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Supreme Court of Canada upholds the Greenhouse Gas Pollution Pricing Act: the ruling and its consequences

Litigation Bulletin
26.03.21
By Robert Martz and Brendan Downey

First, the headline

On March 25, 2021, the Supreme Court of Canada released its decision in Reference re Greenhouse Gas Pollution Pricing Act, confirming the constitutionality of the Greenhouse Gas Pollution Pricing Act (the GGPPA) and bringing to a close nearly three years of legal wrangling.

In a 6-3 decision, the Court found that the GGPPA was constitutional under the "National Concern Branch" of the so-called "POGG" power, a constitutional power that enables Parliament to legislate for the "peace, order and good government" of Canada in response to emergencies, matters of national concern or gaps in the division of powers. This authority persists even if a particular matter otherwise falls within the jurisdiction of the provinces.

In confirming the constitutionality of the GGPPA, the Court accepted that greenhouse gas (GHG) emissions contribute to climate change and that climate change threatens serious consequences for humanity on a global scale. The majority also acknowledged that the diffuse and cross-border nature of GHG emissions makes them amenable to federal regulation (though that cannot be the only basis on which Parliament justifies its involvement). However, the Court made some effort to confine the reach of its decision by limiting the federal government's jurisdiction to establishing a national pricing framework for GHG emissions and explicitly rejected arguments that would have expanded federal jurisdiction to GHG emissions generally.

In many ways, the decision is not really about whether the federal government has the constitutional tools to regulate GHG emissions. Even the dissenting Justices agreed that it likely does. The true debate in this decision is whether Canada's reliance on the National Concern Branch to regulate GHG emissions will fundamentally rewrite the constitutional balance of powers by allowing Parliament to use the POGG power to interfere in other areas of core provincial jurisdiction.

The majority, in upholding the GGPPA, stresses that its findings should not significantly expand federal jurisdiction as many feared and, in general, is likely to have a limited influence on the balance between federal and provincial jurisdiction outside of the particular circumstances of GHG pricing. The dissents of Justices Rowe and Brown take the opposite view, finding that the National Concern Branch, as understood and applied by the majority, opens the door to substantial federal interference in constitutionally protected spheres of provincial jurisdiction.

In this article, we explore the winding path this dispute followed before it ended up on the Supreme Court's doorstop, examine the Court's reasons and speculate as to the impacts of the Court's decision.

Key takeaways

Here are some of the key takeaways from the decision:

  • The GGPPA is constitutional.
  • In its reasons, the majority expands upon the test for constitutionality under the National Concern Branch of the POGG power, providing useful context to the application of an infrequently used test.
  • The majority repeatedly emphasizes that its decision only applies to the setting of minimum prices for GHG emissions and does not endorse federal jurisdiction over GHG emissions generally.
  • While the majority's reasons and, in particular, the constitutional test it applied to the GGPPA would appear to make further assertions of federal jurisdiction over GHG emissions difficult to sustain, Justices Brown and Rowe rightly point out that it does not foreclose that possibility entirely.
  • Legislative responses to environmental concerns will continue to be a powerful force in shaping the evolution of the constitutional division of powers.

The GGPPA

Most Canadians are familiar with the "carbon tax", the price that Parliament levied on fuels and GHG emissions in Canada as part of its strategy to meet its Paris Agreement emissions targets. The GGPPA encourages the reduction of GHG emissions by: (i) imposing an escalating fuel charge on 22 identified fuels; and (ii) implementing output-based emissions reduction standards for large industrial emitters. In both cases, the aim of the legislation is to increase the cost of emitting GHGs to encourage their widespread reduction.

Parliament initially announced that the price on emissions would increase gradually increase over five years, reaching $50 per tonne of carbon dioxide equivalent (CO2e) in 2022. More recently, however, the Liberal Party of Canada has signalled its intention to continue these annual price increases until the price on emissions reaches $170 per tonne of CO2e by 2030.

