Supreme Court upholds Greenhouse Gas Pollution Pricing Act

The Supreme Court of Canada has released its decision in the Reference Re: Greenhouse Gas Pollution Pricing Act. The Court’s four decisions (one for the majority, with three dissents) raise numerous issues relating to federal powers to regulate greenhouse gasses, the future of federal environmental regulation, and even the mechanisms of cooperative federalism. As a result, it is one of the most consequential Supreme Court decisions in recent memory.

What you need to know

• The Supreme Court of Canada has upheld the Greenhouse Gas Pollution Pricing Act as a valid exercise of Parliament’s power to make laws for the “Peace, Order and Good Government” (POGG) of Canada.
• The Supreme Court has re-articulated the “national concern” branch of the POGG clause in a way that allows Parliament to enact legislation with respect to matters that were previously categorized as provincial in nature.
• The Supreme Court confirmed that the “double aspect” doctrine applies even to matters of “national concern”, so that they may be regulated by both levels of government, although the federal law will be paramount.
• Three judges dissented. Justices Rowe and Brown concluded that setting national standards for greenhouse gas emissions exceeds Parliament’s power under POGG. Justice Cote agreed with the majority about the characterization of the Act but held that it was nevertheless unconstitutional because of the breadth of discretion it conferred on the Governor in Council.

The Greenhouse Gas Pollution Pricing Act

In 2018, the federal government enacted the Greenhouse Gas Pollution Pricing Act (GGPPA). The GGPA was enacted in response to Canada’s international commitment to signifcantly reduce its greenhouse gas (GHG) emissions in order to mitigate the effects of climate change. Part I of the GGPPA establishes a fuel charge on the distribution of various types of carbon-based fuel, and Part 2 sets out a pricing mechanism for certain industrial GHG emissions that are not subject to the fuel charge.

One of the unique features of the GGPPA is that it sets a minimum price per tonne of GHG emissions, but allows provinces to create their own alternative schemes to reduce these emissions if such schemes meet the federal backstop price. If the federal cabinet determines that a province’s own GHG pricing mechanism is sufficiently stringent in respect of fuel distribution, industrial emissions or both, it will exempt that province from the relevant aspects of the federal regime.

Three provinces challenged the constitutionality of the GGPPA on the basis that it exceeded Parliament’s authority to legislate under section 91 of the Constitution Act, 1867, by referring the question to their respective Courts of Appeal. The results of those references were divided. In Saskatchewan and Ontario, the Courts upheld the legislation under the national concern branch of the POGG power, but in each case there was a dissenting opinion. In Alberta, a 4-1 majority held that the GGPA exceeded Parliament’s legislative authority.

These three cases were combined into one reference before the Supreme Court, which was heard in September of 2020. The Court released its decision on March 25, upholding the legislation 6-3.

Pith and substance of the GGPA

The majority’s decision, written by the Chief Justice, starts by recognizing that climate change is real, that it is caused by greenhouse gas emissions resulting from human activities and poses a “grave threat to humanity’s future”. The Chief Justice also accepted that climate change has no geographic boundaries, the effects of GHG emissions have no connection to the source of the GHG emissions and that no one province, territory or country can address climate change on its own.

In every case dealing with the division of powers, the first step is to characterize the legislation by determining its true subject matter—also known as its “pith and substance”—through a consideration of its purpose and effects. The majority opinion concluded that the true subject matter of the GGPPA is “establishing minimum national standards of GHG price stringency to reduce GHG emission”. Chief Justice Wagner considered the title and preamble of the GGPPA, which focuses on GHG pricing. He also identified the mischief the GGPPA sought to remedy as the failure of some provinces to implement sufficiently stringent GHG pricing systems, resulting in an inability to reduce GHG emissions across the country. Turning to the effects of the statute, the Chief Justice held that the GGPPA essentially acts as a backstop, since Parts 1 and 2 only apply where a province or territory’s own GHG pricing system is insufficiently stringent. It does not regulate GHG emitting activities, nor does it require provincial industries to reduce GHG emissions in any particular way, in provinces whose own GHG pricing regimes are recognized as equivalent to the GGPPA.

