Ontario Court of Appeal holds federal carbon price constitutional

The Ontario Court of Appeal has confirmed in a 4-1 decision that Parliament has the power to enact a minimum national price on greenhouse gas (GHG) emissions under the Constitution Act, 1867.¹ This issue will likely be decided by the Supreme Court of Canada in 2020.

What you need to know

• Four judges of the Court of Appeal have affirmed that the federal Parliament has legislative authority to enact the federal Greenhouse Gas Pollution Pricing Act (GGPPA) which enacts a minimum national price on GHG emissions. One judge dissented.
• The basis for federal authority is Parliament’s power to make laws for the “Peace, Order and Good Government” of Canada under the Constitution Act, 1867.
• This follows a similar result in the Court of Appeal for Saskatchewan, which upheld the GGPPA (three judges to two). Challenges by two other provinces (Alberta and Manitoba) are still pending.

The Greenhouse Gas Pollution Pricing Act and the provincial references

The GGPPA was enacted to reduce GHG emissions across Canada. To do so, the GGPPA imposes a federal fuel charge on the production, distribution and importation of a variety of GHG-producing fuels. The GGPPA also establishes output-based performance standards for industrial emitters in covered sectors with emissions greater than 50 kt of carbon dioxide equivalent (CO2e)/year, and to facilities with emissions between 10 and 50 kt that voluntarily opt into the program. Both the federal fuel charge and the output-based performance system (OBPS) apply only in designated provinces that have not adopted prices on GHG emissions that meet the national minimums under the GGPPA.²

Notably, the GGPPA is not intended as a scheme to raise revenue. Rather, the proceeds of the federal fuel charge are primarily required to be refunded either to the province in which the charge is collected, or to taxpayers generally. Environment Canada is still in the process of determining how revenue collected under the OBPS will be used, though a substantial portion of that revenue is expected to be reinvested in emission-reduction projects in covered sectors.

Four Canadian provinces have challenged the constitutionality of the GGPPA, arguing that the need to regulate greenhouse gasses is outside the powers of the federal government. Alberta, Saskatchewan and Ontario have each done so through a constitutional reference, meaning that the matter is not heard by a trial-level court, but rather goes to each referring province’s Court of Appeal. Manitoba has challenged the legislation through an application for judicial review. Earlier this year, Saskatchewan’s Court also upheld the legislation in a three to two decision.

The constitutional issue

Since the Constitution Act, 1867 does not exclusively assign environmental regulation to either level of government, it is an area of shared constitutional responsibility. While theoretically the federal government should have jurisdiction over “residual” or unassigned areas of responsibility, the provinces’ power to regulate “property and civil rights” swallowed most of what can be considered “residual.” As a result, when the federal government seeks to regulate environmental issues, it must either ground it in a specific enumerated power (such as criminal law, which has been found to be the constitutional basis for the federal government’s main environmental statutes) or the “Peace, Order and Good Government” (POGG) clause.

“Peace, Order and Good Government”

The case law under POGG enables the federal government to regulate in three circumstances: national emergency, matters of national concern and when there is a “gap” in the constitutional framework. In this case, the federal government relied on the national concern branch. However, because matters of national concern have the potential to overreach into areas properly under provincial jurisdiction, the test for national concern is very stringent. It requires that a matter be of concern to the entire country, and have a “singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern.”³

In this case, the Court concluded that the GGPPA did not involve an unconstitutional intrusion into provincial jurisdiction. Canada argued that the purpose of the law (or “pith and substance”) was to regulate the “cumulative dimensions of GHG emissions.” Writing for the majority, Chief Justice Strathy disagreed but identified the purpose of the law as “establishing minimum national standards to reduce GHG emissions.” The Court then asked whether it contained the “singleness, distinctiveness and indivisibility” required by the national concern branch.

Quoting from the text of a leading constitutional scholar, it noted that “the most important element of national concern is a need for one national law which cannot realistically be satisfied by cooperative provincial action because the failure of one province to cooperate would carry with it adverse consequences for the residents of other provinces.” Because, in the words of the majority, the nature of GHG emissions which “emitted anywhere” cause “climate change everywhere,” it found that this criterion was readily met. It also concluded that the impact on provincial jurisdiction was not so serious that it would “disrupt the fundamental distribution of power that characterizes Canadian federalism.” This is because the GGPPA imposes only minimum national standards and preserves the ability of provinces to design their only regulatory regimes provided they meet these standards.

Associate Chief Justice Hoy wrote brief concurring reasons, disagreeing with the majority on the central purpose of the law, holding that it is “establishing minimum national greenhouse gas emissions pricing standards to reduce greenhouse gas emissions.” The difference, in her view, is that it would constrain the court’s approval of the POGG power to the pricing mechanism, presumably with other mechanisms to be evaluated if and when they are enacted.

Justice Huscroft dissented, writing that “establishing minimum national standards” is not an appropriate characterization of the purpose of a law for constitutional purpose, writing “[t]he difficulty is that [the Chief Justice’s] reasoning begs the question: it depends on the premise that a national standard is required – something that, by definition, no province can establish.” He would have found that the purpose of the GGPPA is to regulate greenhouse gas emissions and that this is too broad a subject for POGG’s national concern branch.

Implications

With the decision from the Saskatchewan Court of Appeal already headed to the Supreme Court, and the Ontario government announcing it will also exercise its appeal right, the provincial Courts of Appeal will not be the last word. However, what is clear from the decision (and the parallel Saskatchewan case) is that the analysis will involve close consideration of the “pith and substance” of the legislation.

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¹ Reference re Greenhouse Gas Pollution Pricing Act, 2019 ONCA 544

² Currently, those provinces are Saskatchewan, Ontario, New Brunswick and Manitoba. Alberta will be added as of January 1, 2020.

³ Ibid. at para. 104