The highly anticipated decision of the Supreme Court of Canada that the federal government’s impact assessment framework exceeded its constitutional bounds1 has made headlines and sparked discussion among business and industry. The ruling also sends legislators back to the drawing board for significant parts of the far-reaching regime.
In this article and video, we share our initial reactions and commentary on the landmark ruling.
Video: The Supreme Court weighs in on the Impact Assessment Act
Dennis Mahony (00:05): Hello and welcome to our initial reaction to the Supreme Court of Canada's recent decision in the Impact Assessment Act reference case. You can find our two-page summary of the decision online at torys.com. You'll also find a link to the SCC decision in there. Some of you will remember that four of us did a webinar—the four of us here today did a webinar last November on federalism and the energy transition.
This case played a fairly prominent role in that discussion. You can find the recording of that hour-long session on torys.com/webinars where you can click on the library link at the bottom of that page. The focus of that session was the influence of Canada's division of powers on the past government have available to manage our transition to a lower carbon future.
The Supreme Court's Impact Assessment Act reference decision is another significant chapter in that history. A couple of contextual reminders before we begin, the federal environmental policy has been implemented in recent years through legislation like the Greenhouse Gas Pollution Pricing Act, which was in force in the summer of 2018, and the Federal Impact Assessment Act, which was in force a year later in 2019.
So the Supreme Court has now ruled on both of those. And in each case, the Court has provided guidance on the extent to which the federal government is empowered by the Constitution to regulate with respect to environmental impacts of industrial developments. In that greenhouse gas case, the federal government's legislation got a thumbs up with the reminder that its power was not without constraints.
So on Friday, that reminder got an exclamation point with a thumbs down from the Court. And we'll be talking about that in a little bit of detail today. So on to our panelists for their reaction. As some of you will know, those of you who tuned in to our last webinar, all of them make their living navigating through the constitutional weeds.
Andrew Bernstein to my left, Yael Bienenstock in New York, are Toronto-based litigators–Yael's visiting New York–and members of our public law group. Both have acted on important federalism cases in recent years, including the very well-known Rogers Telecom case, and more recently, on an important federalism case. They won for CN Rail, which they'll be defending before the Ontario Court of Appeal just next month.
Lou Cusano is the managing partner of our Calgary office. He’s a regulatory expert and litigator with decades of experience in the oil patch. He knows provincial and federal environmental assessment and impact assessment regimes as well as anyone in the country. My name is Dennis Mahony and I'm the head of our Environmental, Health and Safety Group. And let's now get into it, first with Yael and Andrew. So, tell us what the Court decided and why.
Andrew Bernstein (03:12): Sure. So I'm going to set the stage for a broader discussion that Yael’s going to provide. So there's two parts essentially to the Impact Assessment Act. There is a portion elegantly referred to as sections 81 through 91, which relate exclusively to projects on federal lands or projects outside of Canada. And this portion of the of the regime was fine. The Court said it was fine.
What we're really focused on is the other part of the regime called the “designated projects” regime. And so it's important to understand the structure of the designated projects regime. There are essentially four parts to it. There's a threshold or trigger question: what projects get captured by this legislation in the first place? Obviously, federally-regulated projects and interprovincial pipeline will get captured by federal environmental legislation.
But the key question that the Court was focused on here is, projects that are otherwise not tied to federal jurisdiction. So, a mine or an oil well within a province. When would they be triggered? When would the federal legislation be triggered to apply to those kinds of otherwise provincially-regulated projects? Then there's the information gathering portion of the regime where the government decides whether to do an assessment or not.
There's an assessment phase where the government assesses the potential impact of the project, and there's the decision-making phase where the federal government decides, essentially, I think the current expression is “whether the juice is worth the squeeze”. And the basic argument by Alberta and the other provinces was that the trigger phase and the decision-making phase went beyond what the federal government or parliament has the constitutional authority to do.
So over to Yael to talk about what the Court thought about that.
Yael Bienenstock (05:17): So in a nutshell, the Court bought that argument. It held that the assessment act and particularly the trigger phase and the decision-making phase intruded too far into provincial authority over things like property and civil rights, natural resources, forestry resources and electrical energy, and it's a long and pretty nuanced decision. But essentially, the Court had two big problems with the scheme.
