Carbon Pricing Reference Case: Summary of the Government of Canada’s Factum

Preliminary FAQ

This reference case involves the Government of Saskatchewan (GOVSK) asking the Saskatchewan Court of Appeal (SKCA) to determine whether the Federal Government’s (FEDGOV’s) carbon pricing legislation, the Greenhouse Gas Pollution Pricing Act (GGPPA), is constitutional. The hearing is set for February 13-14, 2019. Please see the following information below to have a better understanding of the whole issue.

Knowing a bit about Constitutional Law is crucial for understanding the factum. A main tenet of this area of law is that each level of government has areas of powers designated to them called “heads of power”, which the Constitution Act, 1867 outlines in section 91 and 92.

In essence, sections 91 and 92 define the boundaries within which governments can act. Legislation passed by either level of government may be unconstitutional (otherwise referred to as “ultra vires”) if that law does not fall under the respective government’s head of power. In other words, the government has acted without legal authority. These limitations prevent the provincial government from legislating over matters that the federal government has responsibility over and vice versa.

For example, the federal government is responsible for enacting laws regarding the military, while provincial governments legislate with respect to  municipalities. The provincial government cannot pass laws regarding military procurements, while the federal government cannot decide on the amalgamation of cities within a province.

A doctrine for determining whether legislation is unconstitutional is called the “pith and substance” analysis. This essentially involves finding the “essence” or “core” of the legislation at issue and then figuring out whether the government has authority from their respective heads of power to enact it. In examining the “essence” of a piece of legislation, the court will typically look at

  • The purpose of the law;
  • The legal effect of the law (what impact(s) would the law have if it functions as intended?); and
  • The practical effect of the law (what impact(s) would the law actually have?).

The Constitution does not designate some matters exclusively to either level of government, like the environment. What this means is that either the province or federal government can pass legislation regarding the environment, but they must still do so using one of their existing heads of power. This can make legislating confusing and messy, such as the issue at hand.

What the GOVSK is doing here is a “reference case” or “reference question”. It is not a lawsuit that involves two litigating parties. References questions give governments the ability to ask courts important legal questions. The court’s determinations are not legally binding like obtaining a judgment or order in traditional litigation, but governments typically treat them with the same weight and will follow the court’s decisions.1 Once the court reaches a decision, a party may appeal to the Supreme Court of Canada.

A factum is counsel’s written arguments filed before the court hears the lawyers argue their case. Each level of court and jurisdiction usually has a specific set of rules that lawyers must follow when writing and submitting their factum.

The FEDGOV has proposed the Greenhouse Gas Pollution Pricing Act (GGPPA), which sets out the legislative framework for what they called the “Backstop” in the Pan-Canadian Framework on Clean Growth and Climate Change and later detailed in their Technical Paper. The FEDGOV has issued further statements about how carbon pricing will work specifically in Saskatchewan.

The GGPPA applies to those provinces who did not have their own carbon pricing framework that meets the federal standards in place by 2018. The basic carbon pricing plan for Saskatchewan as outlined in the GGPPA consists of two main parts:

  1. Part I: A price on fossil fuels paid by registered producers and distributors starting in April 20192; and
  2. Part II: A separate output-based pricing system for facilities related to electricity generation and natural gas transmission pipelines that emit over 50 kt of CO2 equivalent per year. Smaller facilities that emit 10 kt tonnes or more of CO2 equivalent per year can voluntarily opt-in to the system over time.3

The carbon pricing plan ensures that any revenue raised will return to the province of origin to provide relief to vulnerable sectors/individuals and families and as support for other greenhouse gas emission reduction strategies in the province.

The GGPPA is the piece of legislation that the GOVSK is challenging as unconstitutional.

Summary of the Federal Government's Factum

The FEDGOV sets out to address the following issues:

  1. Greenhouse gas (GHG) emissions are a matter of national concern – Parliament has legislative competence to enact the GGPPA under the peace, order, and good government power.
  2. Canada’s approach to implementing a pan-Canadian price on carbon pollution respects all principles of federalism.
  3. The fuel charge and excess emissions charge are regulatory charges – the GGPPA implements a pricing regime to change behaviour to reduce GHG emissions.
  4. In the alternative if the Court finds that Part 1 of GGPPA imposes a tax, then it is validly enacted under s.91(3) in a manner consistent with s. 53 of the Constitution Act, 1867.

The FEDGOV argues that their current carbon pricing plan is constitutional for the following reasons:

  1. The dominant purpose of the GGPPA is to incentivize the behavioural changes necessary to reduce Canada’s GHG emissions.
  2. GHG emissions are a vital matter of national concern that are single, distinct and indivisible subject matter.
  3. A provincial failure to implement an inter-provincial carbon price to reduce GHG emissions negatively affects extra-provincial interests.
  4. The scale of impact on provincial jurisdiction is reconcilable with the fundamental distribution of legislative power under the Constitution.

