Carbon pricing: Ontario Court of Appeal delivers constitutional endorsement

Jonathan Coady and Justin Milne

The Ontario Court of Appeal has found that the Greenhouse Gas Pollution Pricing Act¹ is valid federal legislation.² The Act implements national minimum pricing standards to reduce greenhouse gas (“GHG”) emissions. In a divided 4-1 opinion, the Ontario Court of Appeal concluded that the Act is constitutional and falls within the authority granted to Parliament to make laws for the peace, order, and good government of Canada.³ The impact of this decision for the Atlantic provinces is discussed below.

Overview of the Act

The Act places a price on carbon pollution:

• Part 1 of the Act establishes a charge on fuels producing GHGs.⁴ The charge applies to carbon-based fuels that are produced, delivered or used in a listed province, brought into a listed province from another place in Canada, or imported into Canada at a location in a listed province. The charge is presently $20 per tonne of CO₂ emitted and will rise annually until 2022 when it reaches $50 per tonne.
• Part 2 of the Act creates an output-based regulatory system for GHG emissions by industrial facilities.⁵ The system places annual limits on emissions, extends credits to facilities operating below those limits, and establishes charges for facilities whose emissions exceed the prescribed limits. While facilities subject to the system are exempt from the fuel charge, they are required to pay compensation for GHG emissions that exceed the annual limits. This compensation may take the form of credits earned or acquired by the facility, payments by the facility, or a combination of both.

The Act does not apply in all provinces. Rather, the Act operates as a “backstop” by extending into provinces without a sufficiently stringent system to reduce GHG emissions. This determination as to stringency is made by the federal Cabinet.⁶ Provinces may opt into the federal system voluntarily, adopt the national minimum standards as their own, or enact their own system that meets or exceeds the national standards for reducing GHG emissions. The fuel charge and trading system prescribed by the Act therefore only apply in provinces that do not satisfy the national standard for stringency.

Constitutional questions

Constitutional responsibility for the environment is not assigned exclusively to the federal government or the provinces.  While Parliament is vested with residual jurisdiction by virtue of s. 91 of the Constitution Act, 1867, the scope of that jurisdiction is directly impacted by the boundaries of provincial authority over property, civil rights, and matters of a local nature. The environment is therefore an area of shared responsibility. In order to decide whether the Act was constitutional and valid federal legislation, the Ontario Court of Appeal had to consider two main questions:

• whether the subject matter of the Act falls within the jurisdiction of Parliament under s. 91 of the Constitution Act, 1867 to make laws for the peace, order, and good government of Canada; and
• whether the charges established under the Act are taxes within the meaning of s. 53 of the Constitution Act, 1867 and therefore required to originate from the House of Commons and not the federal Cabinet.

Opinion of the Ontario Court of Appeal

The authority of Parliament to make laws for the peace, order, and good government of Canada under s. 91 of the Constitution Act, 1867 has historically been interpreted to include matters of national concern.  A matter is considered to be of national concern when it “goes beyond local or provincial concern or interests” and affects the country as a whole by virtue of “its inherent nature.”⁷ It must, however, be a single, indivisible, and distinct matter.⁸ In other words, it cannot be an aggregate of subjects falling within the jurisdiction of the provinces.⁹ These limitations are intended to minimize the impact on provincial areas of jurisdiction and respect the lawmaking powers distributed to each level of government under the Constitution Act, 1867.¹⁰

The Ontario Court of Appeal concluded that the need for national minimum standards to reduce GHG emissions is a matter of national concern in the constitutional sense.  According to the majority, GHGs represent a distinct form of pollution, are identified with precision in the Act, and have no concern for provincial boundaries.¹¹ The majority also reasoned that the provinces are unable to introduce laws affecting GHGs emitted in other provinces or establishing national standards to reduce GHG emissions.¹² This constitutional inability, in the words of the majority, “means that one province’s failure to address the issue would endanger the interests of other provinces.”¹³ For the Atlantic provinces, this lack of jurisdiction means that they can take no legislative action “to address the approximately 93.8 percent of national GHG emissions that are produced in the rest of Canada.”¹⁴ All of these considerations led the majority to conclude that the primary purpose of the Act was validly aimed at a single, indivisible, and distinct matter of national concern.¹⁵

Section 53 of the Constitution Act, 1867 also requires any tax be imposed by legislation introduced in the House of Commons. Rooted in the historical principle of “no taxation without representation,” this requirement prevents the executive branch of the federal government from introducing taxes.¹⁶ A regulatory charge, however, is not subject to this constitutional restriction.  Where the primary purpose of a levy is to advance or support a regulatory scheme and not to raise general revenue, it is considered to be a regulatory charge.¹⁷