The first problem–and actually let me just go back for one minute to constitutional law 101, which is, how does it go about doing this analysis? Well, it looks at the law and it asks itself the question: What is this law really about? What's the essence of the law? And once the Court answers that question, then the Court says, Okay, well, how do I classify it? Does it fall within the federal head of power?
And environmental legislation has certainly been upheld under federal heads of power, notably the criminal law of power, which is broader than you might think. And the national concern branch of the Peace, Order and Good Government power, which is how the carbon tax legislation was upheld. So in this case, when the Court went through that analysis, it said that the essence of this law was about assessing and regulating designated projects.
And again, we're talking about just the “designated projects” part of the legislation, that Andrew talked about, with a view to mitigating or preventing their potential adverse environmental health, social and economic impacts. And it said that this was outside of federal jurisdiction for two main reasons. And as Andrew said, one of the issues here is that the Court isn't talking about something that's otherwise federally-regulated, like an interprovincial pipeline or an interprovincial railway.
It's talking about something that would otherwise be provincially-regulated like a mine. And so, the Court said that the way that this regime went about regulating that sort of thing was constitutional overreach for two big reasons. First, the Act required, in order to bring a project within its ambit, the project had to have some sort of federal effect.
But once that initial determination was made, when the administrative body went about deciding, the screening mechanism went about deciding whether the project should be approved. At those stages, there was very little emphasis and very little consideration given to federal effect. Instead, what the government would really be looking at is the project as a whole.
There were a whole bunch of factors that have to be looked at the approval stage, which is really a bit of a public interest—well not a bit, it was primarily a public interest inquiry—and the public interest there is not just from the federal perspective, but from the project perspective as a whole. The other problem which exacerbated the first problem is that I said at the outset that to bring something within the ambit of the Act, it had to have a federal effect.
But that was defined very, very broadly. And so, a federal effect could be something as limited as, well, the project's going to give off greenhouse gases and those go over interprovincial borders. And so this is a federal effect that's going to bring the project within federal jurisdiction. And once that happened, we go back to the first problem, which is we're not really focused on federal effects at all.
We're looking at the project and whether the project as a whole should go ahead and regulating every single aspect of it. The government tried to justify this under the Peace, Order and Good Government power, which it had successfully done with the carbon tax legislation. And the Court rejected that argument, saying essentially, “This is too broad, it's not a very defined, narrow piece of legislation. It's all encompassing.”
Dennis Mahony (08:59): Okay, so that's the general description. And of course, the decision is—I don't think we ever figured out the page count, but I'm guessing hundreds.
Andrew Bernstein (09:08): 340 paragraphs.
Dennis Mahony (09:10): There we go. So—
Yael Bienenstock (09:11): 200 pages.
Dennis Mahony (09:13): Yael and Andrew, you're used to seeing lots of these very lengthy constitutional decisions. What stood out about this one for the two of you?
Andrew Bernstein (09:23): Well, what I would say stood out for me more than anything was the disagreement between the majority and the dissent. There was a real disagreement, and it was almost a philosophical disagreement. Legislation like this, regulatory legislation is, of course, broad and open-ended. On its face, and this is what the majority had a problem with, it allowed the federal government to take into account effects that were outside of federal jurisdiction on even otherwise provincially-regulated projects.
And the government's argument was, well, if you squint and look at it sideways, you could read it so that it actually is just, you know, limited to those federal effects. And you've got to look at the legislation and assume that it's going to be implemented in a constitutional way and otherwise judge the legislation on how it’s administered, not what it says.
And if we administer it in a way that looks like we're going out of federal jurisdiction, then you can deal with that on a case-by-case basis. This is a novel argument, and it's not one that's typically accepted in Canadian constitutional law. We do have a presumption of constitutionality, of course, and we have the idea of reading down legislation so that if it's ambiguous, you read it in a constitutional way, but we don't have a principle that you can take an otherwise constitutional law and assume it—sorry, an otherwise unconstitutional law and assume it's only going to be administered constitutionally.