The main focus of the FEDGOV’s argument is that the GGPPA is constitutional because it falls under the federal powers of national concern.  A substantial amount of the FEDGOV’s factum is devoted to explaining the dangers of climate change and the national and international agreements that support the science of climate change.  These agreements include the United Nations Framework Convention on Climate Change, the Paris Agreement, and the Vancouver Declaration on Clean Growth and Climate.  The FEDGOV included the scientific background and agreement history to demonstrate the importance of fighting climate change in support of their position that GHG emissions and climate change are issues of national concern.

1. The GGPPA meets the criteria for POGG: national concern

After completing the background information on climate change, the FEDGOV explains the criteria for national concern doctrine under the federal peace order, and good government power (POGG).  Initially set out in Crown Zellerbach Canada Ltd., the matter at issue must meet the following criteria:

  1. Be a new matter that was not considered by the Constitution or be a local matter that has since become one of national concern.
  2. Have a “singleness, distinctiveness and indivisibility” that distinguishes it from provincial jurisdiction.  It also must have a scale of impact that would be beyond the scope of provincial jurisdiction.
  3. Pass the provincial inability test: if a province was to fail to act on the issue it would affect extra-provincial interests.

If the court finds that the GGPPA meets all of these criteria, then it would be constitutional legislation that could be enacted under the national concern doctrine.

GGPPA’s Purpose and Effect

Before the FEDGOV considers the national concern criteria, they analyze the GGPPA’s purpose and effect to help prove that it does meet the POGG test.

The FEDGOV claims that when you look at the structure of the statute, the legislative history and the context of its enactment, the dominant purpose of the GGPPA is to implement a minimum GHG emissions price throughout Canada to incentivize the behavioural changes necessary to reduce GHG emissions.

Specifically, the FEDGOV points to the following aspects of the GGPPA to demonstrate the legislation’s core purpose: 

  1. The preamble of the GGPPA aligns with the dominant purpose: in the preamble, the GGPPA acknowledges that some provinces have already implemented or are developing carbon pricing schemes, “but that the absence of GHG emissions pricing systems in some provinces and the lack of stringency in GHG emissions pricing systems in others could contribute to significant deleterious effects on the environment” (para 78).
  2. The legal effect of the GGPPA aligns with the dominant purpose: the GGPPA ensures GHG emissions pricing applies broadly across Canada with increasing stringency to incentivize behavioural changes that reduce GHG emissions.
  3. The structure of the GGPPA aligns with the dominant purpose: Parts 1 and 2 of the GGPPA create a complete and complementary regulatory system for pricing GHG emissions in a way that aims to minimize negative competitive impacts on emissions-intensive, trade-exposed industries.
  4. The practical effect of the GGPPA aligns with the dominant purpose: carbon pricing is the most efficient way to reduce emissions, a position well-supported by the international community and the Pan-Canadian Framework working group.

Responding to the SKGOV’s argument, the FEDGOV’s submit that the GGPPA is not a colourable attempt to regulate industry or intrude into provincial jurisdiction.  The GGPPA does not tell industry how to reduce emissions or even that they must reduce at all.  It instead implements a “polluter pay” principle4 that is already entrenched in Canadian law. The means by which industrial and other facilities achieve GHG emissions reductions remains entirely open. It would not remain open if the GGPPA was the industrial regulation that Saskatchewan characterizes it as.

i) The GGPPA is a matter of national concern

After determining the purpose of the GGPPA, the next step in the national concern test is to characterize the law as a matter of vital national concern.  In Friends of the Oldman River Society, the Supreme Court declared that “the protection of the environment has become one of the major challenges of our time”.  The FEDGOV characterizes GHG emissions as national concern because:

  1. Given their role in causing climate change, GHG emissions are a national and international concern that cannot be contained within geographic boundaries.
  2. Existing and anticipated impacts of climate change include changes in extreme weather events, degradation of soil and water resources, increased frequency and severity of heat waves, expansion of the ranges of vector-borne diseases, drought, desertification, food shortages, and a resulting increase in global unrest. GHG emissions create a risk of harm to both human health and the environment upon which life depends.
  3. The threat of GHG emissions was unimaginable at confederation.

ii) GHG emissions are a single, distinct, and indivisible subject matter

The next part of the national concern test is to prove that GHG emissions are of a single, distinct, and indivisible matter.  The FEDGOV does not claim that all air pollution is a matter of national concern but that GHG emissions as “discrete, distinct, and indivisible form of pollution – are a matter of national concern”.  GHG’s are characterised as single, distinct and indivisible because:

  1. GHGs are a precisely defined type of environmental pollutant, based on a specific set of scientific characteristics.
  2. GHG emissions are a measurable and persistent environmental pollutant, with specific characteristics.
  3. Unlike in Hydro-Quebec where a broader definition of “toxic substances” was found to be too limiting, GHG emissions are precisely defined and are limited to chemicals that affect all of Canada.

iii) A provincial failure negatively affects extra-provincial interests

The third step of the national concern test is to see if failure by any one provinces to implement carbon pricing would affect other provinces.