The GGPPA operates as a "federal backstop"—it only applies in provinces and territories that have not enacted their own equivalent emissions pricing regimes. This ensures a uniform price applies across the country and mitigates the risk of domestic carbon leakage. While most economists agree that emissions pricing is an effective—and efficient—way to reduce GHG emissions, the GGPPA has been controversial. Following its commencement, Saskatchewan and Ontario both challenged its validity, arguing that the GGPPA infringes on the provinces' jurisdiction over matters that are primarily local in nature. Following a change in government, Alberta advanced its own challenge. In addition, the provinces of Quebec, New Brunswick, Manitoba and British Columbia participated as intervenors in the various legal challenges.

A winding path through three Courts of Appeal

The Saskatchewan Court of Appeal was the first to weigh in, holding in a 3-2 decision that the GGPPA is a valid exercise of federal jurisdiction under its POGG power. While the majority did not accept Canada's argument that Parliament has jurisdiction over GHG emissions or the cumulative dimensions of GHG emissions, it nevertheless concluded that Parliament could legislate to establish minimum national standards of pricing stringency for GHG emissions. In a 3-1-1 decision, the Ontario Court of Appeal concluded similarly, rejecting the argument that Parliament has constitutional authority over GHG emissions or their cumulative dimensions, but holding that Parliament could nevertheless establish minimum national standards to reduce GHG emissions. In her concurring opinion, Associate Chief Justice Hoy (as she then was) diverged slightly from the majority, concluding that Parliament can establish national minimum GHG emissions pricing standards to reduce GHG emissions.

As we discuss in greater detail below, the GGPPA was upheld in these judgments on the basis that some variant of establishing uniform minimum pricing standards for GHG emissions reduction was a matter of national concern such that Parliament could act under its POGG power. The Alberta Court of Appeal disagreed.

Despite the precedent that the Saskatchewan and Ontario Courts of Appeal set, the Alberta Court determined in a 3-1-1 decision that Parliament could not regulate GHG emissions under the POGG power without disrupting the federal-provincial balance that the Constitution Act, 1867 seeks to maintain. While the other Courts of Appeal would have agreed with the Alberta majority's conclusion that Parliament cannot regulate GHG emissions, the divergent result arose because Alberta Court ultimately declined to take the further step of refining its understanding of the GGPPA's "pith and substance"—its true character—to something that, according to the Ontario and Saskatchewan Courts, ought to be constitutionally sustainable; that is, establishing minimum national standards of some sort to encourage their reduction.

Following the Alberta Court's decision, the state of play was left wholly uncertain. Indeed, on the basis of identical constitutional questions and substantially similar legal arguments: eight judges across four different judgments ruled in favour of the GGPPA; seven judges across four different judgments ruled against the GGPPA; and the legislation itself was characterized nine different ways.

So why the confusion? On its face, the question facing the Courts was not complicated: can Parliament implement a nationwide price on GHG emissions – yes or no? Look under the surface, however, and things quickly become murky. Perhaps the biggest challenge the Courts faced was reconciling the fact that, despite the practical benefits of a federally administered price on emissions, most sources of GHGs lie within the exclusive authority of the provinces. Indeed, because of how utterly pervasive they are, recognizing federal authority over GHG emissions has the potential to re-write the division of powers. Further compounding this issue is the fact that the Constitution Act, 1867 does not contain any federal heads of power that otherwise permit Parliament to do what it has done with the GGPPA. As a result, the Courts had to rely on the rarely used POGG power to answer the constitutionality question.

The POGG power and national concern—a crash course

The Constitution Act, 1867 establishes a division of powers between Parliament and the provincial legislatures. However, nowhere in the enumeration of federal authority set out section 91 does the Constitution Act, 1867 give Parliament authority over GHG emissions, which was the jurisdictional basis Canada initially argued. As a result, Canada had to rely on a more general power described in the preamble to section 91:

It shall be lawful for the Queen, by and with the Advice and Consent of the Senate and House of Commons, 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....

This is the textual basis of the aforementioned POGG power and it has been applied in three ways:

  • to fill in gaps in the constitutional division of powers where jurisdiction over a subject matter has not been assigned to the federal or provincial governments;
  • to address national emergencies; and
  • to address matters of national concern that cannot be addressed by provinces individually (the National Concern Branch).