Justices Brown and Rowe disagreed with this characterization of the legislation. Justice Brown rejected the majority’s characterization as being too broad to facilitate classification. He criticized the majority’s characterization of “minimum national standards”, as being meaningless and begging the question, “standards for what”? Justice Brown would have held that the pith and substance of Parts 1 and 2 ought to be characterized separately, with Part 2 being about the reduction of GHG emissions by raising the cost of fuel and Part 2 being about the reduction of GHG emissions by pricing emissions in a manner that distinguishes among industries based on their emissions intensity and trade exposure.

Federal jurisdiction under the national concern doctrine of POGG

Once the Court characterized the legislation, the relevant question was whether the “pith and substance” falls within Parliament’s powers under section 91. The federal government’s position was that the GGPPA was authorized by the “national concern” branch of the POGG power. The “national concern” doctrine allows Parliament to legislate over matters not specifically assigned to any provincial head of power, where such matters are of national concern. However, the courts recognize that this power should not be read too broadly, since, left unchecked, national concern could easily upend the balance between federal and provincial legislative authority. It has therefore been applied in only “exceptional” cases.

Chief Justice Wagner explained that the purpose of the national concern analysis is to identify matters of inherent national concern, which transcend the provinces. The majority reframed the test for national concern as follows:

1. The threshold question: is the matter of sufficient concern to Canada as a whole to warrant consideration under national concern? This is a “common sense” inquiry, where Canada must adduce sufficient evidence to satisfy the test.
2. Does the matter have a singleness, distinctiveness and indivisibility that clearly distinguishes it from provincial concern? Two principles animate this inquiry: first, the matter must be specific, readily identifiable and qualitatively different from matters of provincial concern; and second, the matter must be one that the provinces cannot address either jointly or severally.
3. Does the proposed matter have a scale of impact on provincial jurisdiction that is reconcilable with the fundamental distribution of legislative power under the Constitution? The purpose of this aspect of the test is to prevent federal overreach.

The majority held that all three steps were satisfied. The Chief Justice noted that the federal government had established that minimum standards for GHG price stringency to reduce GHG emissions is of significant concern to Canada as a whole. He held that “this matter is critical to our response to an existential threat to human life in Canada and around the world”. The Chief Justice also concluded that the GGPPA had the requisite singleness, distinctiveness and indivisibility, since GHG emissions are a diffuse atmospheric pollutant with serious extraprovincial and international effects. Moreover, because it established minimum national standards, the GGPPA does not represent an “aggregate” of what the provinces could do, nor does it duplicate provincial GHG pricing systems. Rather, the fact that the regime is designed as a backstop makes it qualitatively different from anything that could be enacted by the provinces.

The majority also concluded that the GGPPA met the provincial inability aspect of the test, since, one provincial outlier would jeopardize success of the scheme, leading to grave consequences for the other provinces. This is due to the well-recognized concern of “carbon leakage”, where GHG emissions sources in one jurisdiction relocation production or facilitates to other jurisdictions that have a less stringent or no price on emissions. Finally, the Chief Justice concluded that the Act did not represent federal overreach. He found that the impact on the provinces would be qualified and limited, particularly since the GGPPA only applies to the extent necessary to fix a deficiency in provincial regulation.

Justices Brown and Rowe disagreed with the majority’s POGG analysis. Justice Brown concluded that the “backstop” structure of the legislation meant that provinces could regulate GHGs, and that because the province’s jurisdiction to do so was exclusive, the Act could not fall into the national concern branch of POGG. He objected to the majority’s characterization of the legislation as requiring “minimum national standards” because this was the mechanism of the legislation, not its “pith and substance”. He characterized the pith and substance of Part 1 of the act as “the reduction of GHG emissions by raising the cost of fuel” and Part 2 as “the reduction of GHG emissions by pricing emissions in a manner that distinguishes among industries based on emissions intensity and trade exposure”. He concluded that both these legislative purposes would fall into section 92(13) (property and civil rights) and that Part 2 would fall into section 92(10) (local works and undertakings). Justice Rowe agreed, and concluded that POGG’s status as a residual power meant it should be read narrowly. Both Justices Rowe and Brown expressed concern about the majority’s articulation of the national concern branch of the POGG power, with Justice Brown accusing the majority of abandoning any “meaningful constraint” on the doctrine. In addition, they were concerned that characterizing legislation as setting “minimum national standards” and permitting it under the national concern branch of the POGG power would open the door to federal intrusion into any area of provincial jurisdiction.