We have the opposite. And the thing that came to my mind was the mandatory minimums cases under the Charter. The Court said, “Well, if you can think of a reasonable hypothetical where this mandatory minimums law permits cruel and unusual punishment, then the law is invalid”. And so, there's no reason why I would say you would expect anything different in the federalism context, surprisingly two, I think very good Supreme Court justices, Justice Mahmud Jamal and Justice Karakatsanis, bought that argument, and so the case was a 5-2 decision with the majority finding the IAA was not consistent with the 1867 Constitution Act and the dissent concluding that it is. Yael, what stood out for you?
Yael Bienenstock (11:49): I think the way the Supreme Court dealt with the Alberta Court of Appeal decision. The Alberta Court of Appeal decision was definitely an interesting read. The Alberta Court of Appeal was very against this Act, and there was a lot of strong language in it. I think my personal favourite is a constitutional wrecking ball, and I wasn't surprised that the Supreme Court would want to distance itself from some of the language in the decision.
But the Alberta Court of Appeal decision also had a lot of interesting history about the Constitution and the amendment that gave the provinces exclusive legislative authority over natural resources in section 92A. And I thought that was a very interesting part of the Alberta Court of Appeal decision, and the Supreme Court stays totally away from all of that.
It doesn't really touch a lot of the things that the Alberta Court talked about, and it certainly doesn't engage with the Alberta Court of Appeal decision, which is unusual. Usually, you see the Court either saying where they went wrong below or agreeing with certain aspects of what happened below and here they're just kind of pretending it didn't happen at all.
Andrew Bernstein (12:52): I had the sense that the Court was like, Yeah, you're right, Alberta Court of Appeal. But, you know, you're right. But those reasons are kind of going a little far and there's no real need to get into provincial powers, right? We all know that mining or oil resource extraction are provincial powers. So I was a little less surprised maybe that the Supreme Court just decided to stay away from some of the more controversial aspects of the Alberta's decision.
Dennis Mahony (13:22): Okay. And I think lots of people will be wondering, what's the status of the Impact Assessment Act now? Is it been struck down?
Yael Bienenstock (13:32): No, it's still alive and well, although maybe on its last legs. This is an advisory opinion from the Court because it's a reference. So it has not been struck down, and so, the IAA is still in force right now. But I think what we will see is that the federal government is going to take this decision very seriously, and we can expect an overhaul of the federal environmental regime in the coming, I guess I want to say months or so?
And the next iteration of the legislation is going to have to be much more carefully-tailored on federal effects, which is what the Court said they had to do for projects that are primarily provincially-regulated. So, I think in future regimes there are certain projects that maybe came within the current IAA that might not come within the next iteration of environmental legislation.
But certainly there is an overhaul on the horizon.
Dennis Mahony (14:25): So, Lou, just a reminder for people listening. You're coming to us from Calgary. How's the Western Canadian response and what does the oil and gas sector think about this, at least so far?
Lou Cusano (14:39): Thanks for the question, Dennis. Let me give you a bit of context, if I can, and perhaps to state the obvious. The Act has been the most recent reason for provincial and federal jousting over the regulation of provincially based projects. Critics are of the view that the Act led to uncertainty and a lack of transparency and timeliness, none of which is good for investors or the development of projects.
And to be clear, by projects we mean not only those that traditionally have been carbon emission intensive, but also projects that are needed to support a transition to a lower carbon economy. And just to remind folks of the criticism and opposition to the Act when it was first introduced, it was fierce. And I think the Alberta Court of Appeal captured that opposition and concern and summed it up quite well when it said that in its decision, all provincial industries, almost every aspect of a province's economy that the federal government chooses to sweep within the Act, along with a province's development of its natural resources, would be subject to federal regulation.
And so that captured the sense of the concern and the issue at the time and throughout the time that the Act has been in force. And so, it's interesting that although the fight was led by Alberta, the implications of the decision are countrywide. And you will have seen many provinces speaking out positively about the decision, including Alberta. And so, as you look across the country, there are implications, for example, for LNG facilities in BC, bitumen projects in Alberta, mining in a number of provinces, even down to Highway 413 in Ontario.
