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The SCC Says Climate Change is Real and the Federal Government’s Carbon Pricing Regime is Constitutional

Fasken
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Environmental Bulletin

The Supreme Court of Canada has acknowledged the risks of climate change:

“Climate change is real. It is caused by [GHG] emissions resulting from human activities, and it poses a grave threat to humanity’s future… The effects of climate change have been and will be particularly severe and devastating in Canada.” [1]

The Greenhouse Gas Pollution Pricing Act (“GGPPA”) is the federal government’s legislation to reduce greenhouse gas (“GHG”) emissions, enacted as part of the country’s effort to meet its commitment to reduce GHG emissions by 2030 under the Paris Agreement. Since the GGPPA was enacted in June 2018, it has been at the centre of three constitutional challenges [2] about which level of government has the right to regulate GHG emissions. Because the environment is not expressly addressed in the Canadian Constitution, courts have been grappling predominantly with a question of federalism, a foundational principle of the Canadian Constitution, which requires that an appropriate balance be maintained between the powers of the federal government and those of the provinces. While that battle on the GGPPA is now over, the Supreme Court’s decision raises important questions about the federal government’s authority to step in to regulate in other areas of national interest where they are concerned about gaps in provincial regulatory regimes.

In the much anticipated Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, the Supreme Court of Canada, in a 6-3 majority decision [3], found the GGPPA is constitutional as a matter of national concern – matters which, by their nature, transcend the provinces – under the peace, order and good government (“POGG”) clause in section 91 of Canada’s Constitution [4], meaning the federal government has the constitutional authority to enact the GGPPA and therefore implement a national carbon pricing regime.

Determining that a matter is one of national concern under POGG is a three-step test:

  • First, the matter must be of sufficient concern to the country as a whole. The majority found the history of efforts to address climate change in Canada reflects the critical role of carbon pricing strategies in policies to reduce GHG emissions and that the matter is critical in Canada’s response to an “existential threat to human life in Canada and around the world.” [5]
  • Second, the matter must have a singleness, distinctiveness and indivisibility. The majority found that these principles were met, specifically that federal jurisdiction is necessitated by the provinces’ inability to address the matter as a whole through cooperation: “federal action is indispensable” [6] in Canada’s efforts to mitigate climate change. [7]
  • Third, the matter must have a scale of impact on provincial jurisdiction that is reconcilable with the division of powers. The majority found that, although GGPPA has a clear impact on provincial jurisdiction, its impact on the provinces is qualified and limited. While the GGPPA puts a Canada-wide price on carbon pollution, provinces retain freedom to regulate GHG emissions, without federal interference, as long as they meet the federal government’s outcome-based targets. [8]

There was a healthy majority under the banner of Chief Justice Wagner’s reasons, but the dissents were lengthy and strongly worded. In particular, those of Justices Brown and Rowe whose main concerns revolved around the potential for growing incursions on provincial jurisdiction. They each expressed concern that the power to legislate “minimum national standards” in an area of national concern could encroach on other areas of provincial jurisdiction, such as intra-provincial trade and commerce, health and the management of natural resources. Justice Côté, while not sharing these concerns, found the breadth of discretion conferred to the Governor in Council (i.e. the Federal Cabinet) – to determine what fuels are covered and to set standards on an industry-by-industry basis – to be inconsistent with Canada’s system of democracy, primarily parliamentary sovereignty, the rule of law and the separation of powers between the legislative and executive branches of government.

What is the GGPPA?

The GGPPA establishes “minimum national standards of GHG price stringency to reduce GHG emissions…seeking to change behaviour by internalizing the cost of climate change impacts, incorporating them into the price of fuel and the cost of industrial activity.” [9]

The GGPPA does not automatically apply to all provinces. Rather, it serves as a backstop of minimum national standards applied in provinces that have not yet adopted a carbon pricing mechanism, or that have adopted a mechanism that does not comply with the minimum national standards. This was key to the Court’s finding that the impact on the provinces' freedom to legislate is minimally intrusive. The GGPPA has two components:

  • Part 1 of the GGPPA: establishes a carbon-based fuel charge that applies to producers, distributors and importers of various types of carbon-based fuel who ultimately pass this on to consumers (this charge will increase through to 2022);
  • Part 2 of the GGPPA: sets out a pricing mechanism, referred to as an Output-Based Pricing System, for industrial GHG emissions by large emissions-intensive industrial facilities. The scheme subjects these large emitters to a carbon price on the portion of their emissions in excess of the limit placed on their facility (based on benchmarks in their industry).

