Pot, Pipelines and Pollution: What’s New in Provincial-Federal Relations?

Torys Quarterly: The Future of Business in Canada

Federalism is rarely considered a sexy topic, but in 2018 it will play a key role in the development and growth of some important Canadian industries, such as cannabis and hydrocarbons. It will also be crucial as the Federal Government attempts to regulate climate change, along with some enthusiastic and less-than-enthusiastic provincial partners. Below we provide a brief discussion of some of the federalism issues that relate to pot, pipelines and (carbon-based) pollution.

Cannabis Legalization and Provincial Monopolies

Cannabis is becoming legal in 2018, and the various side effects include risks of increased traffic accidents, the munchies and some serious questions about what provinces can and can’t regulate in the newly legal cannabis industry.

Under Parliament’s proposed cannabis framework, people between the ages of 12 and 18 will be prohibited from possessing more than 5g of dried cannabis or its equivalent.1 However, some provinces plan to set different age restrictions. For example, Ontario’s Cannabis Act, 2017 will make it an offence for a person under the age of 19 to possess any amount of cannabis.2 The same is true for British Columbia.3 In Alberta, possession of any cannabis by an individual under 18 will be an offence.4 As some provinces threaten even stricter regulation about how, where and by whom cannabis can be consumed, the constitutional question that will arise is the extent of permissible provincial legislation on this topic. The Federal Government has been somewhat coy on this question, although its background document relating to Bill C-45 raised the possibility that provincial laws which interfere with the dual purposes of de-criminalization (reducing illegal activities relating to cannabis and providing access to a quality-controlled supply of legal cannabis for adults) could be “deemed inoperable.”5

Another question will be whether the provinces can prohibit or regulate interprovincial cannabis. Ontario’s Cannabis Act, 2017 purports to prohibit the purchase of cannabis in Ontario except from the Provincial Government’s own retailer,6 just as it does for alcohol. However, the Supreme Court of Canada’s decision in R v. Comeau7 will address whether either of these prohibitions are constitutional.

The law at issue in Comeau prohibits an individual from possessing more than a certain quantity of alcohol that he or she did not purchase from a New Brunswick liquor store. Section 121 of the Constitution Act, 1867 states that “All Articles of the Growth, Produce, or Manufacture of any one of the Provinces shall…be admitted free into each of the other Provinces.”8 This has always been interpreted to prohibit tariffs on interprovincial trade.9 However, both the New Brunswick trial court and Court of Appeal agreed that section 121 applied to non-tariff-based trade restrictions as well.10 If the Supreme Court agrees, Mr. Comeau’s case could lay the groundwork for challenging other interprovincial trade restrictions, including those imposed on cannabis.

Interprovincial Pipeline Pandemonium

British Columbia is currently at loggerheads with the Alberta and Federal Governments, as well as Kinder Morgan, over the construction of the Kinder Morgan Trans Mountain Pipeline expansion. B.C. Premier Horgan has announced that his government will seek a constitutional reference regarding the Province’s ability to introduce environmental regulations that would restrict the flow of oil through the pipeline.11 The focus of such a reference will likely be whether the proposed regulations are ultra vires the Province and whether they would be rendered inoperative by the doctrine of interjurisdictional immunity. The stakes in this dispute have recently become much higher as Kinder Morgan has suspended non-essential spending on the pipeline and threatened to cancel the project if it cannot receive a clear answer from the various levels of government by May 31.

While the Supreme Court has recently narrowed the scope of interjurisdictional immunity, it remains a crucial doctrine in federal-provincial relations.

A pipeline that extends beyond the boundaries of a province, such as the Trans Mountain Pipeline, falls under federal jurisdiction by virtue of ss. 91(29) and 92(10)(a) of the Constitution Act, 1867, which apply to interprovincial works.12 However, a province clearly has jurisdiction to legislate regarding environmental concerns within its own borders.13 What happens when these two jurisdictions collide?

