Meeting the Minimum (National) Standards: Ontario Court of Appeal Upholds Constitutionality of Federal Carbon Pricing Backstop

The majority of the Ontario Court of Appeal ruled on June 28, 2019 that the federal Greenhouse Gas Pollution Pricing Act (the Act or GGPPA) is constitutional. In particular, the Court of Appeal ruled that the GGPPA is within Parliament’s jurisdiction to legislate in relation to matters of “national concern” under the Peace, Order and Good Government (POGG) clause of section 91 of the Constitution Act, 1867. The Court found that given the need for a collective approach to a matter of national concern, and the risk of non-participation by one or more provinces, the federal government is within its jurisdiction to adopt minimum national standards for reducing greenhouse gas (GHG) emissions. The GGPA leaves ample scope for provincial legislation in relation to climate change and GHG emissions, while narrowly constraining federal jurisdiction to address the risk of provincial inaction. The Court of Appeal also ruled that the fuel charges imposed by the GGPPA are regulatory in nature and as such, are not taxes.  The Ontario decision follows the May 2019 opinion from the Saskatchewan Court of Appeal, which also upheld the constitutionality of the Act. For more information on the Saskatchewan decision, please see our earlier blog.

Staking Out the Positions

The federal carbon pricing backstop under the GGPPA consists of two components, a fuel charge (under Part 1 of the Act) and an output-based pricing system (OBPS) for large industrial emitters (under Part 2 of the Act). The Attorney General of Ontario argued that both Part 1 and Part 2 of the GGPPA are unconstitutional because the jurisdiction that Canada asserts under the Act would radically alter the constitutional balance between federal and provincial powers. Ontario also argued that the fuel charge and OBPS are unconstitutional because they cannot be supported under any federal head of power. Further, Ontario argued that the charges are not legislatively authorized as taxes and do not have a sufficient nexus to the purposes of the GGPPA to be considered valid regulatory charges. The Attorney General of Canada put forward the argument that the GGPPA is constitutional under the national concern branch of the POGG power. In particular, the “pith and substance” of the Act is the “cumulative dimensions of GHG emissions”, which Canada said is a matter of national concern that the provinces are constitutionally incapable of addressing. In response to Ontario’s argument that the charges themselves are invalid, Canada countered that the fuel charge and OBPS are constitutionally valid regulatory charges which advance the objects of the Act.  18 parties were involved as interveners in the case, including three provincial Attorneys General (BC, New Brunswick and Saskatchewan) and 15 non-governmental and Indigenous organizations. New Brunswick, Saskatchewan and the Canadian Taxpayers Federation supported Ontario’s position, while BC supported the federal government’s position. The remaining interveners supported the constitutionality of the GGPPA on other grounds, including the emergency branch of the POGG power, trade and commerce, taxation and criminal law. Some interveners who were aligned with the federal government’s position supported their submissions by reference to federal treaty-making power, respect for Indigenous and minority rights, and Canada’s duty to consult with Indigenous people and the honour of the Crown.

The Court of Appeal’s Analysis

The decision was rendered by five justices of the Court of Appeal: Strathy C.J.O. (for the majority), MacPherson J.A. (concurring with Strathy), Sharpe J.A. (concurring with Strathy), Hoy A.C.J.O. (concurring judgment), and Huscroft J.A. (dissenting). The Court of Appeal started with the well-established, two-step approach to analyzing the constitutionality of legislation on federalism grounds. This approach starts with “characterization”, where the Court determines the true subject matter, of “pith and substance” of the challenged law. The analysis is followed by “classification”, where the Court determines whether the subject matter falls within the head of power relied upon to support the validity of the legislation. The Court then applies the methodology set out in the leading cases of Re: Anti-Inflation Act ([1976] 2 S.C.R. 373) and R. v. Crown Zellerbach Canada Ltd. ([1988] 1 S.C.R. 401) to determine whether the legislation properly falls within the national concern branch of the POGG power.

On the characterization of the pith and substance of the GGPPA, the Court of Appeal found that neither Ontario’s nor Canada’s proposed characterization is persuasive. Ontario’s description (i.e. as a “comprehensive regulatory scheme for the reduction of GHG emissions from all sources in Canada”) was too broad, while Canada’s description (i.e. the “cumulative dimensions of GHG emissions”) was too vague and confusing since GHG emissions are inherently cumulative and “cumulative dimensions” are undefined. The Court looked to the Preamble of the GGPPA, Canada’s international commitments and domestic emission reduction initiatives for guidance. Based on its analysis, the Court concluded that the pith and substance of the GGPPA can be distilled as “establishing minimum national standards to reduce greenhouse gas emissions”, the means chosen by the legislation is a minimum national standard of stringency for pricing GHG emissions.

On classification, the majority pointed out the environment is a “matter” of shared jurisdiction and that courts must ensure an appropriate balance between federal and provincial jurisdiction in relation to the environment in order to be responsive to the nature of the subject matter being sought to be regulated. This brought the Court to the issue of POGG, which is based in section 91 of the Constitution Act, 1867. Section 91 provides that Parliament may “make Laws for the Peace, Order, and Good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces”.

