Supreme Court of Canada’s Carbon Tax Decision

By Bruce Carson

Volume 6, Issue 4, April 1, 2021


INTRODUCTION

A week ago the Supreme Court of Canada delivered one of its most important decisions dealing with the division of powers as it found the Greenhouse Gas Pollution Act, passed by Parliament in 2018, to be constitutional as being within the jurisdiction of the federal government. Both the reasoning used and the outcome were controversial. The question now is how will it be implemented by Alberta, Saskatchewan and Ontario?

Also in the past couple of weeks a group of American states directly impacted by President Biden’s cancellation of the presidential permit for the Keystone XL pipeline commenced a lawsuit against the Biden administration to have the permit reinstated.

Also on pipelines, Line 5 was discussed by a committee of the House of Commons that deals with Canada-U.S. relations.


THE SUPREME COURT OF CANADA AND ITS CARBON TAX DECISION

The Court decided in a 6-3 decision that the federal Greenhouse Gas Pollution Act passed in 2018 was constitutional as being within the power of the federal government found in the Peace, Order and Good Government (POGG) clause of Section 91 of The Constitution Act, 1867. The national price on pollution is constitutional as is the federal government’s authority to impose a minimum price on GHGs. The federal government can establish a floor price on carbon.

Chief Justice Wagner who wrote the majority opinion for the court said that there was extensive evidence that carbon pricing is a critical element in addressing climate change. Also, one province refusing to act could wreak havoc on the remaining provinces.

He set out that climate change “is a threat of the highest order to the country and indeed to the world.” He added that “the undisputed existence of a threat to the future of humanity cannot be ignored.”

One of the more controversial aspects of the majority opinion was that the court relied on the seldom used or invoked POGG authority under Section 91 of the Constitution Act, 1867 holding that combatting climate change was a matter of national concern. The dissenting opinions of Justices Rowe and Brown found that the majority opinion “rewrites the role of the Constitution” and this federal law “is a model of federalism that rejects our Constitution and rewrites the rules of confederation.” Justice Brown wrote that “within their areas of legislative authority, provinces are not only sovereign, but exclusively so.”

Justice Suzanne Cote also dissented as she was concerned that the federal cabinet could add new powers or language to the statute but as she noted this would be subject to judicial review.

The concern of the minority is that the majority decision, taken to its logical conclusion could mean that under the guise of legislating on climate change, the federal government could encroach on provincial matters such as health care and education. This was the point made by Justice Brown in dissent “its implications go far beyond the fact, opening the door to federal intrusion by way of the imposition of national standards-into all areas of provincial jurisdiction including intra-provincial trade and commerce, health and the management of natural resources. It is bound to lead to serious tensions in the federation.”

Chief Justice Wagner rejected these arguments saying that legislating on matters such as building codes, public transit, and home heating are not matters of national concern. POGG can only be used when some law has a purpose that the province can’t fulfil. On this point the Minister of the Environment and Climate Change agrees saying that the decision does not “open a Pandora’s box in terms of federal jurisdiction.”

It will be up to the provinces to choose the approach that best suits their needs within the federal Act.

The implementation of this decision and its application are as important as the decision itself. Environment and Climate Change Minister Wilkinson said he will continue to work with the provinces on pollution. Climate change is real and this decision provides certainty.

Premier Scott Moe of Saskatchewan stated that Saskatchewan will come out with its own plan. He added that while the tax may be legal, the policy is wrong. The Saskatchewan plan is to be similar to the plan adopted by New Brunswick. The Saskatchewan plan will “provide an immediate rebate right at the pump to Saskatchewan people.” The plan would seek exemptions for different uses of fuel such as grain drying. There would be an offset program for sequestering carbon.

Premier Kenney said he was disappointed arguing that the Supreme Court of Canada found a new power that erodes the powers of provinces. He hopes this decision is a “one time only exception.”

