Industry NewsfeedCourtesy of McCarthy Tetrault. View original article here.
As the political rhetoric on carbon pricing [rages on], the Saskatchewan Court of Appeal recently delivered a much-anticipated decision in response to the reference question posed by the Saskatchewan government pursuant to The Constitutional Questions Act, 2012 (SS 2012, c. C-29.01). In particular, the province asked the Court for a legal opinion on the following question:
The Greenhouse Gas Pollution Pricing Act was introduced into Parliament on March 28, 2018 as Part 5 of Bill C-74. If enacted, will this Act be unconstitutional in whole or in part?
In a 3-2 decision, the Court upheld the constitutionality of the federal Greenhouse Gas Pollution Pricing Act (GGPPA) on the basis that the legislation falls within the scope of the federal government’s “Peace, Order and Good Government” (POGG) authority. In its decision, the Court took a classic approach to Canadian federalism, which seeks to balance power between the two orders of government in a way that ensures unity (federal order), while allowing for the expression of diversity (provincial order). This is consistent with the approach that is used to manage health and social programs.
While the dissenting judges found that the GGPPA did not meet constitutional requirements, both the majority and dissenting judges agreed that the federal government has the constitutional power to price carbon – where they diverged was the constitutional basis for that federal power. Both the majority and dissenting judges also pointed out that carbon pricing has been proven to be effective and that all levels of government must take action on climate change.
Background to the Reference Case
The GGPPA came into force on June 21, 2018 and sets out the regulatory framework for the federal carbon pricing backstop system, which consists of two components: (i) a fuel levy, and (ii) an output-based pricing system (OBPS) for large industrial emitters. More information on the mechanics of the federal backstop program and its application to the backstop jurisdictions is available in our earlier blogs. The purpose of the GGPPA is to ensure there is a minimum national price on greenhouse gas (GHG) emissions to spur emission reductions across the economy. Part 1 of the GGPPA imposes a levy on GHG-producing fuels and combustible waste, while Part 2 implements the OBPS.
Under the Constitution Act, 1867, the federal and provincial governments have shared jurisdiction over environmental matters. This means that each level of government can legislate in relation to issues such as GHG emissions, provided that the federal and provincial governments stay within their prescribed areas of authority. Saskatchewan challenged the GGPPA on the following basis:
- The GGPPA imposes taxes in the constitutional sense of the term. While Parliament enjoys broad taxing authority, Saskatchewan argued that the Act is invalid because the Governor in Council determines the provinces in which it operates. As a result, this offends the principle of federalism in that the application of the GGPPA depends on whether a province has exercised its own jurisdiction in relation to pricing GHG emissions to a standard considered appropriate by the Governor in Council.
- The GGPPA runs afoul of section 53 of the Constitution Act, 1867, which requires that taxes be authorized by legislative bodies rather than by executive government (or otherwise).
By way of alternative argument, Saskatchewan submitted that the GGPPA is unconstitutional because it is concerned with property and civil rights and other matters of a local nature that fall within the exclusive legislative authority of the province.
The federal government responded by seeking to uphold the GGPPA as a valid exercise of Parliament’s jurisdiction under the national concern branch of its POGG power, which applies to matters of national consequence that have a singleness, distinctiveness and indivisibility clearly distinguishing them from matters coming within provincial jurisdiction. In particular, Canada argued that it should be recognized as having jurisdiction over the “cumulative dimensions of GHG emissions”.
The Court noted that the science of climate change and the impacts of anthropogenic emissions of GHG emissions as summarized in the Climate Change 2014 Synthesis Report Summary for Policymakers (prepared by the Intergovernmental Panel on Climate Change) were not contested or challenged by any of the participants in the case.
Key Findings of the Court
The majority of the Saskatchewan Court of Appeal rejected Saskatchewan’s arguments. In particular, it held that the principle of federalism is not a free-standing concept that can override an otherwise validly enacted law. Rather, the Court said that it is value to be taken into account when interpreting the Constitution. On the issue of section 53, the Court held that Saskatchewan’s argument cannot be sustained because, in constitutional terms, the levies imposed by the GGPPA are regulatory charges, not taxes. The Court went on to say that even if these levies were taxes, the GGPPA does not offend section 53 because Parliament has clearly and expressly authorized the Governor in Council to decide where the Act will apply.
