Supreme Court Rules Federal Carbon Tax is Legal – What’s Next?

In a 6-3 decision, the Supreme Court of Canada issued its long-awaited ruling on the constitutionality of the Government of Canada’s system of carbon pricing, often referred to as “the carbon tax.” The Court ruled in favour of the Government of Canada, calling the carbon tax constitutional.

The decision impacts not only Canadian environmental policy, but relations between the federal Liberal government moving forward with an accelerated system of carbon pricing and provinces, including Alberta, Ontario, and Saskatchewan, who claimed the move was unconstitutional and federal intrusion into provincial control of natural resources.

Adding heat to the legal arguments is the political conflict. On one side are the federal Liberal government of Justin Trudeau, whose core supporters expect him to take urgent and intense action on climate change. On the other are provincial Conservative governments led by Jason Kenney, Doug Ford, and Scott Moe, whose core supporters expect them to fight the tax. Barring a change in government at the federal level, the Supreme Court was the last stop in this constitutional debate.

Background

Today’s decision centered on the constitutionality of the Trudeau government’s 2018 Greenhouse Gas Pollution Pricing Act, which established a national framework for carbon pricing. Under this system, the federal government sets the minimum standards for carbon pricing, which covers commercial and industrial emitters and consumers, but enables the provinces to set their own policies to meet the standards.

In instances where provincial standards fall short of federal standards, or a province simply refuses to implement a carbon pricing system, Ottawa can apply its own tax “backstop” to ensure the country remains on track to meet or exceed the 2030 emission-reduction commitments under the Paris Climate Agreement.

The Supreme Court had to decide whether the federal government has the authority to institute nationwide carbon pricing or if this constitutes an overreach of decision-making that should be left with provinces. The first stop on the court challenge process were the provincial courts. The results were mixed with Ontario and Saskatchewan upholding the federal law and Alberta’s top court voting 4-1 against it.

The case is seen as being precedent-setting and historically important because it clarifies Parliament’s authority to enact a minimum national standard on an issue as critical as carbon pricing. This will be particularly influential in future cases pertaining to the Peace, Order, and Good Government (POGG) clause, which dates to the foundation of Canada and the Constitution Act 1867 and defines the principles under which the Parliament of Canada can legislate. Under the Constitution, if the matter does not fall under any of the “enumerated” rights in section 91 or 92, then the courts must decide if the POGG clause should be used to define the issue as one of “national concern.” It has rarely been used, making today’s decision noteworthy.

The Findings

While today’s decision found that reducing greenhouse gas (GHG) emissions was a matter of national concern, it also allows the provinces the ability to find their own solutions, providing they meet the federal standard. For example, British Columbia and Quebec have their own carbon pricing systems in place and both meet the federal standard, so a federal carbon price is not imposed.  However, if a province does not have a regime that meets the federal standard, a federal carbon price will be applied.

The decision was not unanimous, and justices Suzanne Cote, Russell Brown, and Malcolm Rowe all issued their own dissenting arguments, finding federal government overreach on a jurisdictional issue.

The Politics of Today’s Decision

The political battle over climate change and related environmental and natural resource policy is one that has been a major flashpoint in Canada at both the federal and political levels for well over three decades going back to the 1990s.  Canada debated international climate change accords from Kyoto to Copenhagen to Paris, with federal and provincial political parties all having staked out considerable political ground on the politics of the issue.

Coupled with this federal/provincial tension is the reality that Canada is one of the world’s largest producers of energy, especially oil and gas, heavily centered in Alberta and Saskatchewan. Over the past thirty years these provinces have often elected right-of-centre provincial governments and delivered to Ottawa a strong base of MPs from the federal Conservative Party.

Since winning a majority government in 2015, Justin Trudeau and the Liberals made their intention to pursue a federal carbon pricing regime clear, even if provincial governments were in strong opposition.  With a federal Conservative Party in Opposition and without any policy levers to pull, the battle to oppose the Trudeau government’s policy was left to the provinces to fight.

For Conservative premiers in these provinces, even those who might support some form of carbon pricing regime, there was little choice but to strongly oppose the Trudeau government’s actions as their electoral bases of support expected nothing less than a full legal battle against the federal carbon tax.  Today’s decision is the end of the road in terms of legal options, and we expect that over the coming days and weeks, those provinces will take their time to determine what their next steps will be.

Ultimately, the three provinces that led the charge against carbon pricing have two options before them: implement a provincial carbon tax within their own borders that meets the federal government’s standard or refuse to implement their own carbon tax and have the federal backstop imposed on them. This is what is currently happening in each of these provinces as the issue wound its way through the courts.

It is worth noting that if the provinces implement their own tax, then they will be able to determine how the carbon-tax revenue is used. In a time where revenues are tight, it may be tempting to quietly move towards this system citing that they fought the “power grab” to the highest court in the land.

For federal Conservatives, the debate over environmental policy and climate change has bedeviled them since returning to opposition in 2015. Under former Prime Minister Stephen Harper, the Conservative Party clearly opposed a wide-ranging carbon tax that impacted consumers. There is still a strong base of support within the Conservative Party that strongly rejects the tax for a variety of reasons, including Canada’s emissions as compared to larger polluting nations. This is one reason why Conservative Leader Erin O’Toole issued a press release saying, if elected, he will repeal the tax.

However, the challenge for O’Toole will be to come up with a viable climate change plan that does not include a carbon tax or distinguishes his leadership on climate from that of his immediate predecessor, Andrew Scheer. Amongst voters, this was one stumbling block for Conservatives during the last campaign as action on climate change is a key deciding factor for many in O’Toole’s accessible voter pool.

For Justin Trudeau and the Liberals, today’s decision is a vindication of their approach. The right of the federal government to impose national standards is now firmly in place and Liberals may wish to use it as a “wedge” between Trudeau and O’Toole for some seats the Conservatives currently hold in swing ridings in British Columbia and to deny Conservative gains in the 905 belt around Toronto. Whenever the next federal election may be, you can bet that the political fight over climate policy and taxes isn’t over, even if the constitutional and legal battle is.