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BC Court to Consider Constitutionality of New Crude Oil Regulation

Reading Time 6 minute read

Energy Bulletin

On April 26, 2018 the Government of British Columbia submitted a reference question to the BC Court of Appeal asking the court to determine whether it is within BC’s powers to introduce new provincial regulatory powers over crude oil.

As proposed, those regulatory powers would come by way of new provisions in BC’s existing Environmental Management Act that introduce a new “hazardous substances permit”. The permit requirement would be triggered if a company possesses certain types of crude oil[1] in quantities that exceed the quantities possessed by that company in any of the years 2013-2017. That careful nuance in wording would make the new permitting requirement only applicable to companies looking to increase the quantity of crude oil products they handle - like Kinder Morgan in connection with its proposed Trans Mountain Pipeline Expansion Project.

New Hazardous Substances Permit

In order to obtain a permit, the regulator may require the applicant to:

  • provide information on the risks to human health or the environment that are posed by a release of the substance, the types of impacts that may be caused by a release, and an estimate of the monetary value of those impacts;
  • demonstrate that the applicant has appropriate measures in place to prevent a release, to ensure that any release can be minimized in gravity and magnitude through early detection and early response, and has sufficient capacity to be able to respond effectively;   
  • post security or demonstrate that the applicant has access to financial resources including insurance, to ensure that the applicant has the capacity to respond to or mitigate any adverse environmental or health effects resulting from a release, and to provide compensation that may be required by a condition attached to the permit;   
  • establish a fund for, or make payments to, a local government or a First Nation government to ensure that the local government or the First Nation government has the capacity to respond to a release;   
  • agree to compensate any person, the government, a local government or a First Nation government for damages resulting from a release, including damages for any costs incurred in responding to the release, any costs related to ecological recovery and restoration, any economic loss and any loss of non-use value.

The government would be entitled to attach conditions to the permit, including:

  • respecting the protection of human health or the environment, including conditions requiring the holder of the permit to implement and maintain appropriate measures to prevent a release of the substance, to ensure that any release of the substance can be minimized in gravity and magnitude through early detection and early response, and to maintain sufficient capacity, including dedicated equipment and personnel, to be able to respond effectively to a release;
  • respecting the impacts of a release, including conditions requiring the holder of the permit to respond to a release, and to compensate, without proof of fault or negligence, any person, the government, a local government or a First Nations government for damages.

The Reference Questions

The reference asks three specific questions of the BC Court of Appeal:

  • Is the draft legislation within provincial jurisdiction to enact?
  • Would the draft legislation be applicable to hazardous substances brought into British Columbia by means of an interprovincial undertaking?
  • Is there any federal legislation that is inconsistent with the proposed amendments that would render the proposed amendments inoperative?

The first question addresses the issue of whether the legislation falls within the Province’s constitutional jurisdiction. Typically, provinces rely on their jurisdiction over property and civil rights to regulate environmental issues, while steering clear of those areas that fall within federal jurisdiction. The draft legislation, for example, specifically excludes crude oil transported by ship as the Province must be careful to avoid regulating navigation and shipping, an area of federal jurisdiction.

The second question goes to the Province’s ability to regulate goods transported into the Province by interprovincial undertakings, like interprovincial pipelines, which generally fall within federal jurisdiction. The proposed legislation sets out an explicit purpose which is focused on the protection of the environment and human health.[2] This is unusual for legislation in BC, and is clearly an attempt by the Province to defend against arguments that the legislation is aimed at regulating an interprovincial undertaking or interprovincial trade. 

In a recent Supreme Court of Canada decision[3] dealing with New Brunswick restrictions on importing alcohol from Quebec, the court made clear that legislation limiting the free flow of goods between Provinces is only unconstitutional if the law impacts

“… the interprovincial movement of goods like a tariff, which, in the extreme, could be an outright prohibition. And, restriction of cross-border trade must be the primary purpose of the law, thereby excluding laws enacted for other purposes, such as laws that for rational parts of broader legislative schemes with purposes unrelated to impeding interprovincial trade.”[4]

By incorporating the new requirements into BC’s Environmental Management Act, and explicitly connecting them to the protection of the environment and human health, the Government is signaling its legislative intention is part of a broader legislative scheme with a purpose unrelated to the operation of an interprovincial undertaking or impeding interprovincial trade, and so is designed to avoid attack on that basis.

The third question goes to the issue of the Paramountcy Doctrine. Paramountcy addresses the situation where both the Province and the federal government have overlapping jurisdiction, which is the case on environmental issues. The Paramountcy Doctrine comes into play when there is inconsistency between validly enacted federal and provincial legislation and contradiction arises. In such cases, federal law takes precedence and the Provincial law will be inoperative to the extent of the inconsistency. With Prime Minister Trudeau's recent pledge that new federal legislation will be coming to “reassert and reinforce” federal jurisdiction, the Province is keenly interested in how its proposed legislation may be impacted by any new federal legislation.

Next Steps

In BC, a reference is permissible pursuant to British Columbia’s Constitutional Question Act. The Act allows the government to refer any question to the courts for consideration, and the courts are required to hear the matter, and respond with an opinion, including supporting reasons.

In cases involving the constitutional validity of legislation, as is the case with the current reference, the Attorney General of Canada must be notified, and may attend and may make submissions to the court. The court may also direct that other interested parties be notified so that they too may make submissions to the court.

The timing for the hearing and the decision that follows the reference will be determined by the court. In the case of the current reference, which is to be heard by the BC Court of Appeal, the decision may also be appealed to the Supreme Court of Canada.

While this most recent development would certainly bring more certainty to the debate surrounding legislative jurisdiction over interprovincial transportation of crude oil, it will not do that quickly.

[1] Crude petroleum products that have American Petroleum Institute gravity of 22 or less, or crude petroleum product blends containing at least one component that constitutes 30% or more of the volume of the blend and that has either or both of the following:

  • an American Petroleum Institute gravity of 10 or less,
  • a dynamic viscosity at reservoir conditions of at least 10 000 centipoise.

[2] 22.1 The purposes of this Part are:

(a) to protect, from the adverse effects of releases of hazardous substances,
      (i) British Columbia’s environment, including the terrestrial, freshwater, marine and atmospheric environment,
      (ii) human health and well-being in British Columbia, and
      (iii) the economic, social and cultural vitality of communities in British Columbia, and
(b) to implement the polluter pays principle.

[3] R. v. Comeau, 2018 SCC 15

[4] Ibid at paragraph 114. 


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