In its analysis, the majority applied the principles from the Crown Zellerbach case, which consists of two steps. The first is for the court to consider whether the matter has a “singleness, distinctiveness and indivisibility” that clearly distinguishes it from matters of provincial concern. In this regard, the court considers the effect on extra-provincial interests of a provincial failure to regulate the “matter”. The second step is for the court to consider whether the scale of impact of the federal legislation is reconcilable with the constitutional distribution of legislative power.

The Court concluded that establishing minimum national standards to reduce GHG emissions meets the requirements of “singleness, distinctiveness and indivisibility” because while a province can pass laws in relation to GHGs emitted within its own boundaries, its laws cannot affect GHGs emitted by polluters in other provinces. The Court said that however stringent a province’s GHG emissions reduction measures, they cannot reduce Canada’s net emissions on their own. Also, the matter itself is indivisible because no one province acting alone or group of provinces acting together can establish minimum national standards to reduce GHG emissions. Therefore, the issue must be addressed as a single matter to ensure its efficacy.  The Court went on to say that the “inability of one province to control the deleterious effects of GHGs emitted in others…means that one province’s failure to address the issue would endanger the interests of other provinces. … This speaks to the singleness, distinctiveness and indivisibility of the matter.”

On the second prong of the Crown Zellerbach analysis, the Court rejected Ontario’s characterization of the Act. In particular, the Court concluded that the GGPPA only deals with the establishment of minimum national standards to reduce GHG emissions – it operates on a nation-wide basis and leaves ample opportunity for provinces to implement legislation for other aspects of GHG regulation. Ultimately, the Court found that a harmonious reading of the GGPPA permits the legislation to operate concurrently with provincial laws applicable to the environment in general, and to the reduction of GHG emissions in particular.

On the taxation aspect, the Court agreed with Ontario that given its pith and substance, the GGPPA does not fall under the federal taxation power enumerated under section 91(3) of the Constitution Act, 1867. Rather, the Act falls under the national concern branch of the POGG power. The Court went on to address Ontario’s argument that the fuel charge and OBPS have no nexus to the purposes of the GGPPA, a requirement Ontario says is imposed by section 53 of the Constitution Act, 1867 (section 53 provides that bills for imposing any tax shall originate in the House of Commons).  In particular, Ontario argued that there is no nexus between the fuel charge and OBPS on the one hand, and the regulatory purposes of the Act on the other, because (i) the revenues generated by the charges are not linked to the cost of administration of the regulatory scheme; and (ii) those revenues will not be spent in connection with the purposes of the Act. The Court rejected both of Ontario’s arguments that regulatory charges need to reflect the cost of administration of the scheme, and that revenue raised by a regulatory charge must be used to further the purposes of the regulatory scheme. The Court held that even if it was necessary to show that revenues raised are used for the purposes of the GGPPA, the funds are returned to provinces, taxpayers and institutions to reward them for their participation in a program that benefits the provinces and the entire country – in particular, this “promotes and rewards behaviour modification, encourages shifts to cleaner fuels, and fosters innovation”. Therefore, the Court concluded that the fuel charge and OBPS are constitutional regulatory charges.

The Dissenting View

The dissenting judge in the case, Huscroft J.A., agreed with Chief Justice Strathy that Canada’s assertion of authority over the “cumulative dimensions” of GHG emissions cannot be supported under the national concern branch of the POGG power. However, Justice Huscroft disagreed with the majority’s conclusion that Parliament has the authority to establish minimum national standards to reduce GHG emissions under the POGG power. Justice Huscroft took issue with the majority’s identification of the matter of national concern (i.e. the establishment of minimum national standards to reduce GHG emissions) – in particular, he said the matter is too vague to limit the reach of Parliament’s authority in the manner required. This introduces uncertainty, which could potentially have a significant impact on provincial lawmaking authority. For example, could Parliament establish minimum national standards on provincial matters such as road use or farming practices?

Justice Huscroft sees the majority’s interpretation as distorting the POGG power and the “limited purpose it is designed to serve in the constitutional order”. In particular, Justice Huscroft asserted that the national concern branch of POGG power operates on a limited basis in limited circumstances; therefore it does not authorize federal plenary lawmaking authority whenever there is intense, broadly based concern over a matter (in this case, climate change). Justice Huscroft concluded that while Parts 1 and 2 of the GGPPA are not authorized under the national concern branch of the POGG power, this does not mean that Parliament is powerless to address climate change. Rather, Parliament has significant authority to address environmental matters, including authority over taxation, criminal law, and trade and commerce.

Ontario has indicated that it will file an appeal of the Court of Appeal decision to the Supreme Court of Canada. In its own constitutional challenge, Saskatchewan is appealing the Saskatchewan Court of Appeal’s decision to the Supreme Court of Canada. The Supreme Court of Canada has tentatively set a hearing date of December 5, 2019. The Saskatchewan government is asking the Supreme Court of Canada two questions:

1. Is the Greenhouse Gas Pollution Pricing Act unconstitutional in whole or in part?
2. In particular, does Parliament have jurisdiction to establish minimum national standards for price stringency for greenhouse gas emissions under the national concern branch of the peace, order and good government power set out in the opening words of section 91 of the Constitution Act, 1867?

Courtesy of McCarthy Tetrault. View original article here.