Carbon Pricing Regime Ruled Unconstitutional – For Now

On February 24, 2020, the Alberta Court of Appeal became the third court in Canada to rule on the federal government’s carbon pricing regime.  Unlike previous cases in Saskatchewan and Ontario, the Alberta Court held that the federal Greenhouse Gas Pollution Pricing Act (the “Act”) is unconstitutional.  This article will summarize the Alberta Court’s decision and discuss the future of the Act, given the upcoming Supreme Court of Canada (“SCC”) hearing on the constitutional status of the Act, which is currently scheduled for March 24-25, 2020.

Background

Unlike in Saskatchewan and Ontario, only Part 1 of the Act currently applies in Alberta.  Part 1 is administered by the Canada Revenue Agency and applies a fuel charge on 21 types of fuel and combustible waste; the charge is collected and remitted by distributors, exporters, and others who are expected to pass the charge onto consumers of the products in the relevant province.  Part 2 of the Act is administered by Environment and Climate Change Canada and is an output-based pricing system for industrial facilities located in the province.

The Act did not apply in Alberta when it was implemented in 2018.  Its application was triggered by Alberta’s Carbon Tax Repeal Act, enacted on May 30, 2019, which caused Alberta’s carbon pricing regime to fall short of the minimum standards required under Part 1 of the Act.  In December 2019, the federal government decided that Alberta’s Technology Innovations and Emissions Reduction regulation for industrial emitters was stringent enough that Alberta would not be subject to Part 2 of the Act.  Part 1 of the Act began to apply in Alberta on January 1, 2020.  Alberta residents were able to claim Climate Action Incentive payments on their 2019 tax returns as a result of Alberta becoming subject to Part 1 of the Act in 2020.

Shortly after passing the Carbon Tax Repeal Act, the Alberta government filed a reference to its Court of Appeal, arguing that Parts 1 and 2 of the Act are unconstitutional on the basis that the Act exceeded the legislative authority of the federal government set out in the Constitution.

By way of overview, the Constitution sets out the respective federal and provincial legislative powers by “Classes of Subjects” which have virtually remained unchanged since 1867.  Unsurprisingly, climate change and other environmental issues do not fit neatly into the Classes of Subjects enumerated in the Constitution.  Past case law has established that “the environment” as a general matter does not fall exclusively within either provincial or federal jurisdiction under the Constitution.

The federal government’s only argument before the Alberta court was that the Act fell within the federal power “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”, as set out in the preamble to section 91 of the Constitution.  This is commonly referred to as the “POGG” clause of the Constitution.

The Decision

Unlike the court of appeal in Ontario and Saskatchewan, 4 of the 5 judges at the Alberta Court of Appeal held that Parts 1 and 2 of the Act are unconstitutional in their entirety.  Although it is difficult to summarize a 273-page decision, below are the some of the key points that we noted.

First, judges in previous hearings on the constitutionality of the Act in Saskatchewan and Ontario adopted subtly different views on the “pith and substance” of the Act, which appears to have led to differing views as to whether the Act’s subject matter fell exclusively within matters of provincial jurisdiction.  The majority of the Alberta Court adopted a broad view of the pith and substance of the Act, which led to its finding that the Act is unconstitutional.

With respect to the POGG clause, the Alberta majority held that only legislative matters which are not explicitly assigned to the provinces may become federal jurisdiction under this doctrine (absent rare occurrences such as temporary “emergency” federal legislation).  This holding, one not made by either the Saskatchewan or Ontario Courts, played an important role in the majority’s ultimate ruling.

The majority disagreed with the Saskatchewan and Ontario decisions and held that provinces are individually able to effectively regulate GHG emissions within their constitutional authority.  The majority distinguished between the legal inability to regulate GHG emissions and the decision by particular provinces to not regulate such emissions or to do so in different ways than other provinces.

What’s Next?

Aside from the Alberta Court of Appeal’s divergent reasoning, this decision is also interesting for its timing.  Both Saskatchewan and Ontario have appealed their respective Court of Appeal’s decisions to the SCC – and that hearing is currently scheduled for March 24-25, 2020.

The upcoming SCC hearing casts a shadow of uncertainty on the longevity of the Alberta Court of Appeal’s decision.  The Attorney General of Alberta, along with his counterparts in six other provinces, are party to the SCC hearing as interveners.  Accordingly, the reasons set out in the Alberta Court of Appeal decision are likely to be considered by the SCC in its deliberations.

The immediate impact of the Alberta decision on industry and consumers, in Alberta and in other provinces to which the Act applies, is unclear.  In theory, the Alberta Court’s decision renders the Act a nullity, as if it had never been enacted.  This poses the issue of whether persons who have already made payments under the Act would be entitled to some sort of compensation; however, this seems unlikely given that money which has been collected under the Act has likely already been distributed to the residents of the province from which it was collected.

It appears that the federal government is prepared to continue with its enforcement of the Act until the SCC renders its decision.

With no further provincial challenges to the Act pending, all eyes now turn to the SCC.  With the reasons of three different provincial appeal courts to draw from, this case will give the SCC a unique opportunity to comment on federalism in Canada and the country’s division of powers in the context of complex issues such as the world’s climate crisis.