The Court’s decision leaves it to the provinces to draft legislation and regulations to meet the federal requirements. Currently, Part 1 of GGPPA applies in Ontario, Manitoba, Saskatchewan, Alberta, Yukon and Nunavut, and Part 2 applies in Ontario, New Brunswick, Manitoba, Prince Edward Island, Saskatchewan, the Yukon, and Nunavut (though Ontario and New Brunswick have plans to adopt their own emissions standards, which will eventually supplant GGPPA). Provinces with alternative strategies for pricing GHG emissions that have been approved federally may continue.

For more information on GGPPA, see Fasken’s previous environmental bulletins: Federal Carbon Tax Backstop and A Stopgap for the Backstop: Registering for the Output-Based Pricing System Under the Federal Carbon Pricing Scheme.

What’s Next?

POGG powers grant permanent subject-matter jurisdiction to the federal government, so we expect to see Canada’s direction on climate policy influenced by this decision. The decision also left open the potential for future challenges to the GGPPA’s regulations if they are changed.

The direct impacts of this decision will mostly be felt in Ontario, Alberta and Saskatchewan, where provincial legislators had other designs for addressing GHG emissions within the unique context of their jurisdictions but have now been sent back to the drawing board. Other jurisdictions have been living under their own regimes determined as equivalent or better than the federal backstop for some time (BC and Quebec, for example) or have not seen fit to challenge the minimum national standards imposed upon them. What regulated industries like the energy industry crave most is regulatory certainty. What hinders investment is regulatory uncertainty. In Alberta, many large oil and gas producers stood behind Rachel Notley (literally) when she announced her Climate Leadership Plan in 2015 despite aspects of the plan being unpopular, with a goal of providing that certainty. It is hoped that this decision may finally bring some closure to the uncertainty that arose since then, and that it may assist in our relationship with our largest trading partner to the South and its new administration.

Of perhaps more interest, is the question of what this decision means for the delicate balance of our federation. The question is what future use may be made of the concept of “minimum national standards”. Justice Brown suggests that the Majority decision opens the door to federal intrusion into all areas of provincial jurisdiction by way of imposing national standards. This seems unlikely given that the test of national concern must be met to rely on POGG and the Majority decision used the strongest terms in describing the unique threat of Climate Change — that it “poses a grave threat to humanity’s future” and its effects will be “severe and devastating in Canada”. The same cannot be said of many areas over which the provinces have jurisdiction to legislate under section 92 of the Constitution, including general trade and commerce issues. As we emerge from a global pandemic, health seems the most obvious area where we may see more talk of minimum national standards.

If you are concerned about how the decision may impact you or have questions on climate change governance and regulation generally, please contact the authors or a member Fasken’s Environmental Practice Group.



[1] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, paras 7-10. Chief Justice Wagner, writing for the majority.

[2] In split decisions, the courts of appeal for Saskatchewan and Ontario held that the GGPPA is constitutional, while the Court of Appeal of Alberta held that it is unconstitutional: See Reference re Greenhouse Gas Pollution Pricing Act, 2019 SKCA 40; Reference re Greenhouse Gas Pollution Pricing Act, 2019 ONCA 544; and Reference re Greenhouse Gas Pollution Pricing Act, 2020 ABCA 74.

[3] Justices Russell Brown and Malcolm Rowe each wrote dissenting reasons, agreeing with each other. They did not accept that the Federal government had the authority to establish minimum standards for GHG pricing and were of the view that GHG emissions were a matter of provincial jurisdiction.

[4] This is the first decision since R v Hydro Quebec, [1997] 3 SCR 213 that the Supreme Court of Canada has provided new jurisprudence with respect to POGG.

[5] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, paras 167-171.

[6] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, para 191.

[7] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, paras 172-195.

[8] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, paras 196-206.

[9] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11, paras 57 & 175.

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