Carbon Pricing Reference Case: Summary of the Government of Saskatchewan’s Reply

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.

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. Some parties may have the chance to file a reply factum to supplement the record in response to one of the other parties’ factum. In this case, the Government of Saskatchewan was able to file a reply factum in response to the Federal Government.

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.

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 Government of Saskatchewan's Reply

The SKGOV sets out to prove the following positions:

  1. Regardless of whether the GGPPA is a tax or pricing control on certain commodities, it cannot be justified under Peace, Order and Good Government (POGG)4 powers, s. 91. POGG displaces provincial powers altogether, which is incompatible with (a) Canada’s position that the carbon pricing is joint federal and provincial jurisdiction and (b) the intent/structure of the GGPPA;
  2. Even if federal and provincial governments could share the jurisdiction under cooperative federalism, the GGPPA is not co-operative — it is “coercive federalism”;
  3. If the GGPPA imposes pricing controls, it is unconstitutional because regulating prices of commodities is within the province’s exclusive jurisdiction under Property and Civil Rights as set out by s. 92(13) of the Constitution Act, 1867.

In essence, the SKGOV argues two main points:

  1. The GGPPA cannot be legislated under POGG, as the federal government suggests; and 
  2. The GGPPA is unconstitutional for attempting to control commodities in violation of the province’s jurisdiction under s. 92(13).

1) The GGPPA is Fundamentally Inconsistent with the POGG Power

The SKGOV argues that the GGPPA’s purpose and structure goes against the requirements and character of the POGG power and cannot therefore be justified under this head of power.

Any consideration of the POGG power must take into account the actual words of s. 91 of the Constitution Act, 1867, which states that the federal government can make laws in relation to matters that are not already assigned to the provinces (para 8):

Parliament is authorized by the POGG power only to make laws “in relation to Matters not coming within the Classes of Subjects by this Act assigned exclusively to the Legislatures of the Provinces.”

The SKGOV argues that the FEDGOV cannot therefore use POGG to legislate on matters which they acknowledge fall under provincial jurisdiction, absent an emergency (para 8). The SKGOV points out that the GGPPA essentially acknowledges that carbon pricing falls under provincial jurisdiction by deferring to a province’s own pricing regimes (if one exists).

In addition, the fact that the GGPPA applies in some provinces and not others undermines the FEDGOV’s position that the matter is of national concern (para 8). If the GGPPA was addressing a matter of national concern, it would apply nationally in all provinces, not just some (para 8).

Proper POGG Test

SKGOV submits that the GGPPA fails to meet many essential elements of POGG and that the FEDGOV cannot enact the GGPPA using this power, specifically because of the following issues:

  1. The matter at issue (GHG emissions) does not meet the POGG test of singleness, distinctiveness, and indivisibility.
  2. The GGPPA does not legislate in a way that is sufficiently distinguishable from provincial matters.
  3. The scale of the GGPPA’s impact is irreconcilable with the fundamental division of powers under the Constitution.
  4. The GGPPA does not meet the provincial inability test and cannot justify displacing a province’s authority.

SKGOV argues that the courts must “exercise great care” to avoid displacing provincial powers in light of federal and provincial federalism (para 13). The SKGOV submits that Canada is essentially seeking to permanently remove matters from provincial jurisdiction and “such an innovation is to be met with skepticism” and approached with caution (para 14). The only way to change the division of powers is not through the courts, but constitutional amendment (para 15). The SKGOV argues that national concern, short of an emergency, should never take over a province’s jurisdiction (para 16). The idea that matters originally under provincial jurisdiction can “somehow evolve or change over time to become matters of national concern” and therefore now fall under federal jurisdiction “flies in the face of the written terms of the Constitution” (para 16).

Below, the SKGOV explains how the FEDGOV fails to justify the GGPPA under POGG.

