On March 25, 2021, the Supreme Court of Canada (the “SCC”) released its decision on the constitutionality of the Greenhouse Gas Pollution Pricing Act (the “Act”). The Act is the backbone of the federal government’s climate change plan, which sets minimum national standards for carbon pricing. The majority of judges in the 6—3 split decision found the Act to be constitutional under the national concern branch of the “POGG” power, a constitutional power that enables Parliament to legislate for the “peace, order and good government” of Canada. Three dissenting judges would have found the Act unconstitutional. The SCC decision resolved the issue of whether the federal government has the authority to legislate on the mitigation of climate change through pricing carbon emissions, an issue that divided appellate courts in Ontario, Alberta and Saskatchewan.

Background

The federal government passed the Act into law on June 21, 2018 with a view to setting minimum national standards for carbon pricing. Under the Act, provinces and territories are permitted to implement their own carbon pricing system as long as they meet minimum national standards. Provinces and territories that do not implement carbon pricing systems of their own or, in the opinion of the federal government, have implemented carbon pricing systems that do not meet the minimum national standards, will be subject to the “backstop” carbon pricing system set out in the Act (the “Federal Backstop”).

The Federal Backstop places regulatory charges on carbon-based fuel producers, distributors, and importers and also includes a mechanism whereby industrial carbon emitters can trade “credits” through an Output-Based Pricing System (the “OBPS”). The OBPS requires that certain carbon emitters are required to pay a carbon price if their emissions exceed a stipulated level, whereas carbon emitters whose emissions are less than the amount set by the federal government earn credits that can be sold to other carbon emitters.

Following its inception, several provinces challenged the authority of the Act. In an earlier post, we discussed Ontario, Saskatchewan and Alberta’s challenges to constitutionality of the Act in their respective courts of appeal. The provinces argued that the Act was an unconstitutional intrusion into the regulatory space of the provinces. In the references brought before the Ontario[1] and Saskatchewan[2] Court of Appeal, the majority in both courts found the Act to be constitutional. However, in the reference brought before the Court of Appeal of Alberta, the majority of the court found the Act to be unconstitutional. [3] The Alberta, Saskatchewan and Ontario Court of Appeal decisions were appealed to the SCC. The SCC heard the appeals on September 22 and 23, 2020.

The SCC released its decision in Reference re Greenhouse Gas Pollution Pricing Act on March 25, 2021. In a 6-3 split decision, the majority of judges held that the Act is constitutional and that the federal government has jurisdiction to enact it under the national concern branch of the POGG power as outlined in Section 91 of the Constitution Act.[4]

The Majority Decision

The review of legislation on federalism grounds consists of the well-established two-stage analytical approach. The first stage of the analysis is to characterize the “pith and substance”, or matter, of the Act. The second stage is to classify the Act by reference to the heads of power set out in the Constitution.

Characterization of the Act

The majority found that the purpose of the Act was not to mitigate the effects of climate change generally, but was, rather, to mitigate the effects of climate change through greenhouse gas (GHG) pricing.[5] The majority explained that the purpose of the Act corresponds with its practical and legal effect, that is, to set minimum national pricing standards for GHG emissions and to restrict the provinces from enacting pricing systems that were less stringent than the national pricing standards.[6] The majority concluded that the “pith and substance” of the Act was to establish minimum national standards of GHG price stringency to reduce GHG emissions.[7]

Classification of the Act

The federal government argued that the Act was a matter of national concern, and therefore falls within the federal government’s jurisdiction pursuant to the POGG provisions as outlined in Section 91 of the Constitution Act.[8]This was the first time the SCC discussed the national concern branch of the POGG power since R v. Crown Zellerbach Canada Ltd. in 1988 (“Zellerbach”).[9] (see our previous post which discusses the Zellerbach case and the key factors that the court will consider when determining whether a matter transcends provincial jurisdiction and should be recognized as a matter of national concern).

There is a three-step test to determine whether a matter is one of national concern under the POGG power.