Now, whether or not projects that were shelved under the Act may be revisited remains to be seen and may depend on how the Act is amended. But I think it's fair to say, Dennis, that the reaction of Alberta and the provinces has been quite positive and that includes various industry groups as well.
Dennis Mahony (16:55): And Lou, just as a footnote to that, Yael and Andrew have already mentioned this. And on the practical side, the projects you just mentioned, including Highway 413, those are projects which the Court would clearly put in the primarily provincially-regulated categories. And those are the ones that were really the focus of this, the factual focus of this opinion.
And I think at the end of the day, what the Court said is if it's a federally-regulated project, then the federal government has a broad scope to regulate and be the gatekeeper. But with respect to primarily provincially-regulated projects, that gatekeeper function is much, much narrower and that needs to be reflected in the Act. So I think what we can expect in the revision, expect/hope for is that there's a much lighter touch on the kind of projects you describe there.
There will be federal aspects and some federal role, but it should be a secondary sliver, not the main driver, which is what it has become over the years.
Lou Cusano (18:03): Yeah, I agree with you, Dennis. I think that's right. And it'll be interesting to see how the federal government approaches the amendments. As we've heard from the federal government in its reaction to the Supreme Court of Canada's decision, it views its role as doing some surgical changes as opposed to rewriting the legislation. So as always, proof is in the pudding, and we'll have to see what the amendments look like at the end of the day.
But certainly from the federal government's perspective, it does appear that it's going to approach the Act by tweaking it as opposed to making fundamental changes to it.
Dennis Mahony (18:41): And my next question. This can be for everybody, but I'm thinking of you in particular, Lou, is with respect to your reaction to the practical impacts for industry in general. So, you know, I can imagine that folks who are looking at private sector developments can take some heart today, that maybe we'll have a little less red tape than we have in the past.
But certainly in the short term, what we have is a “holding pattern” while the government crafts the surgical amendments, which you're talking about, and that undoubtedly will lead to some frustration. Hopefully it's short-term frustration, but there's, of course, consultation that's going to have to take place with respect to the contours of the amendments. And certainly in the past, that hasn't been a quick process.
Lou Cusano (19:37): Yeah, I think you're right, Dennis. I think there will be a holding pattern here. We know that there are a number of projects already in the queue and perhaps those there are yet to be development or in the planning stages. They may hold off for a period of time yet until we see what the amendments look like. One of the things that I think is important to mention here is that although interprovincial pipelines have been the flashpoint for this discussion in many circles, they were and will remain under a federal jurisdiction.
The Supreme Court of Canada's decision doesn't change that. The changes that are going to be made to the legislation are, as you've identified Dennis and as mentioned by Andrew and Yael as well. The other issue to keep in mind, and I think this adds to some of the angst in terms of industry waiting for these amendments to be made.
We can't forget that the federal government also has legislation coming in support of two other planks, if I can call them that of their environmental policy, the clean electricity regulations and the oil patch emissions cap. And there may be litigation over any such legislation if it's perceived that the Supreme Court of Canada's guidance isn't taken into account in that legislation. And Premier Smith here in Alberta has already signaled that that fight is yet to come.
And so, when we try to decide or determine where we are at the moment, it's probably fair to say that we've got some clarity from the Court, which has been welcomed. We have guidance to the provinces and the federal government given, and now we wait to see what the amendments look like. Those will be key to whether additional projects start to move forward.
Or perhaps another impact will be that the provinces and the federal government will be involved or motivated to approach this area of overlapping jurisdiction, the environment, in a cooperative way, as urged by the Chief Justice. Commentary to date, however, Dennis, suggests that there are more battles to come and at the end of the day, as we all know, that creates uncertainty and that is not good for business.
Dennis Mahony (21:51): And let me just, as a final question each panelist has to answer: How long before the federal government gets an amendment package through and in force? Let's start with Yael.
Yael Bienenstock (22:07): 18 months.
Dennis Mahony (22:08): Okay. Andrew?
Andrew Bernstein (22:10): I'm going to say a year, next fall.
Dennis Mahony (22:15): Lou?