(a) No Singleness, Distinctiveness, and Indivisibility

The SKGOV agrees with Canada that the “environment”, “pollution generally”, or “air pollution at large” are not distinct matters (para 18). The SKGOV argues that GHG emissions, however, are simply a subset of “pollution”, and are also not “sufficiently distinct” (para 19). The SKGOV states that a matter is not distinct simply because it can be specifically listed as a type of chemical in the regulations (para 19). If that was sufficient, the FEDGOV would have an unlimited ability to take over jurisdictional space simply by adding endlessly to the list of regulated chemicals (para 19).

The SKGOV suggests the Crown Zellerbach Canada Ltd. case, relied heavily on by Canada, does not apply. Crown Zellerbach found marine pollution properly distinct due to the coastal waters being “geographically interprovincial and international in nature” and was therefore a matter the federal government could legislate under POGG (para 20). The GGPPA on the other hand, the SKGOV argues, does not try to prevent inter-provincial and international pollution – rather, it attempts to disincentivize the consumption of certain fuels (para 20). The GGPPA does not limit emissions or require permission to emit; instead, it “requires interference with a retail economy in order to have an indirect effect” (para 26). What the FEDGOV is asking would go beyond the scope set by Crown Zellerbach (para 25).

The SKGOV also argues that the GGPPA does not meet the “singleness” requirement because its application is uneven across the country and based on subjective criteria (para 24):

  1. The requirement of singleness is further belied by the patch-work, politically motivated and uneven application of the backstop system under the GGPPA. It cannot be that a matter of singleness can be applied with such wide variation in different parts of the country, where the only test of uniformity is one of a subjective assessment, by the federal government, of whether particular provinces have sufficiently “stringent” pricing mechanisms.

(b) No distinction from provincial matters

The SKGOV argues that POGG “represents exclusive jurisdiction of Parliament”, and must be used only for matters that can be distinguished from provincial matters (para 27). However, they suggest that POGG powers actually conflict with the intent and structure of the GGPPA (para 27-8). The GGPPA assumes provinces have the power to legislate GHG emissions, but POGG cannot be used for matters over which there is concurrent provincial powers (para 28).

(c) Irreconcilable scale of impact

The SKGOV also submits that the GGPPA is overreaching. The GGPPA does not recognize other mechanisms of emission reductions, its stated goal – it insists that pricing is the necessary mechanism (para 31). This is irreconcilable with a province’s legislative authority.

(d) No provincial inability

The SKGOV submits that in order to “disrupt provincial powers” with POGG, there must be a “genuine demonstration of measurable harm to Saskatchewan’s Canadian neighbours that justifies extra-ordinary federal intrusion” (para 35).

The SKGOV agrees that where one province cannot control the interprovincial aspects of another province’s actions to its own detriment, the matter may raise the issue of provincial inability (para 34). The SKGOV’s position is that Saskatchewan has not created any interprovincial problem in this case and the GGPPA therefore does not pass the provincial inability test (para 35). The SKGOV references statistical data to suggest that the federal government’s expected reduction of emissions in Saskatchewan due to the GGPPA will be minimal (para 37). Particularly in light of Canada’s allegedly small role in global emissions, the SKGOV also argues that the emissions from Saskatchewan’s has the same effect as everyone else’s emissions. One cannot say that emissions from Saskatchewan specifically has caused climate change problems in another province.

The Exclusive Nature of POGG

The SKGOV agrees that environmental protection is not exclusively within the jurisdiction of either the provinces or federal governments, which is why the POGG power must be used cautiously – it conveys exclusive jurisdiction (para 40). The environment is of such importance that both governments must be able to use their respective heads of power to regulate this area (para 41).

Allowing matters to fall under POGG power must go hand in hand with the conclusion that “only Parliament can legislate on that matter” (para 42). Concluding that GHGs are a matter within federal jurisdiction under POGG is equal to adding “‘greenhouse gas emissions’ to the enumerated powers set out in section 91” (para 42).

