Federal Carbon Backstop Ruled Constitutional by the Supreme Court of Canada

March 30, 2021

Written By Thomas McInerney, Sarah Gilbert, Sharon Singh, Mike Theroux and Kenryo Mizutani

On March 25, 2021, the Supreme Court of Canada (SCC) released its 6-3 decision, ruling that the federal Greenhouse Gas Pollution Pricing Act, SC 2018 c 12 (GGPPA) is constitutional, dismissing the appeals of the Attorney General of Ontario and the Attorney General of Saskatchewan. The decision upholds the federal government's constitutional ability to implement the federal carbon backstop established under the GGPPA.

Each of the provinces of Saskatchewan, Ontario and Alberta had challenged the constitutionality of the GGPPA. The Courts of Appeal of Saskatchewan and Ontario found the GGPPA to be constitutional; whereas the Court of Appeal of Alberta found the GGPPA to be unconstitutional. Previous blogs surrounding the various appellate court decisions can be found at the respective links above.

Background on the GGPPA

The GGPPA acts as a federal backstop that only applies to provinces lacking similar regulations, in the opinion the Governor in Council. The GGPPA consists of two parts.

• Part 1 of the GGPPA introduces a carbon levy for various types of fuels in Canada. It increases annually, reaching $40 per tonne of CO₂ equivalent in April 2021 and $50 per tonne in 2022. The federal government announced in December 2020 that the carbon levy would increase to $170 per tonne by 2030.
• Part 2 of the GGPPA establishes an output-based pricing system (OBPS) for greenhouse gas (GHG) emissions from large industrial emitters. The OBPS is industry-specific and uses the industry-average emissions as a benchmark. The excess emissions charge under the OBPS has the same price per tonne as the carbon levy under Part 1 of the GGPPA.

Majority Decision by Chief Justice Wagner

Writing for the majority, Chief Justice Wagner noted that it was uncontested by the parties that climate change is real, poses a threat to humanity, and is caused by GHG emissions as a result of human activity. Throughout the decision, the majority reiterated that GHG emissions cause harm beyond provincial boundaries, a fact relied on to support a finding that reducing GHG emissions through a minimum price on carbon is a matter of national concern.

The Court reviewed the GGPPA in accordance with the well-established two-stage analytical approach: first, determining the purpose and effect of the law to characterize the subject matter of the law, otherwise referred to as the "pith and substance"; and second, classifying that pith and substance of the law with reference to the federal and provincial heads of power under the Constitution Act, 1867 in order to determine whether the law is intra vires.

The majority characterized the pith and substance of the GGPPA narrowly to be "establishing minimum national standards for GHG price stringency to reduce GHG emissions". Wagner C.J.C. stated that the GGPPA operates a backstop by creating a national GHG pricing floor to reduce GHG emissions in order to mitigate climate change, highlighting that the pricing scheme is not just the means of achieving the end of reducing GHG emissions, but it is the entire matter to which the GGPPA is directed.  

On the second stage of the analysis, the majority found that the subject matter of the GGPPA was not one of the matters expressly assigned to any of the heads of power under the Constitution. Rather, it concluded that the subject was of sufficient concern to the country as a whole to warrant consideration as a possible matter of national concern under the Peace, Order and Good Government (POGG) power of Parliament. The subject matter possessed the requisite singleness, distinctiveness and indivisibility for a matter of national concern since the provinces are constitutionally incapable of establishing binding minimal national standards. Failure or refusal of one province to implement a sufficiently stringent GHG pricing mechanism could undermine GHG pricing everywhere in Canada. With respect to the scale of impact, the majority found that, while the GGPPA clearly impacts provincial jurisdiction, the impacts were found to be qualified and limited, with the majority noting that the provinces can freely legislate and design their own GHG pricing system, so long as it meets the minimum national standard of price stringency. The majority also reiterated that provinces maintain the autonomy to regulate GHG emissions in all other aspects, with the exception of the pricing floor. 

The majority therefore classified the pith and substance of the subject matter as falling within the federal government's POGG power under section 91 of the Constitution, related to matters of national concern. 

While not the primary issue on appeal, the majority of the SCC also held that the levies imposed by Parts 1 and 2 of the GGPPA are property characterized as constitutionally valid regulatory charges whose purpose is to advance the GGPPA's regulatory purpose by altering behaviour. On this basis, the levies were not characterized as a tax.

Dissenting Opinions

The three dissenting judges, Justices Côté (in part), Brown and Rowe, each provided lengthy dissents that raised a number of issues. Justice Côté agreed with the majority’s analysis that the subject matter of the GGPPA could be of national concern, but found the GGPPA as drafted to be unconstitutional because of the breadth of discretion conferred on the Governor in Council without meaningful limits. Justices Brown and Rowe found the GGPPA to be ultra vires of Parliament, ruling the subject matter of the GGPPA to be strictly within the provincial powers granted by section 92 of the Constitution. Justices Brown and Rowe expressed concern that the majority's decision opened the door to federal intrusion into other areas of provincial jurisdiction through the imposition of national standards. 

Impact on Business

As a result of the SCC decision, the constitutionality of the GGPPA has been upheld. The federal backstop will continue to apply in provincial and territorial jurisdictions, as determined by the Governor in Council. 

With the federal government's announced increase in carbon pricing target to $170 per tonne in 2029, those jurisdictions with an approved provincial carbon pricing plan will be required to continue to meet the increased carbon pricing floor or be at risk of falling out of step with the federally established national minimum price. 

If you have any questions regarding the GGPPA, please contact a member of the Bennett Jones' Climate Change & Emissions Trading, Environmental or Environmental, Social and Governance (ESG) practice groups.

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