Lou Cusano (22:17): Yeah, I'd agree with Andrew. I think the signal that's come from the federal government is they're going to move quickly because they do have some sensitivity to the fact that this uncertainty is not helpful in the interim. So I agree with Andrew.
Dennis Mahony (22:32): I thought roughly a year, but I'm going to say nine months to a year, so I get in the right spot in the pool. Thank you, everybody, for joining us today. And thank you to our panelists.
What stood out about the case to our litigators? Litigation partner Andrew Bernstein described the federal government’s “novel” argument as: “‘Well if you squint and look at it sideways and read [the Act] as actually limited to federal effects—judge the legislation on how it’s administered, not what it says—then it is constitutional ... that is not an argument that’s typically accepted in Canadian constitutional law”. Litigation partner Yael Bienenstock noted that although the Court ultimately sided with the Alberta Court of Appeal, it nonetheless went a long way to avoid engaging many of the Alberta Court of Appeal’s very good points, including with respect to the relevance of the history of provincial powers in the Canadian constitution. She noted that “usually you see the court either saying where the [court below] went wrong or agreeing with certain aspects of what happened below”, and here they don’t.
Much of the conversation turned to what happens next for projects across the country. It’s the business impact for project proponents that litigator and Calgary managing partner Lou Cusano highlighted. “It’s interesting that although the fight was led by Alberta, the implications of the decision are country-wide ... as you look across the country, there are implications, for example, for LNG facilities in B.C., bitumen projects in Alberta, mining in a number of provinces, even down to highway 413 in Ontario. Whether or not projects shelved under the Act may be revisited remains to be seen”.
Environmental partner Dennis Mahony observed the decision will narrow the federal role in approving projects. “With respect to primarily provincially regulated projects, that gatekeeper function is much, much narrower and that will need to be reflected in the” revisions to the Act the federal government is probably already working on. “There will of course continue to be federal aspects to those projects and some federal role, but for provincially regulated projects, they should be a secondary sliver, not the main driver”.
He also sees the recent decision in the context of the Court’s decision on another key component of the government’s environmental policy: the Greenhouse Gas Pollution Pricing Act. In that case, he said, “the federal government’s legislation got a thumbs up with the reminder that its power was not without constraints. [In the IAA case], that reminder got an exclamation point with a thumbs down from the Court” for the legislation.
The decades-long history of federal environmental assessment
Federal environmental assessment legislation has existed for many decades. The latest iteration—the Impact Assessment Act (the IAA)—was enacted in 2019. The IAA sets out a complex scheme for information gathering, approving, and regulating physical activities or projects that may have environmental or health, social or economic effects on matters within federal jurisdiction. This includes a wide ambit of matters, including airports and interprovincial works and undertakings such as interprovincial railways and pipelines. However, the IAA also regulates federal “aspects” of projects, like mines, that are primarily under provincial jurisdiction. Those aspects include Indigenous peoples and federal lands, fish, aquatic species, migratory birds, as well as interprovincial or international environmental effects2.
The heart of the IAA is a scheme that can be referred to as “designation, prohibition and assessment”. Projects that are designated as falling within the scheme are prohibited from proceeding until the assessment is complete, and the relevant federal decision maker has approved it.
Under the IAA, projects are “designated” in one of two ways: (1) because they involve certain physical activities identified in the IAA’s Regulations as potentially having adverse environmental or health, social or economic effects on areas of federal jurisdiction; or (2) by order of the Minister of Environment and Climate Change Canada, if the Minister believes the project could cause adverse federal effects3.
Once designated, the project enters the planning and assessment phases, during which the project proponent is effectively prohibited from proceeding4. The Minister and the Governor in Council then decide whether, in light of the results of the assessment, the project should receive permission to proceed—and if so, what conditions should apply to mitigate the effects of the project5. For a project to proceed, the decision maker must decide that the effects in question are in the public interest.
The Supreme Court’s decision
Majority: IAA is ultra vires, in part
The majority of the Supreme Court concluded that the portion of the IAA pertaining to projects on federal land or land outside Canada is intra vires the powers of federal Parliament6. However, it found the core of the act—pertaining to “designated projects”—is ultra vires7. The Court acknowledged that although environmental protection is clearly important, it must be accomplished “within the enduring division of powers framework laid out in the Constitution”. And it confirmed that, although flexibility and cooperation are important aspects of federalism, they are not an excuse to override or modify the division of powers.
