The federal government has the right to impose minimum carbon-pricing standards on the provinces, the Supreme Court of Canada ruled March 25 in upholding the centrepiece of the Liberals’ climate change plan.
In a 6-3 decision, the court stressed Ottawa’s authority under Canada’s 1867 Constitution to legislate on matters of national concern, and the provinces’ inability to fight global warming effectively on their own.
For those who have lost track of the legal battle over the key component of Prime Minister Justin Trudeau’s climate-change policy, here’s a primer on how we got to this point and what could come next.
WHAT IS THE CARBON TAX AND HOW DOES IT WORK?
The 2018 Greenhouse Gas Pollution Pricing Act is the centrepiece of the government’s climate-change plan. It established a national framework for carbon pricing – whether from industrial emitters, such as the oil industry, or consumers, at the pumps. The federal rules set minimum standards for carbon pricing and provinces can set their own policies. But if a province falls short of that national standard, or simply does not have its own carbon-pricing system, Ottawa applies its own carbon tax, known as the “backstop.”
What’s the difference between carbon pricing and a cap-and-trade system? Watch to learn more.
SIMPLY PUT, WHAT’S THE LEGAL ISSUE AT STAKE?
It’s whether the federal government has the authority to insist on nationwide carbon pricing – or whether its law illegally takes power away from the provinces. (The wisdom of pricing carbon in order to meet Canada’s international commitment to reduce emissions is unlikely to be an important consideration.)
WHO CHALLENGED THE LAW?
Alberta, Ontario and Saskatchewan referred the law to their appeal courts, asking for an opinion on its constitutionality. (In a reference case, rulings are advisory only.) They argued that control of natural resources, and therefore the regulation of greenhouse gas emissions, is a provincial jurisdiction. All said they accept that climate change is real.
HOW DID THE APPEAL COURTS RULE?
Ontario’s upheld its constitutionality, 4-1, and so did Saskatchewan’s, 3-2. Alberta’s top court ruled 4-1 against the carbon-pricing law. Further appeals brought the case to the Supreme Court, where three provinces (Quebec, Manitoba and New Brunswick) intervened to oppose the law, while British Columbia intervened in support.
SO WHEN YOU REFER TO THE CONSTITUTION, YOU’RE TALKING ABOUT THE ORIGINAL ONE FROM THE FOUNDING FATHERS, CORRECT?
Yes, the key document is the founding Constitution of 1867 – the power-sharing bargain between Ottawa and the provinces. The court will also look at precedents, especially recent ones, in which it has stressed “co-operative federalism” – not rigid boundaries setting out who does what.
WHAT PART OF THE ORIGINAL CONSTITUTION DOES THE FEDERAL GOVERNMENT RELY ON?
The Peace, Order and Good Government clause, or, as lawyers like to say, POGG. POGG says that for matters of national concern that are not explicitly mentioned in the Constitution, the federal government has the power to make laws that inherently concern the entire country. Successful POGG claims are infrequent, but they do happen.
“The case is important because it will clarify not only Parliament’s authority to enact a minimum national standard of carbon pricing, but also how POGG – and federalism – operates,” University of Ottawa law professor Nathalie Chalifour said.
“The very shape of the federation is at stake,” said University of Saskatchewan College of Law professor Dwight Newman.
WHY SUCH PASSIONATE OPPOSITION IN SOME PROVINCES?
The Alberta appeal-court majority called the carbon-pricing law a “constitutional Trojan horse,” meaning it would enable Ottawa to regulate just about everything because so much of the economy produces emissions. For instance, Ottawa could someday bar Albertans from heating their homes above 16 degrees if it chose to do so – or even ban gasoline-powered cars or the raising of cattle, according to a concurring opinion from Justice Thomas Wakeling.
On the other hand, some observers, such as Jason MacLean, a University of New Brunswick law professor, say the real divide is over the policy itself, not the legality.
DID THE SUPREME COURT INDICATE WHEN IT HEARD THE CASE WHICH WAY IT WAS LEANING?
A majority of judges expressed concern in the hearings in September about the country’s capacity to meet an existential threat if provinces could decide to do nothing. “As sure as the sun will come up tomorrow, the Supreme Court of Canada is going to say” the law does not intrude on provincial powers, Prof. MacLean said.
IF OTTAWA WINS, WHERE DOES CARBON PRICING GO FROM HERE?
If the carbon price is ruled constitutional, the federal government can be expected to proceed with its plan to keep ramping it up. That means the fuel charge paid by consumers would go from $40 a tonne (as of this April) to $50 a tonne next year. From that point, as per plans announced by Environment Minister Jonathan Wilkinson this past December, it would rise $15 annually, until it reached $170 a tonne in 2030. Rebates to taxpayers would continue rising in sync, and beginning in 2022 would be paid quarterly by cheque or direct deposit rather than annually through tax returns.
The price for excess emissions paid by large industry, through the separate output-based pricing system (OBPS), would continue going up in the same manner. Deals with the provinces, most of which have their own industrial pricing systems, would continue to be reviewed annually to make sure they remain equivalent to the federal model. And Ottawa would continue to develop its rules for a carbon-offsets system, in which polluters would be able to buy credits generated through emission-reduction investments by certain sectors.
WHAT IF OTTAWA LOSES? IS CARBON PRICING FINISHED?
Probably not – or at least not yet.
Because this is a reference case, the pricing system wouldn’t immediately be struck down. Nor would the federal government likely abandon hope of keeping it in place or of continuing to raise it. (It’s also worth noting here that a loss for Ottawa might not be a comprehensive one; the fuel charge paid by consumers could be upheld while industrial pricing loses, or vice versa.)