The effects of climate change caused by the release of GHG’s affect the entire world including other provinces.  The FEDGOV quotes paragraph 16 from Canada Metal Co.: “it is a notorious fact that air is not impounded by provincial boundaries”.  Not only do GHG’s not stay in a specific geographic location but the effects of climate change are found everywhere on the globe, even if a specific jurisdiction isn’t contributing to the problem.

By way of example, the FEDGOV discusses the relationship between British Columbia and Saskatchewan.  Despite British Columbia taking steps to mitigate GHG emissions over the last ten years, BC feels the effects of Saskatchewan increasing its GHG emissions through events BC has experienced such as increased forest fires and sea level rise.

The global nature of climate change also means that Canadian emissions affect other countries.  Following Canada’s obligations to international accords like the Paris Agreement will affect Canada’s relationships on the world stage.

2. Impact on provincial jurisdiction is reconcilable with the distribution of power under the Constitution

The final step of the FEDGOV’s analysis of the national concern branch is that the scale of impact on provincial jurisdiction is reconcilable with the fundamental distribution of legislative power under the Constitution.  The Supreme Court has recognized that the environment is not exclusively assigned to either level of government. The FEDGOV argues that giving them the jurisdiction to regulate GHG emissions through the GGPPA does not impair the provincial legislatures’ power to regulate local matters and industries.  The modern approach to federalism recognizes that areas of overlapping powers are unavoidable.

The court must take into account the principle of cooperative federalism, which favours, whenever possible, concurrent legislation operating by governments at all levels.  The FEDGOV states that recognizing GHG emissions as a matter of national concern will not alter the balance of legislative power under the Constitution because the provinces have several heads of power that allow them to legislate in respect of GHG emissions, and Parliament has the criminal law power.  Federal jurisdiction to legislate as a matter of national concern does not shift the balance of legislative power, but rather provides Parliament with a flexible tool, reflecting the magnitude of the climate change issue. The GGPPA encourages the provinces to come up with their own solutions, but responds to provincial inaction if needed.

3. Alternative arguments5: If the GGPPA is a tax, the GGPPA is constitutional

If the court finds that Part 1 of the GGPPA is in fact a tax, as the GOVSK has argued6, then under taxation powers found in s. 91.3 of the Constitution, the GGPPA is constitutional.

The GOVSK does not refute the federal taxation power as a constitutional way to enact the GGPPA but takes issue with the discretion delegated by Parliament to the Governor in Council.  Under the GGPPA the Governor in Council would determine the jurisdiction in which part 1 and 2 of the GGPPA would operate.  

The GOVSK argues that only Parliament can enact a tax and it would be placing too much power in the Governor in Council if it was given taxation powers. The GOVSK argues that the ability of Governor in council to list provinces in Part 1 of Schedule 1 of the GGPPA amounts to taxation without representation. The GOVSK’s argument is that only elected officials, and not appointed officials like the Governor in council can set taxes.  The FEDGOV claims that because the GGPPA was enabled by legislature and defined the scope of Governor in Council’s regulatory power it meets the requirements and the GOVSK’s “no taxation without representation” argument is invalid.

The FEDGOV counters that the delegation is legally enacted because the GGPPA originated in the house of commons and the SCC found in Ontario English Catholic Teachers Assn. that delegation of a tax is constitutional if express and unambiguous language is used in the delegation.

The fuel charge is imposed by the GGPPA and it establishes who is subject to the charge in the jurisdictions where it operates. The charge is computed under the GGPPA for time periods that are established in the legislation. The amount of the charge is set by the GGPPA and the Governor in Council’s authority to determine the rate is expressly delegated.

SKAEL’s Initial Questions/Thoughts

  1. How will the FEDGOV deal with the argument that the GGPPA impacts some provinces (like Saskatchewan) more than others? Does this align with the principles of federalism, such as provincial autonomy?
  2. The FEDGOV relies on case law to mark the boundaries of sufficiently narrow and overly broad matters over which they can be granted the jurisdiction to legislate under POGG – specifically, “marine pollution” (as being sufficiently distinct) and “toxic substances” (as being too broad). The FEDGOV suggested that GHG emissions are “like marine pollution”, and, scientifically, GHG emissions are distinct. Is being able to scientifically categorize a matter enough to meet the POGG: national concern criteria? Are GHG emissions really closer to “marine pollution” than “toxic substances”, as the FEDGOV suggests?
  2. Rural and remote residents, farmers, and fishers may be eligible for relief from the carbon pricing
  3. Part 2 works in conjunction with Saskatchewan's own plan regarding large-industry emitters as outlined in their policy, Prairie Resilience.
  4. The 'polluters pays' principle is the commonly accepted practice that those who produce pollution should bear the costs of managing it to prevent damage to human health or the environment. Read more here:
  5. Alternative arguments are arguments that are made “in alternative” in case the court does not agree with the main argument.  In this case the FEDGOV states that they think the GGPPA is legal under national concern but even if the court disagrees with them then they argue the GGPPA is still legal because it falls under the Federal power of taxation.
  6. See our summary of their arguments here:

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