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In its highly anticipated judgment, the majority of the Supreme Court of Canada found the Greenhouse Gas Pollution Pricing Act constitutional in a split 6-3 decision.

The key issue before the court was whether the Greenhouse Gas Pollution Pricing Act (“GGPPA”) was constitutional. The majority decided that it was, because Parliament has jurisdiction to enact this law as a matter of national concern. As such, provinces may choose to amend or enact their own legislation to meet the minimum federal requirements regarding greenhouse gas emissions—or else they will be subject to the federal Act.

The Greenhouse Gas Pollution Pricing Act

The GGPPA, passed by Parliament in June 2018, consists of four parts:

• Part 1 establishes a fuel charge that applies to producers, distributors, and importers of various types of carbon-based fuel;
• Part 2 sets out a pricing mechanism for industrial greenhouse gas (“GHG”) emissions by large emission-intensive industrial facilities;
• Part 3 authorizes the Governor in Council to make regulations providing for the application of provincial law concerning GHG emissions to federal works and undertakings, federal land and Indigenous land located in that province; and
• Part 4 requires the Minister of Environment to prepare an annual report on the administration of GGPPA and have it tabled in Parliament.
  
  

Carbon pricing, or GHG pricing, is a regulatory mechanism that puts a price on GHG emissions in order to incentivize individuals and businesses to change their behaviour so as to make more environmentally sustainable purchasing and consumption choices. Parts 1 and 2 of the GGPPA function together to price GHG emissions throughout the Canadian economy.

The GGPPA pricing mechanism does not automatically apply in all provinces and territories. A province or territory will only be subject to Part 1 or 2 of the GGPPA if the Governor in Council determines that a province’s GHG pricing mechanism does not meet the minimum federal standards.

Reference Cases from Saskatchewan, Ontario and Alberta

Saskatchewan, Ontario and Alberta challenged the constitutionality of Parts 1 and 2 of the GGPPA by references to their respective Courts of Appeal, asking whether the GGPPA is unconstitutional in whole or in part. The majorities of the Courts of Appeal in Saskatchewan and Ontario found the legislation constitutional while the majority of the Alberta Court of Appeal found it unconstitutional. We have previously written about these Court of Appeal decisions on our blog here. All three decisions were appealed to the Supreme Court of Canada.

Appeal to the Supreme Court of Canada

The majority of the SCC concluded that the GGPPA is constitutional, and that Parliament has jurisdiction to enact this law as a matter of national concern under the peace, order, and good government clause of s. 91 of the Constitution Act, 1867 (“Constitution”). The Court clarified at the outset that the uncontested factual backdrop to this matter is that climate change is real, and the only way to address it is to reduce GHG emissions.

Federalism

The Majority started its analysis by discussing the foundational principle of federalism. Federalism is a legal response to the underlying political and cultural realities that existed at Confederation, and its objective is to reconcile diversity with unity. Sections 91 and 92 of the Constitution give expression to the principle of federalism, and divide the legislative powers between Parliament and the provincial legislatures.

Courts, as impartial arbiters, are charged with resolving disputes over the boundaries of federal and provincial powers. The Court reiterated that it favours a flexible view of federalism, described as a modern form of cooperative federalism, over a rigid division of federal-provincial powers as watertight compartments.

“Pith and substance” of the GGPPA

In the first step of the division of powers analysis, the Supreme Court considered the purpose and effects of the GGPPA. The majority decided that the GGPPA’s pith and substance is to establish minimum national standards of GHG price stringency to reduce GHG emissions.

National Concern Doctrine

The second stage in the division of powers analysis is to classify the matter by reference to the heads of power set out in the Constitution.

The national concern doctrine is derived from the introductory clause of s. 91 of the Constitution, which empowers Parliament “to make Laws for the Peace, Order, and good Government of Canada, in relation to all Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces” (“POGG power”). According to this doctrine, the federal government has jurisdiction over matters that are found to be of inherent national concern.

The test for identifying matters of national concern has three-steps: the threshold question; the singleness, distinctiveness and indivisibility analysis; and the scale of impact analysis.

i. Threshold Question

The threshold question is whether the matter is of sufficient concern to Canada as a whole to warrant consideration under the national concern doctrine. The majority found that evidence from Canada and international sources clearly show that establishing minimum national standards of GHG price stringency to reduce GHG emissions is of concern to Canada as a whole.

ii. Singleness, Distinctiveness and Indivisibility

The second question is whether the matter has singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern. There are two principles that apply in this step: first, federal jurisdiction based on the national concern doctrine should be found to exist only over a specific identifiable matter that is qualitatively different from matters of provincial concern; and second, federal jurisdiction should be found to exist only where the evidence establishes provincial inability to deal with the matter.

