Canada: Alberta's Bill C-12: A Perfectly Constitutional Answer To BC's Trans Mountain Intransigence?

Last Updated: April 30 2018
Article by Bernard Roth, Michael Hurst and Simon Kupi

The prevailing wisdom appears to be that Alberta's recently-announced Bill C-121 is a constitutional dead duck. The Bill, titled the Preserving Canada's Economic Prosperity Act, would authorize the province's Minister of Energy to restrict the flow of its oil and gas exports using licencing requirements. Alberta's NDP makes no secret that the legislation responds to "[r]oadblocks put in place by the British Columbia government" to building new pipeline capacity. B.C.'s Attorney General, David Eby, has called the legislation a "bluff," vowing to block its implementation in court. Andrew Coyne, writing in the National Post, calls it a "flagrantly unconstitutional exercise." A Globe and Mail staff editorial finds "more evidence that Canada's provincial premiers will upend any and all laws in order to score political points."

There is no question Bill C-12 plays well to a frustrated Alberta public ahead of the upcoming 2019 provincial election. But what if Bill C-12 is not only good law, but also an astute policy response to B.C.'s promise to use "every tool in the toolbox" to frustrate the federally-regulated Trans Mountain Expansion project (TMX) pipeline? There are at least five reasons to believe this might just be the case.

1. The ink has not yet dried on Bill C-12 

First, attacks on the constitutionality of Bill C-12 may be premature. By its text, Bill C-12 is not a "self-executing" regulatory framework. The blanket licensing requirement it contemplates, while applicable to natural gas, crude oil and refined fuels exports, first requires an order or orders by the Minister of Energy based on specified economic criteria and "other matters considered relevant" by the Minister. It is not clear what "class of persons," as referenced in the text, may be affected. Applications for export licences will then require new regulations. Finally, the terms and conditions of licences themselves—including the types and quantities of petroleum products, and modes of transportation, affected—will not be known until issued by the Minister. Until that time, it is unclear to what extent Bill C-12 can be said to truly limit trade or whether, as reflected in the preamble, it will instead be more squarely directed at maximizing the value of Alberta's resources in the face of pipeline constraints, as explored below.

2. Stop the presses:  Bill C-12 will not likely discriminate against BC

Premier Horgan of B.C. has characterized Bill C-12 as "provocative legislation with the sole, express purpose of hurting another jurisdiction." Certainly, if Bill C-12 were to target B.C. directly, or even "colourably," there is good reason to believe it would not pass constitutional muster. The Supreme Court's recent decision in R v Comeau (described further below) expressly references "punishing another province" as a purpose that could bring a trade restriction off-side section 121 of the Constitution Act, 1867.2 Likewise, Alberta's authority to regulate energy exports under section 92A(2) of the Constitution Act, 1867 is conditioned on it doing so without discrimination in prices or supplies.

Yet Bill C-12's text makes no mention of British Columbia, and Alberta's Minister of Energy has clarified that the legislation would target "exports going in any direction out of this province."  Nor is the Minister given unstructured discretion to restrict imports: rather, Bill C-12 would condition an order requiring licences on certain economic criteria relating to pipeline capacity and intraprovincial needs (also explained below) being considered, neither of which appear to signal retributive intent against any province. In short, it seems unlikely that Alberta will make an easy litigation target of Bill C-12 by pointing it directly at B.C.—even if the need for the legislation flows from B.C.'s unconstitutional acts. 

Rather, Bill C-12 would likely result in supply consequences for a range of provinces, including those in Eastern Canada. Further, while disruption to status quo supply routes may impact downstream prices, all provinces will have supply alternatives from other jurisdictions, especially in the form of trucking and rail—there will be no proverbial "turning off" of the "tap."

3. The Resource Amendment—and market realities—provide a constitutional basis to act

Section 91 of the Constitution Act, 1867 generally assigns to Canada powers over the "Regulation of Trade and Commerce." However, section 92A(1)(b)—the so-called "Resource Amendment" of 1982—grants the provinces exclusive jurisdiction over the "development, conservation and management of non-renewable natural resources." Section 92A(2), referenced above, further provides for concurrent provincial regulation over interprovincial exports of the "primary production" of such non-renewable resources. The University of Calgary's Nigel Bankes has argued that Bill C-12 may "overshoot" section 92A(2) insofar as Bill C-12's restrictions apply to refined fuel exports, which may not be primary production.3  However, Canada's constitutional law nevertheless allows for "incidental" provincial incursions on the federal trade power (that do not "impair" the core of that power) if, in pith and substance, Bill C-12 is a law in relation to Alberta's resource jurisdiction.          

In this regard, Bill C-12's preamble refers, among other things, to "maximizing the value of Alberta's natural energy resources for Canadians" and "ensuring the interests of Albertans are optimized prior to authorizing the export from Alberta of natural gas, crude oil or refined fuels." At first reading in the Legislature, the Minister of Energy likewise made express reference to the price differential on Canadian crude and the desire to get a "full return" on Alberta's resources. Finally, Premier Notley told the media that questions around TMX's viability could require Alberta "to be more strategic about what products get shipped to what markets by what means."

It is notable that diluted bitumen—the product most threatened by capacity-constraint-driven discounting of Canada's energy resources—is excluded from Bill C-12's licensing requirement, allowing it to move freely irrespective of any orders and licenses issued. Notwithstanding this, Bill C-12's implementing orders and licences must be issued in contemplation of "whether adequate pipeline capacity exists to maximize the return on crude oil and diluted bitumen produced in Alberta." This was not likely a drafting accident. The imperiled TMX project contemplates an increase of diluted bitumen exports by tanker at the Burnaby Westridge dock from the present level of about 75,000 barrels per day ("bbls/d") to over 590,000 bbls/d. If Bill C-12 was implemented to restrict the flow of non-bituminous crude oil and refined products on Trans Mountain's existing 300,000 bbls/d of capacity, thereby allowing more diluted bitumen to flow, this could significantly reduce the light-heavy differential currently impairing the value of that product in the market. The market reality is that Alberta's refined products and light crude can more readily reach their market by truck and rail than diluted bitumen.      

Insofar as Bill C-12 is aimed not at punishing B.C. for its actions against TMX, but at remedying its consequences by optimizing the market returns for Alberta's capacity-constrained energy, it may be squarely within the ambit of Alberta's section 92A jurisdiction over the "development, conservation and management" of its non-renewable resources.

4. Cooperative federalism and the Supreme Court's recent Comeau Decision may support Alberta's position

Both the Supreme Court's federalism jurisprudence and its recent decision in R v Comeau appear to provide support for Bill C-12's validity. With respect to the former, the Court has consistently emphasized a preference for the concurrent operation of federal and provincial laws, and has also cautioned against characterizing legislation in ways that confine legislators to operating within "watertight compartments" where their actions may incidentally affect areas within the responsibility of the other level of government.4

The Supreme Court's April 19, 2018 ruling in Comeau takes a similar approach to section 121 of the Constitution Act, 1867, a Confederation-era provision that provides that "[a]ll Articles of the Growth, Produce, or Manufacture of any of the Provinces shall, from and after the Union, be admitted free into each of the other Provinces." The Court held that section 121 prohibits laws that "in essence and purpose restrict trade across provincial boundaries." While the Court confirmed that section 121 extends to absolute prohibitions on products crossing provincial borders, it also found that it

should be interpreted in a way that allows governments to enact proactive policies for the good of their citizens and in a way that maintains an appropriate balancing between federal and provincial powers—even if the exercise of those powers may have an incidental effect on other matters, like bringing goods across provincial boundaries.

At issue in Comeau was a New Brunswick prohibition on holding any more than a prescribed level of alcohol not purchased from its Crown corporation, thereby criminalizing a man's possession of Quebec-purchased beer and spirits. The Court concluded that a law prohibiting liquor from crossing a provincial boundary for the primary purpose of protecting the health and welfare of its people would not violate section 121. Similarly, a properly-implemented Bill C-12—aimed at the development, conservation and management of Alberta's petroleum resources—should not be invalidated on section 121 grounds because of incidental impacts on product prices in a province (among several). The clear economic criteria built into Bill C-12 would further strain any analogy to trade restrictions.

While the operation of Bill C-12 as against National Energy Board orders in relation to product allocation on interprovincial pipelines (including Trans Mountain) would need to be evaluated from a federalism standpoint, it appears unlikely that this would alone "impair" a vital part of those undertakings (within the scope of the "interjurisdictional immunity" doctrine of Canadian constitutional law) or conflict with or "frustrate" relevant federal law or orders (within the scope of the separate "paramountcy" doctrine").

5. Bill C-12 hedges against the risk of a BC court victory on TMX

For the reasons above, Bill C-12 may be constitutional based on Canadian law as it exists today. In contrast, a proposed ban on TMX flows pending a study of diluted bitumen, as previously announced by B.C.'s government, likely does unconstitutionally impair a "core" functioning of a federal undertaking or conflict with or frustrate federal law, as many commentators have observed.5 A series of court defeats by the City of Burnaby—which has attempted to use its authority over municipal by-laws to disrupt TMX—provides a preview of the uphill constitutional battle B.C. is likely to face.6

To the extent B.C. succeeds in convincing a court that it can use its powers (probably over environmental regulation) to impede TMX, this will likely require precedent-setting judicial intervention. However, such a precedent would only buttress the case for Alberta's Bill C-12 jurisdiction, given that Bill C-12 rests on a parallel, if less extreme, tension between federal and provincial spheres of jurisdiction.

Conclusion

In short, charges of Bill C-12's unconstitutionality appear to be premature. They also appear to give scant attention to the nuances of Canada's federalism jurisprudence, or potentially-valid economic objectives hinted at in the legislation and in the Notley government's public statements—in particular, providing an alternative means to reduce the discount on Alberta's heavily-landlocked bitumen resources. Political events may, in time, overtake Bill C-12's implementation, and much depends on the unfinalized details of its scheme. However, the legislation could yet prove to be a constitutionally-literate mechanism for Alberta to address the economic ramifications of the more obviously unconstitutional actions of its western neighbour.

Footnotes

1 Bill C-12, Preserving Canada's Economic Prosperity Act, 4th Sess, 29th Leg, Alberta, 2018 (first reading 16 April 2018).

2 R v Comeau, 2018 SCC 15 at para 111.

3 See Nigel Bankes, "A Bill to Restrict the Interprovincial Movement of Hydrocarbons: a.k.a Preserving Canada's Economic Prosperity [Act]" (18 April 2018), online: ABlawg

4 See e.g. Rogers Communications v Châteauguay (Ville), 2016 SCC 23 at paras 37–38; Bank of Montreal v Marcotte, 2014 SCC 55 at para 63; Canadian Western Bank v Alberta, 2007 SCC 22 at paras 21–47.

5 See e.g. Dwight Newman, "Constitutionality is key in Trans Mountain fight, and BC is on the wrong side" Toronto Sun (8 February 2018), "On pipelines, Ottawa must have the final say" The Globe and Mail (4 June 2017), Julius Melnitzer, "The paramountcy doctrine: Can cities really say no to pipelines?" Financial Post (17 May 2016).

6 For a complete list, see National Energy Board, "Court Challenges to National Energy Board or Governor in Council Decisions".

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