The GGPPA, on the other hand, allows for some provincial control over GHGs (in which case, the GGPPA would not apply) (para 43). The SKGOV argues this is incompatible with the conclusion that the federal government has the exclusive legislative authority to impose a carbon pricing system as authorized by POGG (para 44). Allowing the federal government to enact the GGPPA under POGG would then result in any provincial legislation in relation to GHGs to become unconstitutional, such as BC’s  current pricing regime (para 42 and 46).

Even if the backstop was construed as “co-operative federalism” (which the SKGOV refutes), co-operative federalism cannot allow a province to legislate on matters within exclusive jurisdiction of the federal government (para 45). The GGPPA and POGG are therefore incompatible.

Co-operative Federalism Cannot “Cure” the GGPPA

The SKGOV’s position is that co-operative federalism cannot make unconstitutional legislation constitutional (para 48). The SKGOV also acknowledges that the courts respect creative and unconventional solutions between legislatures working in their respective jurisdictions: “This is the requirement of federalism” (para 48).

The SKGOV argues that imposing a pricing system on a province with differing policy objectives, however, is not co-operative federalism (para 49). It is only when jurisdictions have incompatible policy objectives that enforcing the proper division of powers become necessary — the GGPPA, in the SKGOV’s mind, is more so “coercive federalism” (para 50).

Irrelevant Bases for POGG National Concern Power

The SKGOV argues that the FEDGOV has failed to sufficiently address whether the GGPPA has met the POGG test. They suggest that the FEDGOV has conflated the other POGG power – the emergency branch – with the national concern branch (para 57). The FEDGOV discussed climate change as a crisis of vital importance, but the SKGOV suggests that these concerns are not relevant to determining whether the FEDGOV should have exclusive jurisdiction over the matter at subject (para 57).

In any case, the SKGOV argues that the FEDGOV doesn’t even see emissions reduction as an emergency that needs to be addressed immediately. If they did, they might have used their criminal law power to outlaw certain types or levels of emissions altogether (para 55). The SKGOV also argues that international commitments do not change the division of powers and cannot be a basis for undermining the Constitution (para 62).

2) The GGPPA Relates to a Provincial Head of Power

The SKGOV then goes into characterizing the pith and substance of the GGPPA. The SKGOV suggests that matters at issue should first be categorized under existing heads of powers and POGG or other residuary powers should only be relied on as an “exceptional step” (para 63). Matters should also not be too general (such as the “environment” or “inflation”) (para 64).

What then is the pith and substance of the legislation at issue? The SKGOV maintains its position that the GGPPA is a tax, but even if it isn’t, they argue that the GGPPA legislates the price of commodities within a province, which is a matter of property and civil rights (para 65).

The SKGOV suggests that finding the pith and substance does not come from looking at “desired indirect effects”, such as keeping global temperatures from rising or altering consumption behaviours (para 67). As such, the SKGOV argues that the GGPPA may be motivated by environmental concerns, but it is inherently a “fiscal act” (para 71). More likely, the GGPPA is altering the demand of certain fuels through imposing taxes/charges — in other words, the pith and substance of the GGPPA is to increase the cost of certain fuels in a province through pricing mechanisms (para 68).

The SKGOV draws parallels to the Anti-Inflation Act case in which the court found that the actual characterization of the legislation at issue to be the controlling of margins, prices, and dividends in regard to provincial private sector (para 69). As a result, the court found the legislation unconstitutional, as the legislation targeted the regulation of “local trade” – in essence, the property and civil rights, a matter of provincial jurisdiction (para 69).

SKAEL’s Initial Thoughts

  1. The GOVSK suggests that the federal government doesn’t believe GHG emissions is a national concern – if they did, they would have tried to ban or punish GHG emissions altogether. Yet, the GOVSK has been advocating for more provincial autonomy and less coercive methods. How would they reconcile these two positions?
  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. For an explanation for what "POGG" powers are, see the federal government's factum here

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