Re your LRT example, if K-W is any example, the construction on/off existing streets involves vast amounts of excavation, changes to street levels, potential impacts on stormwater runoff, potential flood plain impacts, and on and on. Evaluating potential environmental consequences of such construction, even in built-up areas, with a view to mitigating any impacts seems only prudent to me.
Re Yonge St, I am no expert, but I suspect that no, you don't shut it down, you mitigate/remediate. For example, I believe there was once a coal gasification plant located in the area once known as "The Ward" to the west of Yonge St, among other industries. What if, for example, there has been historic soil contamination by coal tar and what if groundwater has carried the contamination eastward (I am again thinking of an experience in K-W)? How would you know this and how could you plan to remediate it without an EA? Again, it just seems prudent to me.