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Saskatchewan Court of Appeal Affirms Federal Carbon Pricing Act is Constitutional

Saskatchewan’s highest court has ruled that the federal carbon pricing legislation is constitutional. In April 2018, the Saskatchewan government announced that it had commenced a reference case to the Saskatchewan Court of Appeal, asking for a determination about whether the federal carbon levy is “unconstitutional, in whole or in part.” This was part of the effort of the Saskatchewan government to avoid implementing any carbon pricing regime in the province. On May 3, 2019, the Saskatchewan Court of Appeal released its decision on the reference with a split 3-2 outcome stating that climate change is a vital national issue and the federal government has the power to set GHG emission standards that the provinces must meet. The federal Minister of Environment and Climate Change said that the court’s conclusion, although not binding, is a win and allows the federal government to undertake significant action on carbon emissions while respecting Canada’s constitution.

As we discussed in an earlier post, the federal government adopted the Greenhouse Gas Pollution Pricing Act (the “Act”) on June 21, 2018. The Act imposes minimum carbon pricing in provinces that have not enacted their own carbon pricing systems. Part 1 of the Act levies charges on fuel delivered, used, brought into or produced in a listed province. Part 2 of the Act establishes a cap-and-trade regime for pricing industrial GHG emissions and levies a charge on facilities that emit GHGs in a quantity that exceeds their emissions limit. Ontario, New Brunswick, Manitoba and Saskatchewan, known as the federal backstop jurisdictions, have not implemented their own carbon pricing systems. Under the Act, the federal fuel levy (Part 1) came into force in these provinces in January 2019 and the GHG emissions charge (Part 2) came into force in April 2019. Proceeds collected by the federal government will be returned to people in these provinces through a “Climate Action Incentive,” which the federal government says will return to most families more than what they pay under the new system.

The issue before the court in the Saskatchewan reference was whether Parliament has the constitutional authority to enact the Act or whether it is outside its jurisdiction. The Saskatchewan government raised three principal issues:

  1. They challenged the Act by submitting that it is invalid insofar as it offends the principles of federalism by allowing Parliament to apply legislation based on whether existing provincial measures were in place.
  2. They contended that the Act ran afoul of s. 53 of the Constitution Act, 1867. Section 53 requires that bills imposing any tax must originate in the House of Commons. A tax levied under a delegated power such as the Governor in Council does not originate in the House of Commons. The Act delegates to the Governor in Council the authority to determine the provinces and industry areas to which the Act will apply. Saskatchewan argued that this was non-compliant with s.53.
  3. The Saskatchewan government submitted that the Act was unconstitutional because it is concerned with property and civil rights and other matters of a purely local nature falling within exclusive provincial legislative authority as set out in section 92 of the Constitution Act, 1867.

The three member majority decision rejected Saskatchewan’s arguments. First, they rejected that the Act offended the principle of federalism, stating that “the principle of federalism is not a free-standing concept that can override an otherwise validly enacted law” [para 9].

Second, they found that the carbon pricing law is a regulatory charge and not a tax, largely because Parliament is returning all the revenues to taxpayers. Even if the Act did impose a tax, the court noted that governing case law provides that, “so long as a taxing authority is delegated expressly and unambiguously, it may be exercised to establish the ‘details and mechanisms of the tax.’” The court held that the Act “seemed to be aimed at enabling the Governor in Council to do this very thing: to work out and establish some of the details and mechanisms of the fuel charge scheme that are not addressed by the Act” [para 107].

Finally, the majority concluded that the Act was a valid exercise of Parliament’s constitutional power to legislate for the peace, order and good government of Canada (POGG), rejecting Saskatchewan’s argument that it was a purely provincial matter outside of national concern.

The two dissenting judges focused on the second and third arguments put forward by the Saskatchewan government. On the question of the delegation of taxing authority, the dissenting justices found that the Act is contrary to s.53 of the Constitution. The dissent held that the fuel charge part of the Act is invalid because it lacks a clear and unambiguous statement of Parliament’s intention to delegate its taxing authority as required by s.53 of the Constitution.

With respect to the issue of the division of powers between the federal and provincial levels of government, the dissenting justices rejected the majority’s view that the Act could be sustained under the federal POGG heading, stating that “there is nothing about the reduction of GHG emissions and the need for national approach that is distinctive in a constitutional sense so as to clearly distinguish it from matters of provincial concern” [para 454]. The dissent noted:

In our opinion, the notion that national benchmarks are required merely speaks of a federal dissatisfaction with Provincial policy and a desire to impose federal policies on those Provinces now not meeting the benchmark and on those whose future policies may, at some point, fail to meet the federal benchmark. It is a dispute about what the right numbers are and who gets to decide what they are. A finding of provincial inability in these circumstances would improperly require the Court to choose between the policies, benchmarks and approaches of the Provinces and those of the federal government as they apply to the people and economy of the Provinces that do not meet the federal idea of stringency. In this way, the unilateral imposition of national uniformity based on Parliament’s notion of proper stringency in an area of Provincial jurisdiction would deny the very notion of federalism, which entails the possibility of different legislative solutions to the same problem across Canada, taking into account cultural or regional particularities [para 451].

Saskatchewan Premier Scott Moe has already said the government would appeal the ruling to the Supreme Court of Canada.

We are yet to receive the outcome of Ontario’s challenge to the federal carbon pricing system, which was heard in April and raised similar issues as the Saskatchewan reference. The Ontario challenge was also heard by a five-justice panel. It will be interesting to see how that court splits as compared to the 3-2 decision in the Saskatchewan case.