Delegation of powers and Justice Cote’s dissent

Justice Cote agreed with the majority on the question whether the GGPPA is properly a matter of national concern, but nevertheless found it to be ultra vires Parliament. Her dissent was premised on an idea that has not previously been well-canvassed by the Supreme Court, which is the extent to which a legislature can delegate its authority.

Many statutes set broad policy, and leave the details to regulations, which are enacted by individual Ministers or the federal cabinet. This delegation of statutory authority is central to our system of governance and not controversial. However, the GGPPA provides for broader-than-usual delegations, as various provisions permit the federal cabinet to decide where and to what the fuel charge applies, what provinces it applies in, and even permit it to amend certain schedules of the legislation itself for that purpose. These are consequential changes that define how and where the legislation will apply. Clauses that allow amendments to legislation by regulation are sometimes called “Henry VIII clauses”, named for the infamous British Monarch who persuaded Parliament to grant him the power to issue proclamations that had the full force of law.

Justice Cote concluded that the existence of these delegation clauses in the GGPPA render the statute unconstitutional, holding that its “excessively broad delegation of power removes the regulation of GHGs from the legitimizing forum of the legislature and places it into the hands of the few”. Justices Brown and Rowe agreed, concluding that the GGPPA did not provide “minimum national standards” but rather industry-by-industry standards.

Justice Cote wrote lengthy reasons setting out why she would not permit Parliament to enact what she described as a “discretionary scheme that knows no bounds” citing the provisions of the Constitution Act, 1867 that provides for Parliament’s powers, and the concept of a constitutional separation of powers.

The majority rejected Justice Cote’s analysis on delegation, concluding that Parliamentary sovereignty included the power of Parliament to delegate its sovereign powers to officials of its choosing. It cited a number of 20^th century cases that affirm “Henry VIII” clauses are legitimate delegations of statutory authority. It also confirmed that the regulation-making power in a Henry VIII clause is inherently constrained because any regulations made under this clause “must be consistent both with specific provisions of the enabling statute and with its overriding purpose or object”.

Future implications

It is always risky to draw sweeping conclusions when federalism cases seem to be decided essentially on a case-by-case basis. Making generalizations out of the 616 paragraphs in four separate judgments is a difficult exercise. But we think there are some take-aways that are important for business and government as they consider the future of Canada’s efforts to address climate change.

First, the Supreme Court as currently composed, agrees there is a sense of urgency on climate change, and is willing to allow Parliament a certain degree of legislative latitude to address it. Future federal measures can be expected to be carefully calibrated to accord with the majority’s decision, reducing the likelihood that challenges to those measures will succeed.

Second, it is reasonable to expect that the same analysis would apply to other federal environmental measures, if Parliament chooses to enact them. If the government is able to show that the issues have acquired a level of urgency, then they would likely be upheld.

Third, “National Concern” appears to have been reinvigorated and possibly in a more robust form than we have previously experienced it. However, the exercise of this power is invariably constrained by political calculations. To string together a majority, a federal political party needs considerable support from either the prairie provinces or Quebec, or both. These regions have historically resisted over-centralization of powers, and federal governments may be reluctant to risk their support unless the policy in question is popular in one or both.

Fourth, the application of the “double aspect” doctrine to POGG will be carefully scrutinized in practice in the future. The doctrine permits overlapping regulation, subject to paramountcy rules. This is consistent with some modern decisions that lean away from the “watertight compartments” approach to legislative powers, but could—if not surgically applied—permit the already significant regulatory burden on businesses to multiply.

Fifth, there are some loud dissenting voices on the Supreme Court that take a different view of federal-provincial relations than the majority. The composition of the court changes often. Eight of the current judges have been appointed since 2011, and there will inevitably be further turnover in the next ten years. A different government may seek out judges that take a similar approach to Justice Brown’s or Justice Rowe’s, to the extent that they can identify it. An interesting fact for those who fear that we are importing the American trend by having judges too closely identified with the party that appointed them is that both the majority and the dissent had a mixture of judges appointed by Conservatives (Moldaver, Wagner, Karakatsanis, Cote, Brown) and Liberals (Rowe, Martin, Kasirer, Abella).

Sixth, while it was not adopted by the majority, Justice Cote’s well reasoned dissent about the scope of permissible delegation raises interesting and difficult questions. If her point about the Separation of Powers is picked up and carefully investigated by future courts, it could have a significant impact on the way in which the legislative and executive roles operate at both the provincial and federal levels.