Canada: Federal Carbon Tax Ruled Constitutional... For Now

On May 3, 2019, the Saskatchewan Court of Appeal (SKCA) released its lengthy decision in Reference re Greenhouse Gas Pollution Pricing Act, 2019 SKCA 40. This much-anticipated decision represents the first judicial consideration of whether Canada's federal carbon tax regime is constitutionally compliant. The outcome was a 3-2 split decision, with a majority holding for the SKCA that the Greenhouse Gas Pollution Pricing Act, SC 2018, c 12 (the Act) is wholly constitutional.

Background

The Lieutenant Governor in Council for Saskatchewan (Saskatchewan) initiated a reference to the SKCA to determine whether the Act is unconstitutional in whole or in part. Saskatchewan's challenge focused specifically on monetary charges imposed on fossil fuels and emissions under Parts 1 and 2 of the Act.

Part 1 of the Act applies a levy to fuels that are produced, delivered, used, or imported in specified provinces. The charge for 2019 is $20 per tonne of CO2 equivalent emitted by each type of fuel, which will rise to $50 per tonne of CO2 equivalent in 2022. Part 2 of the Act sets output-based performance standards for greenhouse gas emissions by large industrial facilities. Industry-specific standards are established based on average emissions by facilities in the industrial sector for a given product. The provisions of Part 2 require facilities to pay compensation for exceeding their annual greenhouse gas emission limit. Notably, section 165(2) of the Act requires any money raised under Part 1 or Part 2 to be redistributed in the province it was collected in.

The Act as a whole is designed to operate as a stopgap measure. Parts 1 and 2 apply only in those provinces selected by the Governor in Council. The key criteria in the selection of provinces is whether a province has adopted its own sufficiently stringent pricing mechanisms for reducing greenhouse gas emissions. Currently, Part 1 of the Act applies in Ontario, New Brunswick, Manitoba, and Saskatchewan, and to a limited extent in the Yukon and Nunavut. Part 2 applies in Ontario, New Brunswick, Manitoba, Prince Edward Island, the Yukon, and Nunavut, and to a limited extent in Saskatchewan. The Act does not apply to Alberta, given that the federal government has deemed its existing carbon pricing measures to be sufficient.

All participants in the proceedings before the SKCA accepted the importance of limiting greenhouse gas emissions. The only issue to be determined was whether the provisions of the Act could be upheld as a proper exercise of the federal government's law-making power. Saskatchewan advanced two primary arguments that the Act is unconstitutional, both taking issue with the Act's selective application. First, Saskatchewan argued that it would offend the principle of federalism to allow Parliament to apply legislation based on whether existing provincial measures were in place. Second, Saskatchewan argued that the Governor in Council's role in selecting which provinces are subject to the Act enables the executive branch of government to create its own tax.

Majority Decision

The three-member majority decision rejected Saskatchewan's arguments in favour of invalidating the Act. The majority also concluded that the Act was a valid exercise of Parliament's constitutional power to legislate for the peace, order and good government of Canada (POGG).

Addressing whether the Act levied unconstitutional taxes, the majority held that the amounts charged under both Parts 1 and 2 are regulatory charges rather than taxes. The charges are not designed to raise revenue for general purposes, but rather are part of a detailed regulatory scheme with the purpose of changing individual behaviour. On that basis, the majority rejected Saskatchewan's argument that the Act empowered the Governor in Council to impose a tax. Even if the amounts were taxes, the majority held that Parliament's delegation of power to the Governor in Council was sufficiently explicit and therefore constitutional.

Having rejected Saskatchewan's arguments for invalidating the Act, the majority addressed whether Parliament's legislative jurisdiction encompassed the subject matter of the Act. While the Government of Canada and several intervenors offered numerous heads of power under the Constitution to support the Act, the majority concluded that it could only be supported under Parliament's POGG power. The majority held that ensuring minimum national price standards for greenhouse gas emissions is a matter of national concern, falling within the exclusive competence of the federal government.

Dissenting Reasons

In a dissenting judgment, two judges departed from the majority on several key points. While the dissenting judges agreed that the charge imposed under Part 2 of the Act was a regulatory charge, they found that Part 1 of the Act imposes a true tax. The dissenting judges would have struck down Part 1 of the Act as unconstitutional, concluding that the Act's delegation of taxation power to the Governor in Council is overly broad, not sufficiently express, and offensive to the principle that taxation legislation should apply uniformly.

In addition, the dissenting judges would have struck down the whole of the Act as not being justified by any of Parliament's legislative powers. Addressing the POGG power, the dissenting judges concluded that regulation of greenhouse gas emissions is not distinct enough from provincial matters to be considered a national concern. By working together, provinces could enact substantively the same legislation. In the dissenters' view, the extra-provincial impacts of greenhouse gas emissions are not determinative, because the legislation itself does not place a cap on emissions. Furthermore, giving Parliament exclusive power over greenhouse gas emissions would take too much away from provincial legislative jurisdiction. As greenhouse gas emissions arise from a number of activities and are linked to nearly all aspects of a provincial economy, giving Parliament exclusive jurisdiction would prevent provinces from developing local and nuanced responses to greenhouse gas emissions.

Further Challenges Await the Carbon Tax Regime

While the federal carbon tax regime has survived its first legal challenge, there are more to come. The Ontario Court of Appeal heard argument for a similar reference case in April, reserving its decision, and Manitoba's government has indicated that it will bring its own challenge to the Act. There is also a good chance that the Supreme Court of Canada ultimately considers the issue, particularly in light of the SKCA's split decision. Alberta's newest Premier, Jason Kenney, has indicated that Alberta would seek to intervene and support Saskatchewan if the government chooses to appeal. One thing is clear: the SKCA's decision on the federal carbon tax regime will not be the final word.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions