Canada: B.C.'s Highest Court Rules Province's Attempt To Regulate Bitumen Unconstitutional

On May 24, 2019, a five-member panel of the British Columbia Court of Appeal (BCCA) unanimously determined that British Columbia's proposed amendments to the Environmental Management Act, SBC 2003, c 53 (the EMA) are unconstitutional. The decision in Reference re Environmental Management Act (British Columbia), 2019 BCCA 181 is an important development for the Trans Mountain Pipeline Expansion (TMX) project, which would have been singled out and halted by the new legislation.

The TMX Project

The TMX project involves an expansion of the existing Trans Mountain pipeline, which transports crude oil, refined products, and semi-refined products from Edmonton, Alberta to Burnaby, British Columbia. The expansion project would "twin" the pipeline, increasing transportation from 300,000 barrels of product per day to 890,000 barrels per day. The expansion adds approximately 987 km of new pipe along the existing right of way and has the potential to result in an increase in tanker traffic off the south coast of British Columbia.

TMX sought regulatory approval in 2013 from the National Energy Board (NEB), the federal regulator tasked with overseeing approval, construction, and operation of interprovincial pipelines. The project has grappled with federal regulatory approvals and court challenges since that time, engaging in a process that remains outstanding. The TMX project has also concurrently co-operated with provincial regulators in B.C. to meet the requirements of the Environmental Assessment Act, SBC 2002, c 43 (the EAA). The EAA requires certain projects, including new transmission pipelines, to obtain an environmental assessment certificate where the executive director determines that there are significant adverse environmental, economic, social, heritage or health effects.

Under B.C.'s former government, the TMX project received an environmental assessment certificate in January 2017 subject to certain conditions. The Province's public statements indicated that it recognized federal jurisdiction over the interprovincial pipeline and would support the project if TMX satisfied the conditions imposed.

Amendments to the Environmental Assessment Act

In May 2017, a new B.C. government was elected and took a different view of the TMX project. The EMA is a provincial environmental protection statute that aims to control and ameliorate the deleterious effects of pollution. In April 2018, B.C.'s new government developed amendments to the EMA that would introduce the concept of hazardous substance permits. Applicants for a hazardous substance permit must demonstrate that they have implemented appropriate measures to prevent release of a hazardous substance and that they have appropriate resources to address a release, should it occur. The director has broad discretion to withhold or place conditions on a permit, and non-compliance with any conditions imposed can result in cancellation or suspension of the permit. The director under the proposed legislation would have significant discretion to prevent a project such as TMX from moving forward.

Notably, the only hazardous substance targeted by the EMA amendments is "heavy oil," which includes most forms of heavy crude oil and all bitumen and blended bitumen products. A hazardous substance permit would be required only for persons who have possession of heavy oil in excess of the largest amount that they possessed in B.C. in any year between 2013 and 2017. TMX is the only project currently captured by the scope of the amendments.

The Court's Decision

By way of a constitutional reference, the Province of British Columbia asked the BCCA to determine whether the Province has jurisdiction to enact the proposed EMA amendments. The Province asked: (i) whether the proposed amendments fall within provincial legislative authority; (ii) whether the legislation would apply to interprovincial undertakings; and (iii) whether existing federal legislation would render the EMA amendments inoperative.

British Columbia argued that it falls within the Province's jurisdiction to implement environmental protections, particularly for projects that disproportionately impact British Columbia. The Province took the position that any impact on federal jurisdiction over interprovincial undertakings is merely incidental to such regulation. Canada, joined by Alberta and Saskatchewan as intervenors, argued that the proposed amendments would undermine the comprehensive federal regime already in place for regulating interprovincial pipelines. Alberta and Saskatchewan further argued that the proposed amendments were a disguised attempt to stop the TMX project.

In its analysis, the BCCA first set out the "complex web" of federal legislation regulating interprovincial pipelines, noting that the federal regime already aims to protect the environment and minimize hazardous spills. While recognizing that environmental protection is a subject too important and diffuse to belong absolutely to one level of government, the Court stated that provincial legislation cannot cross the line by impermissibly regulating the expansion and operation of an interprovincial undertaking.

Ultimately, the Court concluded that there was no need to look further than the pith and substance, or true character, of the proposed EMA amendments. While the Court did not find that the legislation was colourable in the sense of disguising its purpose, the Court found that the substance of the legislation was to prohibit operation of the expanded Trans Mountain pipeline until such time as the B.C. government decides otherwise. This effect would usurp the role of the NEB. The Court stated that the very reason jurisdiction over interprovincial undertakings is vested in the federal government is so that a single regulator can consider interests and concerns beyond those of individual provinces. The BCCA concluded that TMX is a project that "affects the country as a whole, and falls to be regulated taking into account the interests of the country as a whole."

Having determined that B.C.'s proposed legislation falls outside of provincial jurisdiction, it was unnecessary to consider whether the legislation would apply to TMX or be rendered inoperative by existing federal legislation. The Court concluded that the proposed EMA amendments are wholly unconstitutional.

The TMX Saga Continues

The BCCA's decision is a significant victory for the TMX project, which has faced its share of regulatory obstacles since 2013. Despite the BCCA's unanimous decision, however, British Columbia Attorney General David Eby has indicated that the Province will appeal the decision to the Supreme Court of Canada. As provinces have an automatic right of appeal from constitutional reference questions decided by their highest court, the Supreme Court of Canada will hear the appeal if the Province pursues it. The TMX project also continues to await federal Cabinet approval, after the NEB recommended proceeding with the project for a second time in February 2019. The first approval decision was quashed by the Federal Court of Appeal, and the NEB's second recommendation has not yet been accepted by Cabinet. While TMX supporters can take solace in five members of the BCCA taking a strong position against the proposed EMA amendments, the TMX project is not out of the woods just yet.

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