The Saskatchewan Court of Appeal recently ruled that the carbon tax imposed on the province by the federal government was constitutional and fell within the legislative authority of Parliament.

Background and Legislative Scheme

The case was a constitutional reference asking the court whether the Greenhouse Gas Pollution Pricing Act (the “Act”) was constitutional or not.

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. Part 1 imposed a charge on GHG-producing fuels and combustible waste. Part 2 put 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.

The Attorney General of Saskatchewan (“Saskatchewan”) challenged the legislation by arguing that it imposed taxes in the constitutional sense of the term. While Parliament enjoys a broad taxing authority, Saskatchewan contended that the Act was invalid because the Governor in Council determined the provinces where it operates. It submitted that this offended the principle of federalism in that the application of the Act depended on whether a province has exercised its own jurisdiction in relation to pricing GHG emissions to a standard considered appropriate by the Governor in Council. Saskatchewan also submitted that the Act was contrary to s. 53 of the Constitution Act which requires that taxes be authorized by legislative bodies themselves, not by executive government or otherwise.

Finally, Saskatchewan submitted, by way of an alternative line of argument, that the Act was unconstitutional because it was concerned with property and civil rights and other matters of a purely local nature falling within exclusive provincial legislative authority.

The Attorney General of Canada (“Canada”) responded by seeking to uphold the Act as a valid exercise of Parliament’s jurisdiction under the national concern branch of its “Peace, Order, and good Government” (“POGG”) power.

Issues

The sole issue was whether Parliament had the constitutional authority to enact the Act.

The Decision

The majority of the court found the Act to be constitutional.

The court explained that neither level of government has exclusive authority over the environment. As a result, Parliament can legislate in relation to issues such as GHGs so long as it stays within the four corners of its prescribed subject matters and the provinces can do the same so long as they stay within their prescribed areas of authority.

The court rejected Saskatchewan’s many arguments. It stated that the principle of federalism is not a free-standing concept that can override an otherwise validly enacted law, but a value to be taken into account when interpreting the Constitution. It rejected the s. 53 argument because, in constitutional terms, the levies imposed by the Act were regulatory charges, not taxes.

The court rejected Canada’s argument that it had, under the national concern branch, jurisdiction over “the cumulative dimensions of GHG emissions”. The court stated:

“This approach must be rejected because it would allow Parliament to intrude so deeply into areas of provincial authority that the balance of federalism would be upset. Further, it would hamper and limit provincial efforts to deal with GHG emissions.”

However, the court found that Parliament did have authority over a narrower POGG subject matter: the establishment of minimum national standards of price stringency for GHG emissions. It stated that this jurisdiction had the singleness, distinctiveness and indivisibility required by the law. It also had a limited impact on the balance of federalism and left provinces broad scope to legislate in the GHG area.

As a result, the court found that the Act was constitutionally valid because its essential character fell within the scope of this POGG authority, stating:

“The pith and substance of the Act is about establishing minimum national standards of price stringency for GHG emissions. Parliament has jurisdiction over this subject matter by virtue of the national concern branch of POGG. It follows that the Act is constitutionally valid.”

Saskatchewan plans to appeal the decision to 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 who 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.

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