SCC upholds validity of federal government’s carbon pricing system

March 31, 2021 | Christie A. McLeod

On March 25, 2021, the Supreme Court of Canada (“SCC”) released its decision in the Reference re Greenhouse Gas Pollution Pricing Act, upholding the constitutionality of the Greenhouse Gas Pollution Pricing Act (“GGPPA”). In a 6-3 split decision, the majority of judges found that Parliament has jurisdiction to enact this law under the Peace Order and Good Government (“POGG”) clause of the Constitution Act, 1867, while Justices Côté, Rowe and Brown each issued a separate dissenting opinion.

Canada’s Efforts to Address Climate Change

Canada made its first international commitment to address climate change in 1992 with its ratification of the United Nations Framework Convention on Climate Change. Since this time, the federal government has set – and failed to meet – several emissions reduction targets, and Canada’s national greenhouse gas (“GHG”) emissions have net increased by 19%.[1]

Chief Justice Wagner (“CJ Wagner”) draws attention to this “collective action problem of climate change” early on in his judgment, highlighting how decreases in GHG emissions in Ontario were “mostly offset” by increases in emissions in Alberta and Saskatchewan.[2]  Environment and Climate Change Canada has created this image, which illustrates the varied emissions in each province and territory over the last three decades.[3]

In 2016, the federal government released the Pan-Canadian Framework on Clean Growth and Climate Change (“Pan-Canadian Framework”), which each province and territory adopted, except for Manitoba (who later adopted the framework in early 2018) and Saskatchewan. Later in 2018, Ontario, Alberta and Manitoba all withdrew their support from the Pan-Canadian Framework.

The Legislation at Issue: GGPPA

The Pan-Canadian Framework required every province and territory to implement a carbon tax or a cap-and-trade system by 2018. In June 2018, the GGPPA came into force, and the federal government imposed carbon pricing regimes in provinces and territories with insufficiently stringent GHG pricing mechanisms.

The GGPPA is comprised of four parts and four schedules as follows:

  • Part 1: Establishes a regulatory charge on GHG-emitting fuels that applies to producers, distributors and importers;
  • Part 2: Creates a pricing mechanism for GHG emissions by large industrial facilities;
  • Part 3: Authorizes the Governor in Council to regulate the application of provincial emissions laws over federal matters; and
  • Part 4: Requires the Minister of the Environment to prepare and table an annual report on the administration of the GGPPA.

As CJ Wagner notes, Parts 1 and 2 of the GGPPA “together create a single GHG pricing scheme.”[4] The constitutionality of Parts 3 and 4 of the GGPPA were not at issue.

The Constitutional Challenges

The Attorney Generals of Alberta, Ontario and Saskatchewan each challenged the constitutionality of Parts 1 and 2 (and the 4 schedules) of the GGPPA on the grounds that the law overstepped the federal government’s jurisdiction.

While majorities at the Saskatchewan and Ontario Court of Appeals each upheld the GGPPA’s constitutionality, the Alberta Court of Appeal found that the GGPPA intruded into the provinces’ exclusive jurisdiction over the development and management of natural resources.

These decisions were appealed to the SCC, where Alberta, Ontario and Saskatchewan continued to challenge the GGPPA’s constitutionality, while Canada and British Columbia argued that the GGPPA was constitutional on the basis of the national concern branch of the POGG clause of the Constitution Act, 1867.

SCC Majority Upholds the GGPPA as Constitutional

Chief Justice Wagner, writing for a clear majority of the Court, concluded that Parliament has jurisdiction to enact the GGPPA as a matter of national concern under the POGG clause. A division of powers analysis requires the court to consider the purpose and effects of the challenged statute to identify its primary purpose, or “pith and substance,” before determining whether the law falls within the jurisdiction of the enacting level of government.

The majority held that the GGPPA’s pith and substance was to establish minimum national standards of GHG price stringency to reduce GHG emissions. Provinces retained the ability to design any GHG pricing system provided that it met the federal government’s GHG pricing floor.[5] CJ Wagner acknowledged that this restriction may impact a province’s preferred balance between economic and environmental considerations, but found this impact justified, stating:

…it is necessary to consider the interests that would be harmed — owing to irreversible consequences for the environment, for human health and safety and for the economy — if Parliament were unable to constitutionally address the matter at a national level. This irreversible harm would be felt across the country and would be borne disproportionately by vulnerable communities and regions, with profound effects on Indigenous peoples, on the Canadian Arctic and on Canada’s coastal regions. In my view, the impact on those interests justifies the limited constitutional impact on provincial jurisdiction.[6]

The SCC then considered whether the GGPPA was a valid exercise of the federal government’s jurisdiction to govern over matters of national concern under the POGG clause of the Constitution Act, 1867. The national concern test is three-pronged, and requires Canada to show that the proposed matter:

  • is of sufficient concern to Canada as whole;
  • has a singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern; and
  • has a scale of impact on provincial jurisdiction that is reconcilable with the fundamental distribution of legislative power under the Constitution.