On the issue of POGG, while the Court rejected the federal government’s argument on the basis that it would hamper and limit provincial efforts to deal with GHG emissions, the Court held that Parliament does have authority over a narrower POGG subject matter, i.e. the establishment of minimum national standards of price stringency for GHG emissions. By establishing minimum standards of stringency for GHG pricing, the scope and reach of federal power is minimized, thus leaving the provinces with room to tailor GHG legislation to their circumstances. Based on the foregoing, the Court concluded that the GGPPA is “constitutionally valid because its essential character falls within the scope of this POGG authority”.
A number of intervenors in the case suggested that the GGPPA can be sustained under such federal heads of power such as trade and commerce, the emergency doctrine, criminal law and treaty powers. Ultimately, the Court found that none of these arguments are viable in light of how Parliament chose to frame the legislation.
The Dissenting View
The two dissenting judges came to a different conclusion than the majority. In particular, they found that:
- Part 1 of the GGPPA (dealing with the carbon levy) is an unconstitutional delegation of Parliament’s law-making power under section 91(3) of the Constitution Act, 1867 and is contrary to section 53 of the Constitution Act, 1867.
- Part 1 of the GGPPA (dealing with the carbon levy) is a tax, and not a regulatory charge. Since the tax does not apply uniformly across Canada, it does not meet the constitutional requirements of the tax power. The minority said that the carbon levy was not properly drafted as a tax, at least in constitutional terms (since the carbon levy was designed as a regulatory charge). The dissenting judges did make it clear that Parliament could enact a carbon price if it designed the law as a tax. The minority held that Part 2 of the GGPPA is a regulatory charge.
- Although the GGPPA is unconstitutional, the dissent made it clear that Parliament could enact a carbon price if it is designed as a tax and that it can regulate GHG emissions under its criminal law power.
- The GGPPA cannot be sustained under POGG because setting national standards is not a narrow power; it is a broad power to regulate GHG emissions. The minority said the real issue is that the federal government does not agree with the provincial approach and stringency.
In their decision, the dissent reiterated two points: (i) that all levels of government in Canada must take action to address climate change – anthropogenic emission of GHGs is an issue of pressing concern to all Canadians and the world; and (ii) Parliament has a number of constitutional powers, legislative means and administrative mechanisms at its disposal to achieve its objectives in this regard. The dissenting judges went on to say that federalism in Canada means that all governments of Canada must bring all law-making power to bear on the issue of climate change, but in a way that respects the divisions of power under the Constitution.
Looking Ahead
Saskatchewan has announced its intent to appeal the Court of Appeal’s decision to the Supreme Court of Canada. Ontario had launched a similar constitutional challenge of the federal backstop, which was heard by the Ontario Court of Appeal in April 2019. A decision is expected shortly. It is anticipated that whatever the outcome, the decision will also be appealed to the Supreme Court of Canada. Manitoba has also launched a legal challenge of the federal backstop, which consists of two components: (i) a constitutional challenge, and (ii) a judicial review of the decision of the federal government to impose the federal backstop in Manitoba. Finally, the new United Conservative Party (UCP) in Alberta recently announced that it will launch its own constitutional challenge of the federal backstop.
Carbon Pricing Update from Alberta
During the recent Alberta election campaign, the UCP pledged to eliminate the carbon tax that had been implemented by the previous NDP government under Rachel Notley. On May 22, 2019, Alberta Premier Jason Kenney introduced Bill 1 – An Act to Repeal the Carbon Tax, which will repeal the Climate Leadership Act (and the carbon levy enacted under it) effective May 30, 2019. Federal Environment Minister Catherine McKenna has announced that once Alberta repeals its carbon levy, the federal backstop will be applied as soon as possible.
It should be noted that Bill 1 does not affect the Carbon Competitiveness Incentive Regulation (CCIR, enacted under the Climate Change and Emissions Management Act), which sets out the carbon pricing regime for large industrial emitters. The Alberta government has indicated that it plans to release a climate change plan later this summer, which is expected to modify the CCIR, including lowering the compliance price from $30 to $20/tonne, and directing the revenue to fund technology initiatives (rather than using the proceeds to invest in low-carbon initiatives and lower other taxes). The program will also be renamed the Technology Innovation and Emissions Reduction regime. The Alberta government has not provided any indication whether the carbon price for large emitters will increase in line with federal requirements. In any case, it appears that Alberta will become a backstop jurisdiction, at least in part. Stay tuned for further developments.
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