Canada's Attempt to "Forever Alter the Constitutional Balance" Impeded: Alberta Court of Appeal Rules Federal Carbon Pricing Regime Unconstitutional

March 02, 2020

Written By Michael Theroux, Thomas McInerney, Russell Kruger and Parker Mckibbon

The Alberta Court of Appeal, in a 4-1 decision, has ruled that the federal carbon pricing regime contemplated by the Greenhouse Gas Pollution Pricing Act, SC 2018, c12 s186 (the "Act") is unconstitutional, becoming the first Canadian court to do so and departing from prior decisions of the Courts of Appeal of both Saskatchewan and Ontario, which had upheld the constitutionality of the Act in split decisions.

Federalism and the Division of Powers

Alberta's Lieutenant Governor in Council referred the question of the Act's constitutionality to the Alberta Court of Appeal. Sitting as a 5-member panel, the Court held 4-1 that Parts 1 and 2 of the Act, which set out a levy on certain greenhouse gas producing fuels and establish an output-based pricing system for large industrial emitters, are unconstitutional in their entirety. A 3-member majority issued the opinion of the Court, with one Justice issuing separate, concurring reasons, and one Justice dissenting. This blog focuses on the majority decision.

For the 3-member majority, a key component of the analysis was federalism, a concept "fundamental to Canada's constitutional democracy and our continued existence." To preserve federalism, "preservation of the carefully calibrated division of powers between the federal and provincial governments" is needed. Under Canada's federal system, provinces have the exclusive power to legislate in certain areas under section 92 of our Constitution, including "the Crown jewel of legislative powers"—property and civil rights. Further, section 92A "provides for exclusive provincial jurisdiction in three areas: (1) the development, conservation and management of non-renewable natural resources (s 92A(1)); (2) the export of resources from the province (s 92A(2)); and (3) taxing powers over resources (s 92A(4))." Section 92A thus confirms "exclusive provincial jurisdiction over the development and management of a province's non-renewable natural resources, electricity generation and related provincial industries." Importantly, the majority noted that neither the Saskatchewan nor the Ontario appellate courts generally considered provincial power to regulate natural resources in their decisions.

Before the Court, Canada asserted the constitutionality of the Act on only one basis: that it fell "within the national concern doctrine of Parliament's peace, order and good government (POGG) power", which provides that the federal Parliament can "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."

Not a Grand Entrance Hall Into Provincial Power

The majority, however, was not convinced. Noting that the national concern doctrine is "judicially-created", and in Canada's 153 year history, "there have only been three instances in which the Supreme Court of Canada has relied on this doctrine alone to expand the powers of the federal government", the majority indicated that the doctrine is "not a grand entrance hall into every head of provincial power." As such, "the federal government cannot use the national concern doctrine to commandeer matters assigned exclusively to the provinces unless a matter otherwise within section 92(16) [matters of a local or private nature within a province] has gone beyond the 'local or private nature in a province' and become a matter of concern generally across this country." As such, the national concern doctrine "has no application to matters within the provinces' exclusive jurisdiction under other enumerated heads of power under s 92 or 92A", nor can the doctrine "be invoked to oust the provinces' proprietary powers where the impugned law invades the provinces' powers as owners of their natural resources." Were it otherwise, "Canada's federation would come to a quick end."

In characterizing the "matter" of the Act, the majority noted Canada's changing position throughout the proceedings in Ontario, Saskatchewan and Alberta. Holding that while the Act's validity "must be decided at present", the majority held that it must also to be assessed based on "what the Act allows to be done in the future on its existing terms." Thus, "if the constitutional validity of this Act were ultimately upheld, the Act could be amended tomorrow or indeed replaced entirely with whatever new legislation Parliament chooses in its unilateral discretion providing the new legislation falls within the new head of power allocated to Parliament." After taking into account the purpose and effects of the Act, the majority concluded that the subject matter of the Act is "no less than the 'regulation of GHG [greenhouse gas] emissions'."

This, the majority found, fell under several heads of exclusive provincial power, including "provincial legislative and proprietary powers over natural resources", "provincial powers over property and civil rights", "local works and undertakings" and "direct taxation". Interestingly, the majority indicated that "the very fact the federal 'backstop' only comes into effect if the provinces have not implemented carbon pricing, or one to the federal government's satisfaction, is proof of that."

The Act is a Constitutional Trojan Horse

In strong language, the majority summarized key aspects of its decision as follows:

… the regulation of GHG emissions or any variation on this theme does not qualify for inclusion as a federal head of power under the national concern doctrine. Assigning this Act or a class of laws of this nature to Parliament would forever alter the constitutional balance that exists between the heads of power allotted to Parliament and the provincial Legislatures in the federal Canadian state. None of the cases in which the national concern doctrine has been successfully invoked contemplates a wholesale takeover of a collection of clear provincial jurisdictions and rights. But this Act does. There is no principled basis to judicially expand the heads of federal powers to concentrate such extensive law-making powers in Parliament. …

The Act is a constitutional Trojan horse. Buried within it are wide ranging discretionary powers the federal government has reserved unto itself. Their final shape, substance and outer limits have not yet been revealed. But that in no way diminishes the true substance of what this Act would effectively accomplish were its validity upheld. Almost every aspect of the provinces’ development and management of their natural resources, all provincial industries and every action of citizens in a province would be subject to federal regulation to reduce GHG emissions. …

In the result, the majority held that the national concern doctrine did not apply, and ruled Parts 1 and 2 of the Act to be unconstitutional in their entirety.

The Debate Continues

The Saskatchewan and Ontario Court of Appeal decisions have been appealed to the Supreme Court of Canada and are scheduled to be heard in March 2020. Whether or not the Alberta reference is itself appealed to the Supreme Court of Canada, the decision of the Alberta Court of Appeal will no doubt be closely considered by the parties and the Supreme Court. Given the diverging opinions in the three appellate references, it is to be hoped that the Supreme Court of Canada will provide clear resolution in this area.

Background

The Act is the centerpiece of the federal government's efforts to address climate change, and currently prescribes a national price for carbon of $30/tonne CO₂ equivalent (CO₂e) emissions for 2020, escalating by $10 increments each year until reaching a maximum of $50/tonne of CO₂e in 2022. The Act contemplates each province adopting their own carbon pricing regime so long as they are as stringent as the pricing requirements under the Act. To the extent provinces institute mechanisms which satisfy the stringency of the Act, the federal regime will not apply; to the extent they do not, the Act will impose such pricing to address any deficiency. Accordingly, the Act is commonly referred to as the "Federal Backstop".

Prior to 2020, the Federal Backstop had no application in Alberta, as the Carbon Competitiveness Incentive Regulation (CCIR) (an output-based pricing system applicable to large emitters) in concert with the Climate Leadership Implementation Act (a carbon tax applicable to fossil fuels imported into or consumed within Alberta), legislated by the prior Alberta NDP government, met the stringency requirements of the Federal Backstop.

However, the election of a new provincial government resulted in the repeal of Alberta's carbon tax, and a "new" Technology Innovation and Emissions Reduction (TIER) regime which replaced the CCIR as of January 1, 2020. While the federal government has taken the position that TIER satisfies the stringency requirements of the carbon pricing portion of the Federal Backstop (at least until the end of 2020), the UCP's repeal of Alberta's carbon tax put the province in direct conflict with the Federal Backstop resulting in the federal fuel charge (carbon tax) being levied in Alberta beginning on January 1, 2020.

Authors