginal business opportunities.

In a 23-page decision, Environment Minister Leona Aglukkaq said her approval comes with 80 conditions attached, including measures designed to reduce adverse impacts on fish and wildlife, as well continued consultations with First Nations.

The federal government cited the need for electricity and job creation, as well as the potential to reduce reliance on fossil fuels. "Over the life of the project, Site C is expected to help mitigate the growth in greenhouse-gas emissions in Canada by preventing the discharge of between 34 to 76 megatonnes of CO equivalent," she said in a statement.

Andrea Morison of the Peace Valley Environment Association said she was disappointed with the decision. "We are talking about endorsing the eradication of significant farmland – we can grow food for over one million people on the land that is slated to be flooded. You can find alternate sources of energy but you can't create soil and microclimates that are suitable for growing food," Ms. Morison said.

She dismissed the requirement to set aside $20-million for lost agricultural land as insufficient, and said the B.C. cabinet should expect significant cost overruns if the government approves financing for the project.

The project has been subject to extensive study, including a joint environmental review panel. In its report, released last May, the panel concluded that Site C appeared to be the most economical solution to meet future energy needs, with the smallest output of greenhouse-gas emissions.

But the panel also said it could not determine the accuracy of project cost estimates and recommended that if the project were to go ahead, it should be referred to the B.C. Utilities Commission for a detailed examination.

The province, wanting to get on with the project, refused to submit to a hearing by the independent regulator and is instead relying on cost estimates supplied by B.C. Hydro and reviewed by KPMG, a financial advisory firm.