Last week, the Ontario Court of Appeal upheld the constitutionality of the federal Greenhouse Gas Pollution Pricing Act (the “Act”), ruling that the carbon tax imposed on the province by the federal government was constitutional and fell within the legislative authority of Parliament. This comes after a similar decision by the Saskatchewan Court of Appeal, as we wrote about here.

What Happened?

The Act was introduced into Parliament in March 2018 and came into force in June 2018. It sought to ensure there was a minimum national price on greenhouse gas (“GHG”) emissions in order to encourage their mitigation. The Act imposes a charge on GHG-producing fuels and combustible waste and puts in place an output-based performance system for large industrial facilities. Such facilities are obliged to pay compensation if their GHG emissions exceed applicable limits. Significantly, the Act applies only in those provinces or areas where the Governor in Council concludes GHG emissions are not priced at an appropriate level.

Ontario brought a court reference asking the court to determine whether the Act was constitutional or not.

Parties’ Positions

Ontario argued the Act was a violation of the Constitution because it allowed the federal government to intrude on provincial jurisdiction. Ontario submitted that Parliament was not entitled to regulate all activities that produce GHG emissions and that the jurisdiction Canada asserted under the Act would radically alter the constitutional balance between federal and provincial powers.

Ontario agreed that climate change is real, is caused by human activities producing GHG emissions, is having serious effects, particularly in the north, and requires proactive measures to address it. However, Ontario argued that what it labelled a “carbon tax” was not the right way to do so. It stated that Ontario would continue to take its own approach to meet the challenge of reducing GHG emissions. It submitted that the fuel charge and excess emissions charge were unconstitutional because they could not be supported under any federal head of power. It further argued that the charges were not legislatively authorized as taxes and did not have a sufficient nexus to the purposes of the Act to be considered valid regulatory charges.

Canada submitted that the Act was constitutional under the national concern branch of the “Peace, Order and Good Government” (“POGG”) power contained in s. 91 of the Constitution Act, 1867. It stated that the “pith and substance” of the Act was the “cumulative dimensions of GHG emissions”, which Canada said was a matter of national concern that the provinces are constitutionally incapable of addressing. Alternatively, it submitted that the Act could be supported under the “emergency” branch of the POGG power. Additionally, Canada submitted that the fuel charge and the excess emissions charge were constitutionally valid regulatory charges which advanced the objects of the Act.

Court of Appeal Decision

The court began by discussing the significance of climate change and the impact GHG emissions on the environment. The court stated:

“Parliament has determined that atmospheric accumulation of greenhouse gases causes climate changes that pose an existential threat to human civilization and the global ecosystem.”

The court then turned to the constitutionality of the legislation. The court found that the Act was constitutionally valid under the national concern branch of the POGG power contained in s. 91 of the Constitution Act, 1867, stating:

“The need for a collective approach to a matter of national concern, and the risk of non-participation by one or more provinces, permits Canada to adopt minimum national standards to reduce GHG emissions.”

Additionally, it found that the charges imposed by the Act were themselves constitutional, stating that:

“They are regulatory in nature and connected to the purposes of the Act. They are not taxes.”

Ontario has already stated that it will seek leave to appeal with the Supreme Court of Canada.

Get Advice

When disputes arise in the oil and gas industry they can be complex, involving international parties and various pieces of specialized legislation. If you are involved in such a dispute, it’s important for you to have a legal team in place that knows how these interests and laws work together and can help you navigate this intricate terrain.

At DBH Law, our Calgary-based lawyers are uniquely positioned to advise clients on issues that may arise in oil and gas. We have worked with clients in Alberta, across Canada, and around the world and are intimately familiar with the global nature of this ever-changing industry.

Our extensive experience representing clients in the oil and gas industry has given us the tools to help our clients with their unique needs. Please contact us online or by phone at 403.252.9937 to find out how we may be able to help you.