The first part of the test requires the court to determine whether the matter is of sufficient concern to the country as a whole.[10] The majority emphasized that climate change is an existential threat to human life in Canada and around the world and that GHG price stringency is critical to the country’s response this threat. The court further noted that the evidence reflects a consensus, both in Canada and internationally, that carbon pricing is integral to reducing GHG emissions and mitigating the effects of climate change. For these primary reasons, the majority found that establishing minimum national standards of GHG price stringency to reduce GHG emissions is of sufficient concern to Canada as a whole.[11]

The second part of the test requires the court to determine whether the matter has a “singleness, distinctiveness, and indivisibility” that distinguishes it from provincial concern. There are two underlying principles that a court must consider in this step: first, federal jurisdiction should be found to exist only over a specific identifiable matter that is qualitatively different from matters of provincial concern. Second, federal jurisdiction should be found to exist only where evidence establishes provincial inability to deal with the matter.[12]

With respect to the first principle, the majority emphasized the extra-provincial and international nature of GHG emissions and the fact that emissions reductions that are limited to a few provinces would fail to address climate change if they were offset by increased emissions in other Canadian jurisdictions. According to the majority, the international and extra-provincial nature of GHG emissions makes minimum national standards of GHG price stringency a matter that is qualitatively different from matters of provincial concern.[13]

Regarding the second principle, the majority found that the provinces, acting together or alone, are incapable of establishing national standards of GHG price stringency. The majority reasoned that any province’s failure to implement a sufficiently stringent GHG pricing mechanism could undermine the efficacy of GHG pricing everywhere in Canada because of the risk of “carbon leakage,” which can occur when businesses transfer production to jurisdictions with laxer emission constraints in order to avoid costs related to climate policies. The court further reasoned that if businesses can relocate to provinces with less stringent carbon pricing policies or to jurisdictions that do not price GHG emissions, then it would undermine the effectiveness of carbon pricing altogether and run the risk that Canada’s net emissions would remain unchanged.[14]

The third and final part of the test requires the court to determine whether the proposed matter has a scale of impact on provincial jurisdiction that is reconcilable with the division of powers.[15] The majority noted that although the Act clearly impacts provincial jurisdiction, its impact is limited and qualified. First, the Act is a “backstop” system that affords provinces the flexibility to implement their own carbon pricing system as long as they met the minimum national standards. Second, provinces retain the ability to legislate, without any federal supervision, in relation to all methods of regulating GHG emissions that do not involve pricing. The result of the Act, according to the majority, is therefore not to limit the provinces’ freedom to legislate, but to partially limit their ability to refrain from legislating pricing mechanisms or to legislate mechanisms that are less stringent than would be needed in order to meet the national GHG emissions targets.[16] The court further reasoned that although this restriction may interfere with a province’s preferred balance between economic and environmental considerations, it is necessary to consider the interests that would be harmed — owing to irreversible consequences for the environment, for human health and safety and for the economy — if Parliament were unable to constitutionally address the matter at a national level.[17] The majority noted that this irreversible harm would be felt across the country and would be borne disproportionately by vulnerable communities and regions, with profound effects on Indigenous peoples, on the Canadian arctic and on Canada’s coastal regions. In the majority’s view, the impact on those interests justified the limited constitutional impact on provincial jurisdiction.[18] As such, the majority found that the Act was reconcilable with the division of powers.[19]

In conclusion, the majority found the Act to be within the federal government’s jurisdiction on the basis of the national concern doctrine.[20]

The Dissenting Judgements

Justices Brown and Rowe provided dissenting reasons and Justice Côté provided reasons for dissenting in part. Justices Brown and Rowe found the Act to be an infringement on provincial jurisdiction that opens the door to further intrusions – by way of the imposition of national standards – into all areas of provincial jurisdiction, including intra-provincial trade and commerce, health, and the management of natural resources.[21] Justice Côté agreed with the majority’s formulation of the national concern doctrine, but found that the breadth of discretion that the Act confers on the federal government is inconsistent with the foundational constitutional principles of parliamentary sovereignty, the rule of law and the separation of powers.[22]

Conclusion

The impact of the SCC’s decision on the future of Canadian climate policy and federalism remains to be seen. At a minimum, the court’s decision provides finality on the issue of whether the federal government has any jurisdiction to regulate GHG emissions. How the federal government can apply this jurisdiction remains uncertain.