Canada argued that because climate change concerns the country as a whole and the cross-border nature of GHG emissions means that no one province could effectively regulate these emissions, it fell to the Parliament to intervene. In other words (and to mimic the language from the early National Concern Branch case law), while regulating most sources of GHG emissions is a provincial power, GHGs have "attained such dimension as to affect the body politic" of the country as a whole and thus require federal intervention.

Historically, courts have applied the "Crown Zellerbach" test to determine if a matter can "transform" into something within Parliament's jurisdiction. This test asks the following:

  • Does the matter have a "singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern?"
  • Is the scale of the impact of the new matter and law on existing provincial jurisdiction reconcilable with the constitutional distribution of legislative power?

One of the consequences of finding that a particular matter lies within the authority of Parliament because it has become a matter of national concern, however, is that it becomes subject to Parliament's permanent and exclusive authority. As a result, the National Concern Branch tends to erode provincial autonomy, in part due to federal paramountcy. This risk is even more acute in the context of GHG emissions and is why none of the three Courts of Appeal accepted Canada's position that Parliament has authority over GHG emissions generally. Moreover, it partially explains why the Saskatchewan and Ontario majorities could only affirm the validity of the GGPPA on the basis of narrowly defined matters that are as much descriptions of how the GGPPA operates as they are discrete matters unto themselves.

The Supreme Court weighs in

In its decision, the majority of the Supreme Court agreed with Canada that GHG emissions are a national issue that individual provinces cannot adequately manage on their own. However, the Court was careful to limit Parliament's reach under the National Concern Branch to setting a national framework for GHG pricing. Importantly, it did not embrace Canada's early, expansive, arguments for jurisdiction.

The majority

In many respects, the majority's reasoning closely tracks the reasons of the Saskatchewan majority and the Ontario majority and concurring opinions. In particular, the majority echoed these lower court judgments when it concluded that the true subject matter of the GGPPA is "establishing minimum national standards of GHG price stringency to reduce GHG emissions." As a technical point, Chief Justice Wagner reiterated that the "pith and substance" of a statute must be described as precisely as possible to prevent subsequent misclassification, commenting further that just because the purpose of a statute can be described in varying levels of generality does not mean that the most general description is the correct one. Thus, just because the GGPPA can be described broadly as the regulation of GHG emissions does not mean that this is the most correct articulation. In the present case, the GGPPA's purpose is more particularized, focusing primarily on establishing minimum pricing standards and enforcing them across the country by way of a "backstop architecture."

The majority also took the opportunity to clarify and expand upon the Crown Zellerbach test in light of intervening case law. To support legislative action under the National Concern Branch:

  • Canada must first "establish that the matter is of sufficient concern to the country as a whole to warrant consideration as a possible matter of national concern."
  • If Canada succeeds at the first step, a court must then undertake the "singleness, distinctiveness and indivisibility" analysis. The purpose of this step is to guard against federal overreach by limiting the universe of new matters over which Parliament may assert authority to only those that are specific and qualitatively different from matters of a provincial concern.
  • Finally, a court must ensure the magnitude of the intrusion on provincial jurisdiction is reconcilable with the division of powers.

Though this description of the test does not significantly depart from the Crown Zellerbach test, the majority's explanation and ensuing application offer important context to an infrequently used constitutional doctrine.

Finally, one of the provinces' fundamental concerns surrounding the application of the National Concern Branch in this case is that it opens the door to expansive federal involvement in provincial matters. This is not an idle concern; it preoccupied all three Courts of Appeal as well as the Supreme Court. Indeed, the majority's reasoning is appropriately limited to the GGPPA and the breadth of authority the new matter of national concern confers on Parliament. As Chief Justice Wagner explains, "the matter at issue here is not the regulation of GHG emissions generally, and Canada is not seeking to have all potential forms of GHG regulation classified as matters of national concern. Rather, the specific question before the Court is whether establishing minimum national standards of GHG price stringency to reduce GHG emissions is a matter of national concern."