The expectation among federal officials is that if aspects of the carbon price are deemed unconstitutional, the government would have a chance to produce remedies to the policy that might allow it to pass legal muster in slightly different form. The Globe and Mail is not identifying the officials because they were not authorized to speculate about outcomes.
WHAT COULD THOSE REMEDIES INVOLVE?
It’s difficult to say because there would be many possibilities, depending on which aspects of the carbon price the court found problematic. But the most obvious potential example would be a change to the federal powers under which the federal government administers the policy.
If the fuel charge paid by consumers were found to not meet the national-interest requirement for POGG, Ottawa could instead attempt to impose it under its broad taxation powers, without making many changes to how it works in practice. (In this scenario, the federal government would continue to collect the tax outside provinces such as Quebec and British Columbia that have equivalent pricing systems.)
It’s possible that the same remedy could be used if the industrial price were found unconstitutional, although it might not be as simple because that pricing system has more complex compliance requirements and equivalency agreements with provinces.
WHY WOULDN’T OTTAWA JUST MOVE ON TO OTHER CLIMATE POLICIES IF IT LOSES?
About three months ago, the federal government doubled down on the carbon price as the centrepiece of its climate strategy by announcing the planned increases after 2022. If it were to abandon it now, its plans to exceed Canada’s 2030 emission-reduction commitments under the Paris Agreement – and put the country on the path to net-zero emissions by 2050 – would collapse. And Ottawa is nowhere near having figured out another way of achieving the mitigation the carbon price is supposed to achieve.
The government also believes carbon pricing has become an article of faith with voters. It has been a key contrast point with the Opposition Conservatives, who are against it, and is perceived to have been key to the Liberal Party’s success in places such as the Greater Toronto Area in the last election.
WHY DO ALBERTA, SASKATCHEWAN AND ONTARIO OPPOSE THE FEDERAL GOVERNMENT’S CARBON PRICE POLICY?
The provinces’ legal arguments are underpinned by political realities, especially for the Prairie provinces. Jason Kenney’s promise to get rid of the carbon price in Alberta’s 2019 election campaign was a key part of his United Conservative Party’s platform and is still an important issue among many supporters. His government has long argued the federal policy will hit the province’s oil-and-gas-focused economy in an outsized way, as it will hurt the competitiveness of energy producers and related industries that compete with the United States and other oil-producing jurisdictions without national carbon prices.
Alberta Environment Minister Jason Nixon has said working with large emitters and focusing on technological improvement to reduce emissions is better than “taxing hockey moms and hockey dads.” The three provinces also argue the federal carbon-pricing plan is out of touch with the financial struggles of lower-income workers, seniors, farmers, business owners and non-profits, who they say will initially suffer carbon-price sticker shock despite the rebate system.
The three provinces are joined by other intervenors, including Quebec, who argue the current plan would centralize too much decision-making power in Ottawa – including for future policy decisions related to climate – and that provinces are best positioned to manage emissions based on their individual circumstances.
IS THERE ANY ROOM FOR FEDERAL-PROVINCIAL AGREEMENT IN TERMS OF CARBON POLICY?
Ottawa and (especially) Alberta seem to be constantly clashing on energy and climate policies – including the consumer carbon tax on the use of gasoline and diesel, natural gas or other fuels. But there are some points of potential alignment. The vast majority of Alberta’s greenhouse gas emissions come from industrial activities, and the province contends that despite its legal challenge to the Greenhouse Gas Pollution Pricing Act, there’s room for common ground.
Last year, the Alberta government said it plans to increase its industrial carbon tax to $50 a tonne by 2022 to keep it in line with federal requirements and to prevent Ottawa from imposing its own levy on the province’s oil and gas sector. The two levels of government were able to agree on Alberta’s plan for reducing methane emissions by 2025 – especially important given the high output of the climate-changing gas from the upstream sector.
Alberta is also asking Ottawa for $30-billion in spending or tax incentives over the next decade to spur an industry-backed plan to build a series of large-scale industrial carbon-capture, utilization and storage (CCUS) facilities. A recent discussion paper from the provincial government outlining its CCUS request said the province is committed to significant emission reductions “in line” with the country’s climate pledges.
WHAT COMES NEXT FOR THE PROVINCES IF THEY LOSE AT THE SUPREME COURT?
Alberta’s Mr. Nixon has said that if his government is unsuccessful at the Supreme Court, “we will have a discussion with Albertans and amongst ourselves on the best way to protect our province.”
Saskatchewan Justice Minister Don Morgan has said that, whatever the Supreme Court decision, his province will sit down with the federal government and try to find a way forward.
According to a note from Norton Rose Fulbright Canada LLP, the Canadian government’s announcement in December that it will increase the carbon price to $170 a tonne by 2030 – an increase of 467 per cent over 10 years – could trigger more constitutional challenges by some of the provinces.
The Alberta government also continues to challenge other federal energy and environmental policies that it says are harmful to the province’s economy. For instance, it took its opposition to the federal government’s Impact Assessment Act – better known as C-69 – to the Alberta Court of Appeal last month, arguing Ottawa is again overstepping its authority. Opponents call C-69 the “no-more-pipelines law.” That constitutional fight is also likely to end up at the Supreme Court.
Canada has pledged to have 100-per-cent clean electrical energy by 2025. How do things we do at home, like internet use or streaming video, factor into that? Here’s an explanation from the International Energy Agency that helps put that in perspective.
SEAN FINE, JUSTICE WRITER
The Globe and Mail, March 22, 2021