With regards to the first principle, the majority noted that the United Nations Framework Convention on Climate Change and the Paris Agreement help illustrate the extra provincial and international nature of GHG emissions. Minimum national standards of GHG price stringency implemented under the GGPPA relate to a federal role in carbon pricing that is qualitatively different from matters of provincial concern.

Moreover, the GGPPA’s pricing mechanism would only apply to a province if it is determined that the province’s pricing mechanisms are insufficient. The GGPPA is also not a detailed regulation of all aspects of GHG pricing.

For the second principle, the majority noted that the provinces, acting alone or together, are constitutionally incapable of establishing minimum national standards of GHG price stringency. Moreover, a failure to include one province in the scheme would jeopardize its success in the rest of Canada. The majority paid attention here to the provinces’ failure on collective action to reduce GHG emission as exemplified in the Vancouver Declaration and the Pan-Canadian Framework. Saskatchewan, Alberta, and Ontario withdrew from these initiatives, although these provinces accounted for 71% of Canada’s total GHG emissions in 2016.

In addition, the majority noted that any province’s refusal to implement a sufficiently stringent GHG pricing mechanism could undermine GHG pricing everywhere in Canada because of the risk of carbon leakage. Carbon leakage is a phenomenon by which businesses in sectors with high levels of carbon emissions relocate to jurisdictions with less stringent carbon pricing policies. If business can relocate to non-cooperating provinces to avoid carbon pricing, Canada’s net emission would remain unchanged.

The majority rejected the Attorney General of Alberta’s argument that because climate change is an inherently global problem, each individual province’s GHG emissions cause no measurable harm or do not have tangible impacts on other provinces. The majority held that each province’s emissions are clearly measurable and contribute to climate change, and gave examples from court decisions in the US, Netherlands, and Australia reaching the same conclusion.

iii. Scale of Impact

For the third and final step of the national concern test, the scale of impact analysis, it must be shown that the proposed matter has a scale of impact on provincial jurisdiction that is reconcilable with the fundamental distribution of legislative power under the Constitution.

The majority concluded that finding that this matter is one of national concern has a clear impact on provincial jurisdiction, but its impact on the provinces’ freedom to legislate is minimal. The GGPPA also has a built-in provincial flexibility.

In conclusion, the majority found that the GGPPA is intra vires Parliament, on the basis of the national concern doctrine.

Validity of the Levies as Regulatory Charges

As a final point, the majority addressed Ontario’s argument that the fuel and excess emission charges imposed by the GGPPA do not have a sufficient nexus with the regulatory scheme to be considered constitutionally valid regulatory charges. To be a regulatory charge, as opposed to a tax, a governmental levy with the characteristics of a tax must be connected to a regulatory scheme.

In this case, the majority found that there is ample evidence that the fuel and excess emission charges imposed by Parts 1 and 2 of the GGPPA have a regulatory purpose. The levies were found to be constitutionally valid regulatory charges.

Dissenting Reasons

Justice Côté provided reasons for dissenting in part, and Justices Brown and Rowe each provided dissenting reasons.

Justice Côté agreed with the majority that Parliament has the power to enact legislation establishing minimum national standards of price stringency to reduce GHG emissions. However, according to her, the GGPPA, in its current form, confers on the Governor in Council a breadth of discretion with no meaningful limits, and is therefore unconstitutional.

Justice Rowe found that the POGG power cannot be the basis for the constitutionality of the GGPPA. He wrote that only when a matter cannot fit within an enumerated head of power under the Constitution can it fall under POGG. The pith and substance of the GGPPA has not attained national dimensions, and it has no place in the national concern analysis. Justice Brown agreed with Justice Rowe’s analysis of the POGG powers, and found that the GGPPA cannot be supported by any source of federal authority, and that its subject matter falls within provincial jurisdiction.

Significance and Implications

The most obvious immediate impact of the Supreme Court’s decision is that the GGPPA has been found to be constitutional and may now be implemented. A number of existing provincial schemes may be scrutinized and may be found wanting by the new federal yardstick. It is likely that some provinces may choose to amend or modify their provincial programs rather than have default federal standards apply.

As these federal and provincial programs take form, businesses and individuals will be faced with a variety of taxes and levies that are designed to alter their behaviour.

More generally, the case presented a chance for the Supreme Court of Canada to comment extensively on the national concern doctrine, and the division of powers between the federal and provincial governments. The majority decision noted that there is no requirement that a matter be historically new in order to be found to be one of national concern: “new” matters of national concern are new in the sense that our understanding of those subject matters has shifted so as to bring out their inherently national character. It is possible that future federal governments may seek to rely on this expanded view and seek out other “new” matters of national concern.

More broadly, the Supreme Court of Canada recognized the nature of climate change as a national, and even an international concern, and the necessity of collective action to address it. 

In all of these ways, the Supreme Court of Canada’s decision in Reference re GGPPA is going to have important implications for governments, businesses and citizens in Canada.

 

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