Now That the Greenhouse Gas Pollution Pricing Act Has Been Determined to be Constitutionally Valid – What Does it All Mean?

In Reference re Greenhouse Gas Pollution Pricing Act (Decision), a majority of the Supreme Court of Canada (SCC) declared that the federal Greenhouse Gas Pollution Pricing Act (Act) is constitutional. This Bulletin discusses some of the practical impacts of the Decision on Canadian consumers and businesses. For a review of the constitutional analysis undertaken by the SCC, please see our Blakes Bulletin: In Split Decision, Supreme Court of Canada Upholds Federal Greenhouse Gas Pollution Pricing Act.  

HISTORICAL REGULATION OF GHG ISSUES IN CANADA

Several Canadian provinces and territories have had regulatory regimes involving GHG emissions for many years, including Alberta’s regime which has been in place since 2007. Those regimes are diverse, ranging from emissions intensity regimes, to carbon taxes or levies, to cap and trade regimes.

The Act came into force in June 2018 and is comprised of two key aspects. Part one establishes a carbon fuel levy applicable to producers, distributors and importers of carbon-based fuels, the costs of which are expected to be passed onto consumers. Part two establishes an output-based pricing system (OBPS) for large industrial emitters based upon emissions intensity requirements. 

The Act enables the provinces and territories to regulate the pricing of GHG emissions. However, and it is a big however, the Act also acts as a backstop and applies in the event the provincial or territorial regulatory regimes are insufficient or fail to meet the federal benchmark. For a detailed discussion about the Act’s mechanics and business impacts, see our December 2018 Blakes Bulletin: Federal Carbon Pricing System Coming Into Force January 2019: How Will it Impact Your Business?

FEDERAL ACT PREVAILS

In upholding the constitutional validity of the Act, the majority of the SCC characterized its true subject matter as “establishing minimum national standards of GHG price stringency to reduce GHG emissions”. In so doing, it noted that the Act enables Parliament to set minimum national standards for GHGs, thereby setting a GHG pricing “floor” that applies across Canada. It also confirmed: “Practically speaking, the only thing not permitted by the Act is for a province or a territory not to implement a GHG pricing mechanism, or to implement one that is not sufficiently stringent.”

While the GHG pricing mechanism is relatively straightforward, the stringency review undertaken by the Governor in Council (GIC) is less so.  As noted in the Decision, the stringency review is not limited to the charge per unit of GHG emissions and “encompasses the scope or breadth of application of the charge in the sense of the fuels, operations and activities to which the charge applies and the authority to implement regulatory schemes that are necessary to implement such a charge.” Just how far the GIC’s jurisdiction extends during its stringency review, and to what extent the GIC may override provincial or territorial regulatory schemes determined to be insufficiently stringent, remains unclear.

IMPACTS OF THE DECISION

As time goes on, we anticipate the Decision will have significant effects on both consumers and large industrial emitters. Some of the initial impacts could include:

• A federally mandated pricing floor will result in consistent (and increasing) GHG emissions compliance costs for consumers, small business and large industrial emitters. For example:

  • The existing GHG pricing for large industrial emitters as set out in the Act (currently set at C$40/tonne and increasing to C$50/tonne in 2022) will now be generally applicable across Canada, subject only to the particulars of those regimes deemed to be as stringent as the federal regime.  All businesses, regardless of where they are situate, will need to plan ahead and incorporate increasing GHG pricing into their existing and proposed operations.

• The carbon price may subsequently increase significantly. If the proposals set out in Canada’s A Healthy Environment and a Healthy Economy (Climate Plan) released in December of 2020 are enacted as law, GHG pricing could subsequently increase by C$15/tonne each year from 2023 to 2030 resulting in a final GHG emissions charge of C$170/tonne of CO₂e in 2030.

• The anticipated price project developers involved in constructing and operating emissions offsets projects will receive for the sale of their project offsets will also increase, which may increase the economic viability of those offset projects and encourage further innovation in GHG reduction strategies. For further information on the proposed federal offset regime, see our March 2021 Blakes Bulletin: Canada Issues Proposed Federal Greenhouse Gas (GHG) Offset Regulations.

• Although the GHG price will become consistent throughout Canada, the provinces and territories are still entitled to enact their own regimes, provided such regimes are acceptable to the GIC’s stringency review. Thus, notwithstanding that businesses will no longer need to forum shop for lower GHG prices, they may still prefer those provincial and territorial regimes that provide greater flexibility for compliance options, reporting, emission performance credits, carbon offset credits and industry-tailored solutions.

• The Decision does not foreclose the possibility of the GIC taking a more prescriptive approach to emission regulations in the provinces and territories, despite the avoidance of such an approach to date. Unless and until the scope of the stringency review and the extent of the GIC’s discretion in this process is clarified, the existence of the federal oversight will result in increased uncertainty whenever a province or territory modifies its existing GHG regime or creates a novel regime. This could result in provincial and territorial governments being reluctant to adapt or modify their existing GHG regime unless equivalent strategies have passed the federal stringency review.

• The SCC’s holding that climate change’s effects are and will continue to be experienced across Canada should be kept in mind whenever businesses and governments propose projects or make decisions where climate change is, or may become, an issue.

• Finally, the Decision may potentially serve as a blueprint for the constitutional justification of other aspects of the federal government’s Climate Plan and beyond. It remains to be seen if Parliament will be satisfied with the scope of the current Decision or attempt to rely on it to justify an expanded national environmental regime.

For further information, please contact:

Dufferin Harper                     403-260-9710
Tony Crossman                      604-631-3333
Paulina Adamson                  604-631-3328
Elyse Bouey                            403-260-9651

or any other member of our Environmental or Litigation & Dispute Resolution groups.