Environmental regulations that only incidentally affect an interprovincial work may be permissible under certain narrow circumstances. However the tone of Premier Horgan’s communications suggest that B.C.’s true intention is to stop the Trans Mountain Pipeline altogether.14 This is likely to be ultra vires the powers of a province. In Coastal First Nations v. British Columbia, the B.C. trial court held that the B.C. environmental assessment regime was intra vires the Province and could be validly applied to an interprovincial pipeline. However, the court noted that the Province would not be able to use the regime to block the pipeline project entirely.15 Likewise, in Rogers Communications v. Châteauguay, a municipal resolution that prevented construction of a radiocommunications tower was found to be ultra vires Quebec’s National Assembly as an unconstitutional attempt to regulate federal infrastructure.16

Moreover, even if B.C.’s proposed regulations are intra vires a legislature, the doctrine of interjurisdictional immunity may nevertheless render them inoperative if they hinder the flow of oil through the pipeline. The distinction between the doctrines of ultra vires and inoperability through interjurisdictional immunity is subtle but important. While a law that is ultra vires is simply invalid, a law that is inoperative through interjurisdictional immunity continues to apply to everything that it purports to regulate, except for the core of a federally regulated undertaking.17 While the Supreme Court has recently narrowed the scope of interjurisdictional immunity,18 it remains a crucial doctrine in federal-provincial relations.

In Burnaby v. Trans Mountain Pipeline, a municipality relied on local bylaws to interfere with work that was necessary to determine the route of the Trans Mountain Pipeline expansion. Interjurisdictional immunity rendered the bylaws inoperative because they impaired the practical operation of the pipeline by blocking its desired location.19 It is difficult to see how purporting to regulate what flows through a pipeline would not have the same effect.

Carbon Tax Woes

This year, Parliament plans to implement a federal carbon tax regime that would require provinces lacking their own acceptable framework to price carbon dioxide beginning at $10 per tonne.20 Saskatchewan has refused to impose carbon pricing and plans to challenge Parliament’s imposition of a federal regime.21 This challenge will ask and hopefully answer other crucial questions regarding the federal-provincial relationship in Canada.

While a carbon tax would certainly earn money, its primary purpose is arguably reducing greenhouse gas emissions, not collecting revenue.

Both Parliament and the provinces have a general power to legislate regarding the environment.22 However, the constitutional basis for a federal carbon tax is somewhat less clear. While some might think it is apparent on its face that this would be an exercise of the federal taxation power contained in s. 91(3) of the Constitution Act, 1867, this is not necessarily the case.23 A valid tax must be primarily geared towards earning revenue and must be unconnected to a regulatory scheme.24 While a carbon tax would certainly earn money, its primary purpose is arguably reducing greenhouse gas emissions, not collecting revenue. Further, a carbon tax is likely to be part of a broader regulatory framework.

Surprisingly, it seems more likely that the regulation of the environment might be a valid exercise of the criminal law power, since pollution is a recognized “evil” that Parliament is entitled to suppress.25 However, a valid exercise of the criminal law power must consist of a prohibition and a penalty.26 One may argue that a per-tonne charge on carbon emissions is not necessarily a prohibition. It does not ban an activity, it simply makes the activity more expensive. But, limiting an activity can be a form of prohibition.27 In Reference re Firearms Act, the “limit” was requiring individuals to have a licence in order to possess a firearm. This was sufficiently prohibitory to make the law criminal.28 With a carbon tax, the “limit” is requiring entities to pay in order to emit greenhouse gases.

Assuming that Parliament’s carbon tax regime is constitutionally sound, Saskatchewan will likely be forced to comply with it. The doctrine of paramountcy requires compliance with federal legislation over provincial legislation to the extent that it is impossible to comply with both simultaneously or to the extent that the provincial legislation frustrates the purpose of the federal legislation.29

Conclusion

While federalism fights have been with us since Confederation, their intensity and frequency wax and wane with the political winds. This year, it looks like a number of different disputes are on the legal horizon. Businesses in the various industries involved will have to wait and see how and when the different layers of government choose to regulate and carefully pick their battles. Any one law or regulatory action may come into or out of vogue with different governments, but legislation and regulation, and therefore federal-provincial conflicts, are here to stay.

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1 Bill C-45,Cannabis Act,1st. Sess., 42nd. Parl., 2017, ss. 2(1), 8(1)(a), (c).

2 Cannabis Act, 2017S.O. 2017, c. 26, Sched. 1, s. 10(1).

3 British Columbia Ministry of Public Safety and Solicitor General, “Cannabis retail, driving laws amongst new firm-on-safety policy decisions,” (Victoria: P.S.S.G., 5 February 2018).