The Ontario Court of Appeal concluded the charges imposed by the Act are not taxes and therefore do not offend s. 53 of the Constitution Act, 1867.  Rather, the levies on fuel and excess emissions are permissible regulatory charges. According to the majority, these charges are connected to a regulatory scheme and directed at a legitimate regulatory purpose, namely modifying behaviour.¹⁸ Drawing support from earlier decisions by the Federal Court of Appeal and the Supreme Court of Canada, the majority found that regulatory charges are not limited to the costs associated with administering the scheme.¹⁹ A regulatory charge is also constitutional when it is “designed to proscribe, prohibit or lend preference to a behaviour.”²⁰ For these reasons, the majority found that the charges levied by the Act were constitutional.²¹

Impact for the Atlantic Provinces

The decision by the Ontario Court of Appeal has direct implications for the Atlantic provinces:

• First, the decision places special emphasis on the disproportionate effects of climate change. While the Atlantic provinces are responsible for just 6.2% of the total GHG emissions in Canada, they will experience effects of climate change that are caused by emissions from the country as a whole.²² These impacts are “grossly disproportionate” when measured against what the Atlantic provinces have contributed to the current atmospheric levels of GHGs.²³ The unique interests of the Atlantic provinces therefore require advancement and protection.
• Second, the decision reinforces that the Atlantic provinces have no legislative authority to address GHG emissions in any other province.²⁴ GHGs are not inherently divisible.²⁵ The main effect of those emissions – climate change – is therefore not confined to the location or source of the GHGs.²⁶ Absent some collective action, the Atlantic provinces may be left to prepare for the worst.
• Third, the decision extends beyond the establishment of national standards to reduce GHG emissions. There are few instances where the Atlantic provinces stand on the same footing as their federal and provincial partners. The Constitution Act, 1867 is one of them. The definition of constitutional boundaries takes on special importance when one is without the weight of geography or population.  Jurisdiction is therefore a precious resource in the Atlantic provinces.

The Ontario Court of Appeal will not, however, have the last word on the constitutionality of the Act.  The Government of Ontario has already announced that it will appeal to the Supreme Court of Canada.²⁷ Given its obvious consequences for federal-provincial relations, the case is expected to be followed closely in the Atlantic provinces.

¹ Greenhouse Gas Pollution Pricing Act, Part 5 of the Budget Implementation Act, 2018, No. 1, S.C. 2018, c. 12 [Act].

² Reference re Greenhouse Gas Pollution Pricing Act, 2019 ONCA 544 [Reference].

³ A majority of the Saskatchewan Court of Appeal had previously found that the Act was constitutional.  See Reference re Greenhouse Gas Pollution Pricing Act, 2019 SKCA 40.

⁴ Act, ss. 3-168.

⁵ Act, ss. 169-261.

⁶ Act, ss. 166 and 189.  Since April 1, 2019, Part 1 of the Act has applied in Ontario, New Brunswick, Manitoba, and Saskatchewan.  Since January 1, 2019, Part 2 of the Act has applied in Ontario, New Brunswick, Manitoba, and partially in Saskatchewan.  Prince Edward Island voluntarily opted into Part 2 of the Act effective January 1, 2019.  

⁷ Attorney General for Ontario v. Canadian Temperance Federation, [1946] A.C. 193 at 205-206 (P.C.).

⁸ R. v. Crown Zellerbach Canada Ltd., [1988] 1 S.C.R. 401 at 436. [Crown Zellerbach]

⁹ Re Anti-Inflation Act, [1976] 2 S.C.R. 373 at 458, per Beetz J. (dissenting) [Anti-Inflation].  The boundaries of national concern, as defined by Beetz J., were supported by the majority.  See Anti-Inflation Act at 437.

¹⁰ R. v. Crown Zellerbach at 432.

¹¹ Reference at para. 114.

¹² Reference at paras. 117-118.

¹³ Reference at para. 119.

¹⁴ Reference at para. 117.

¹⁵ Reference at paras. 119, 124, and 139.

¹⁶ 620 Connaught Ltd. v. Canada (Attorney General), 2008 SCC 7 at paras. 4-5 [620 Connaught].

¹⁷ Westbank First Nation v. British Columbia Hydro and Power Authority, [1999] 3 S.C.R. 134 at para. 30 [Westbank].

¹⁸ Reference at para. 154.  According to the majority, the Act is expressly aimed at modifying behaviour, encouraging use of cleaner fuels, and fostering innovation.  See Reference at para. 162.

¹⁹ See 620 Connaught at paras. 20 and 17, Westbank at paras. 29 and 44, and Canadian Association of Broadcasters v. Canada, 2008 FCA 157.

²⁰ Reference at para. 159, quoting 620 Connaught at para. 20.

²¹ Reference at paras. 162-163.

²² Reference at para. 19.  In 2016, total GHG emissions in Canada were 704 megatonnes.  Prince Edward Island, for example, contributed just 1.8 megatonnes or 0.26% of total GHG emissions.

²³ Reference at para. 17.

²⁴ Reference at para. 117.

²⁵ Reference at para. 123.

²⁶ Reference at para. 17.

²⁷ The Supreme Court of Canada has already confirmed that it will consider the constitutionality of the Act by way of an appeal from the Saskatchewan Court of Appeal.  See SCC Case No. 38663.