In saying this, the Court has signalled that Parliament should not interpret its decision as a green light to regulate GHG emissions more generally, clarifying that, "[h]ere, the matter is limited to GHG pricing of GHG emissions…. Any legislation that related to non-carbon pricing forms of GHG regulation — legislation with respect to roadways, building codes, public transit and home heating, for example — would not fall under the matter of national concern." In other words, all it has done is approve the use of a backstop architecture to implement minimum national standards of GHG price stringency, primarily because this approach goes no further than the distinctly federal role that Parliament can play in this regard.

From the provinces' perspective, however, one concern that the majority does not directly address is the possibility of future expansion into provincial jurisdiction under the National Concern Branch on the basis of GHGs. Again, the issue is not that GHGs shouldn't be dealt with, but that dealing with them necessarily requires comprehensive regulation of public lands and local industrial and commercial activity, including resource development—all things subject to the exclusive authority of the provinces. While many things have a double aspect to them—that is, the same "fact scenario" can be regulated by Parliament in one respect and by the provinces in another—it remains the case that allowing Parliament to establish parameters within which the provinces must legislate chips away at their autonomy. Indeed, subsequent courts may use this decision as a jumping off point to reason by analogy and permit the piecemeal expansion of Parliamentary authority over GHG emissions (or, indeed, other important matters) in discrete ways by identifying new heads of power under the National Concern Branch. In each case, however, Canada will still need to demonstrate that, notwithstanding the apparent merits of Parliament's policy choices, any expansion into provincial jurisdiction:

  • is in response to a specific and identifiable matter of truly national concern that affects Canada as a whole;
  • concerns a matter that the provinces cannot adequately manage themselves and from which grave extraprovincial consequences may arise from provincial inaction; and
  • is, to the extent possible, sufficiently limited to preserve the constitutional balance struck by the division of powers, ensuring that the magnitude of the impact of Parliament's inaction outweighs the consequences of federal intrusion into provincial jurisdiction.

In confirming the validity of the GGPPA, the majority has affirmed the importance of an organized and collective response to the dangers of climate change, advanced the National Concern Branch and sought to place some limits on Parliament's ability to expand its jurisdiction into provincial spheres of authority. It goes without saying that the ultimate consequences of this decision remain to be seen, though the three dissents, authored by Justices Côté, Brown, and Rowe, highlight some of the issues that may ultimately arise.

The dissents

In the first of the three dissenting judgments, Justice Côté agreed with the majority's findings in relation to national concern, but would have found the GGPPA unconstitutional based on the very broad discretion it grants to the Governor in Council, such as allowing the authority to amend and override the GGPPA itself. As Justice Côté explains, this grant of authority places no meaningful limits on the power of the executive in regard to the GGPPA, meaning that the minimum GHG pricing standards are effectively set by the executive rather than Parliament.

In his dissent, Justice Brown would have found the GGPPA unconstitutional on the basis that it could not be supported by any source of federal power and is therefore, in his view, wholly beyond Parliament's authority. Justice Brown's dissent focuses on what he sees as a vast expansion of federal power under the majority's reasoning, which could allow the Parliament to set minimum standards across all kinds of areas of provincial jurisdiction.

The importance of Justice Brown's dissent is likely to be in its forceful attack on these federal intrusions and his strong arguments that an expansion of federal power in the manner he warns of would have disastrous effects for the federation and the constitutional division of powers. In particular, many of his specific points are addressed in the majority opinion, as evidenced by its repeated confirmation that the legal reasoning that supports the GGPPA is not intended to allow expansions of federal power of the sort Justice Brown warns of. Future courts looking at this issue are likely to find that the interplay between the majority's reasons and Justice Brown's dissent provide a strong argument for strictly limiting the scope of Parliament's power in this regard.

Finally, Justice Rowe would also find the GGPPA unconstitutional on the basis that it cannot be supported under the National Concern Branch. His dissent provides a lengthy discussion of the origins of the National concern Branch and draws different conclusions than the majority about the extent of this power, finding support for his conclusions in the text of the Constitution itself and previous jurisprudence. Having taken this approach, Justice Rowe adopts many of the same arguments as Justice Brown to find the GGPPA unconstitutional.

Citations can be found in the PDF linked at the top of the article.