4 Government of Alberta, “Alberta Cannabis Framework and Legislation.”

5 Government of Canada, “Legislative Background: An Act respecting cannabis and to amend the Controlled Drugs and Substances Act, the Criminal Code and other Acts (Bill C-45),” (Ottawa: Department of Justice, May 2017) at 20.

6 Cannabis Act, 2017S.O. 2017, c. 26, Sched. 1, s. 9. Under s. 4 of the Cannabis Act, 2017 General RegulationsO. Reg. 30/18, a person can bring cannabis purchased from another province into Ontario, but only if the cannabis accompanies the person into Ontario. Extra-provincial retailers would not be able to sell cannabis in Ontario directly.

7 R v. ComeauSCC No. 37398.

8 Constitution Act, 1867, (U.K.), 30 & 31 Vict., c. 3, reprinted R.S.C. 1985, App. II, No. 5, s. 121.

9 Gold Seal Ltd. v. Alberta (Attorney General) (1921), 62 S.C.R. 424 at 456, 466, 469-470, per Duff, Anglin, and Mignault JJ., respectively; Atlantic Smoke Shops Limited v. Conlon[1943] 4 D.L.R. 81 at 92-93 (P.C.).

10 R v. Comeau2016 NBPC 3 at paras. 189-194, leave refused, 2016 CanLII 73665 (N.B.C.A.).

11 Kelly Cryderman, “Alberta and B.C. agree to a truce in pipeline dispute,” The Globe and Mail (22 February 2018).

12 Constitution Act, 1867, (U.K.), 30 & 31 Vict., c. 3, reprinted R.S.C. 1985, App. II, No. 5, ss. 91(29), 92(10)(a). See Westcoast Energy Inc. v. Canada (National Energy Board)[1998] 1 S.C.R. 322 at para. 44.

13 Friends of the Oldman River Society v. Canada (Minister of Transport)[1992] 1 S.C.R. 3 at 68.

14 Simon Little and Jeremy Lye, “‘We’re far from out of the woods’: B.C. Premier John Horgan says bitumen battle isn’t over yet,” Global News (23 February 2018) (“During the 2017 election campaign, Horgan pledged to use ‘every tool in the tool box’ to stop the 1,150-kilometre pipeline expansion from Edmonton to Burnaby”).

15 Coastal First Nations v. British Columbia (Environment)2016 BCSC 34 at paras. 55-56.

16 Rogers Communications Inc. v. Châteauguay (City)2016 SCC 23 at paras. 44-46.

17 Quebec (Attorney General) v. Canadian Owners and Pilots Association2010 SCC 39 at paras. 16, 57.

18 Canadian Western Bank v. Alberta2007 SCC 22 at paras. 67, 77-78.

19 Burnaby (City) v. Trans Mountain Pipeline ULC2015 BCSC 2140 at para. 68, aff’d, 2017 BCCA 132. Note that this conclusion was in the alternative. The court’s primary conclusion was that it should decline jurisdiction to consider the constitutional questions because a federal administrative tribunal had already done so, and the court sought to avoid two inconsistent decisions.

20 Micki Cowan, “What Saskatchewan stands to lose – and gain – by not signing the federal climate change plan,” CBC News (2 March 2018).

21 Alex Soloducha, “Federal government refusing ‘no’ for an answer on carbon pricing in Sask.,” CBC News (12 March 2018).

22 Friends of the Oldman River Society v. Canada (Minister of Transport)[1992] 1 S.C.R. 3 at 63.

23 Constitution Act, 1867, (U.K.), 30 & 31 Vict., c. 3, reprinted R.S.C. 1985, App. II, No. 5, s. 91(3).

24 Westbank First Nation v. British Columbia Hydro and Power Authority[1999] 3 S.C.R. 134 at paras. 30, 43.

25 R. v. Hydro-Québec[1997] 3 S.C.R. 213 at para. 123.

26 R. v. Hydro-Québec[1997] 3 S.C.R. 213 at paras. 119, 122.

27 Syncrude Canada Ltd. v. Canada (Attorney General)2016 FCA 160 at para. 73.

28 Reference re Firearms Act (Canada)2000 SCC 31 at paras. 37-39.

29 Alberta (Attorney General) v. Moloney2015 SCC 51 at para. 18.

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