Threshold

The majority found that establishing minimum national standards of GHG price stringency to reduce GHG emissions readily passes the threshold test, satisfying the first stage of the test. In this regard, CJ Wagner states that climate change is “a threat of the highest order to the country, and indeed to the world,” and implores that “[t]he undisputed existence of a threat to the future of humanity cannot be ignored.”[7]

Singleness, Distinctiveness and Indivisibility

The majority held that recognizing minimum national standards of GHG price stringency to reduce GHG emissions as a matter of national concern is a specific and identifiable matter that is qualitatively different from matters of provincial concern.

CJ Wagner also recognizes that “a failure to include one province in the scheme would jeopardize its success in the rest of Canada” for two main reasons.[8] First, businesses in high-emitting sectors may relocate to jurisdictions with less stringent carbon pricing policies. The environmental consequences of this “carbon leakage” could leave “Canada’s net emissions unchanged and people across Canada vulnerable to the consequences of those emissions.”[9] Second, emissions reductions by only a few provinces would fail to address climate change if they were offset by increased emissions in other Canadian jurisdictions. CJ Wagner explicitly rejects the Alberta Court of Appeal’s reasoning that each individual province’s emissions caused “no measurable harm.”[10]

Scale of Impact

The majority held that the matter’s scale of impact on provincial jurisdiction was limited, as the GGPPA would impose a backstop pricing system “only to the extent necessary to remedy the deficiency in provincial regulation in order to address the extra-provincial and international harm that might arise from the province’s failure to act or to set sufficiently stringent standards.”[11] This impact is thereby reconcilable with the division of powers.

Key Takeaways from the Decision

The SCC’s acknowledgement of the climate crisis, which it states “poses a grave threat to humanity’s future,” underpins its conclusion that the federal government can regulate a carbon pricing scheme.[12] This decision means that the federal backstop will continue to apply, in part or in full, in Alberta, Saskatchewan, Manitoba, Ontario, New Brunswick, Prince Edward Island, Yukon, and Nunavut. As the constitutionality of the matter is now settled, provincial leaders may re-consider whether to install their own carbon pricing scheme. While Quebec, Nova Scotia, Newfoundland and Labrador, the Northwest Territories, and BC’s carbon pricing schemes all presently meet federal benchmark stringency requirements, these jurisdictions will need to match federal backstop increases, which are set to rise from $30 per tonne to $170 per tonne by 2030.

Carbon pricing plays a central role in the federal government’s climate plan. By requiring people to pay for certain actions and activities through the carbon pricing scheme, the government hopes to “incentivize individuals and businesses to change their behaviour so as to make more environmentally sustainable purchasing and consumption choices, to redirect their financial investments, and to reduce their GHG emissions by substituting carbon-intensive goods for low-GHG alternatives.”[13]

Canada has committed to reaching net zero emissions by the year 2050. Laws and policies which the federal government enacts to progress towards this goal will undoubtedly face further jurisdictional challenges. The narrow scope of this ruling, which found that the federal government has jurisdiction to establish minimum national standards of GHG price stringency to reduce GHG emissions, does not resolve questions about Parliament’s jurisdictional authority to regulate emissions more broadly.

As a global problem, international efforts are necessary to address climate change. By regulating carbon pricing, the federal government seeks to reduce Canada’s GHG emissions and meet its emissions targets, which will increase its climate credibility in the international community and its ability to push other countries to do the same.


[1] “Greenhouse Gas Emissions.” Government of Canada, last updated 15 April 2020, www.canada.ca/en/environment-climate-change/services/environmental-indicators/greenhouse-gas-emissions.html.

[2] Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11 at para 24 [GGPPA Reference].

[3] “Greenhouse Gas Emissions.” Government of Canada, last updated 15 April 2020, www.canada.ca/en/environment-climate-change/services/environmental-indicators/greenhouse-gas-emissions.html.

[4] GGPPA Reference, at para 38.

[5] GGPPA Reference, at paras 65, 80, 206.

[6] GGPPA Reference, at para 206.

[7] GGPPA Reference, at para 167.

[8] GGPPA Reference, at para 183.

[9] GGPPA Reference, at para 186.

[10] GGPPA Reference, at para 188.

[11] GGPPA Reference, at para 200.

[12] GGPPA Reference, at para 2.

[13] GGPPA Reference, at para 16.

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