The Court conducted the well-established “pith and substance” analysis, which seeks to characterize the “main thrust” of the law by examining its purpose and its effects. Once that is determined, the question is whether the law should be classified under a federal or provincial head of power. It held that the pith and substance of the “designated projects” aspect of the legislation was assessing and regulating designated projects with a view to mitigating or preventing their potential adverse environmental, health, social, and economic impacts8. It concluded that this is ultra vires federal legislative authority, because the “designated projects” scheme is insufficiently tailored toward regulating “effects within federal jurisdiction”9. The scheme does not distinguish between activities where Parliament has broad jurisdiction over the activity itself (e.g., interprovincial pipelines) and those where Parliament only has limited jurisdiction over the activity’s impacts on federal heads of power (e.g., a provincially regulated mining project with the potential to impact fisheries). Although Parliament can pass legislation to regulate the latter category, it must ensure that the dominant characteristic of the legislation is regulation of the federal aspects of a project, and not the project as a whole.
The Court concluded that the “designated projects” scheme fell short in two key ways.
First, even though “federal effects” are required to trigger the scheme, they do not, on the terms of the Act, drive decision-making, nor is the scheme directed only at regulating federal effects. For example, in making the initial screening decision—whether an assessment is required under the IAA—the legislation provides for broad discretion to consider an open-ended list of factors, a number of which are unrelated to federal effects. However, once a federal effect is asserted, the government looked at the project as a whole, and was not confined to looking at the federal effect. Canada argued that, in practice, the most important factors are the federal effects. But the Court rejected this argument since that is not what the legislation actually says. The Court concluded that the scheme is constitutionally problematic because it creates “a risk that projects with little or no potential for adverse federal effects will nonetheless be required to undergo an impact assessment on the basis of less relevant, yet mandatory, considerations”10.
Similarly, at the final approval stage, the IAA stipulates that the decision must be made in the “public interest”, which expressly requires the decision-maker to consider a variety of federal and non-federal effects. The Court was particularly concerned that “the adverse non-federal effects can amplify the perceived severity of the adverse federal effects and, effectively, become the underlying basis for the conclusion that the latter are not in the public interest”11. This framework shifts the analysis away from deciding whether the adverse federal effects are justified (which was the regime under the IAA’s predecessor statute) and instead directs it to the wisdom of proceeding with the project as a whole.
Second, the Court was concerned with the definition of “effects within federal jurisdiction,” and its potential for influencing the broad decision-making elements of the IAA12. For example, some effects defined as “effects within federal jurisdiction” effectively captured “an unlimited range of interprovincial environmental changes” such as greenhouse gas emissions that cross provincial and national borders13. Although the federal government attempted to justify the breadth of this definition under the Peace, Order and Good Government (POGG) power, the Court rejected this argument based on the sheer breadth of the IAA (in contrast to the limited regulatory regime of carbon pricing it had previously upheld under POGG).
In sum, the Court held that the “designated projects” scheme intrudes more than incidentally into provincial legislative authority, including property and civil rights in the province, matters of a local nature, local works and undertakings, and non-renewable resources, forestry resources and electrical energy. It was therefore ultra vires Parliament.
Dissent: would have upheld the IAA
Justices Karakatsanis and Jamal would have upheld the legislation as intra vires the federal power. Their reasons emphasized the value of cooperative federalism and the presumption of constitutionality.
Since this was a reference, which is an advisory opinion from the Court, the “designated projects” aspect of the IAA has not been “struck down”. However, in light of the strong persuasive value of the Supreme Court of Canada’s decision, project proponents can expect material changes to the federal assessment regime. To pass constitutional muster, the next iteration of the legislation will require more emphasis or focus on the federal effects analysis for projects that are primarily provincially regulated. Still, the federal government indicated in its reaction to the decision that it foresees tweaks rather than transformation. Whatever the case, under future iterations of the IAA, fewer projects may be designated for federal assessment than there would have been under the former IAA.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
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