At the end of last week Kenney said “we are going to talk with other provinces to see if there is a broader interest in that (cap and trade) so we are not captive to the California market like Quebec currently is.”

According to Kenney Alberta will continue its court case on Bill C-69 and do everything possible to minimize the cost on Albertans and trade exposed industries. He also talked about Alberta’s environment plan such as adopting Carbon Capture, Utilization and Storage and Small Modular Reactors.

As for Ontario it is not clear how it will deal with the decision, its immediate reaction was to point to the plan the province has for large emitters.

As for federal Conservative Party leader Erin O’Toole maintains that a federal carbon price is not the way to go to tackle climate change. He said he would focus on partnering with the provinces and bolstering the economy to get emissions down.

The Conservative Party plan, when released, will meet targets and O’Toole has said he likes the net zero approach but he will accomplish this without taxing people. He argues that the carbon tax impacts competitiveness and hurts people living at the margins. The plan when released will target large emitters and respect the carbon reduction mechanisms that provinces have in place.


KEYSTONE XL AND SUPPORT FROM A NUMBER of STATES

On March 17, Attorneys General of Texas and Montana were joined by 19 other states in launching a lawsuit against President Biden’s administration for revoking the permit issued by President Trump to permit the Keystone XL pipeline to cross the Canada-U.S. border.

While Chris Varcoe writes in the Calgary Herald this action is not likely to be successful, the economic logic of the pipeline remains intact. Dennis McConaghy commented that within the United States there is “much of the same animus toward the revocation as there is in Alberta.”

The plaintiffs argue that the power to regulate foreign and interstate commerce belongs to Congress. And Biden’s action “encroaches” on the authority of the states to manage and control land within their borders.

No doubt the outcome of this litigation will end being decided in the Supreme Court of the United States.


ENBRIDGE’S LINE 5

On March 16, Vern Yu, Executive Vice President of Enbridge appeared before the Special Committee of the House of Commons on Canada-U.S. Relations. Yu’s initial concern is that the U.S. Courts could take many, many years to resolve the Line 5 dispute with Michigan. He argued that a mediated or negotiated diplomatic solution should be found.

Enbridge is fighting the revocation of the 1953 easement by Governor Whitmer in U.S. Federal Court. Enbridge does not see a court granting Whitmer’s request for an injunction shutting down Line 5.

On Tuesday of this week representatives of Alberta, Saskatchewan and Ontario appeared in front of this same House committee. Alberta’s Energy Minister Savage argued that shutting down Line 5 would create a “dangerous precedent” that would forever imperil future cross border infrastructure projects between Canada and the United States. She added that any actions to shutdown Line 5 would threaten the Canada-U.S. relationship.

Saskatchewan, Alberta and Ontario want the federal government to support Enbridge’s court action which would keep the pipeline operating. There is a hearing scheduled for May 12 to determine if the case belongs in a state court or in the federal court system. Enbridge has asked the federal government to support its arguments that the matter belongs in in federal court as virtually all legislation and regulation of pipelines is federal.

Also discussed was Canada exercising its rights under the 1977 Transit Pipeline Agreement, a Canada-U.S. Treaty that provides for the uninterrupted flow of energy between the two countries.

As we approach May it is hard to believe that the Trudeau government would not ensure in discussions with the U.S. that Line 5 continues as it affects the lives of millions in seat rich Ontario and Quebec with an election looming either this spring or fall. For the Trudeau Liberals this pipeline must not be shut down, particularly in an election year.


A POSSIBLE NEW ROUTE TO THE GULF COAST REFINERIES BY RAIL

CP Rail’s US$25 billion deal for Kansas City Southern offers new hope for expanded access to the Gulf Coast for Canadian oil producers that seemed limited with the cancellation of Keystone XL by President Biden wrote Geoffrey Morgan last week.

The largest concentration of heavy oil refineries is located in this area. Tristan Goodman, president of the Explorers and Producers Association of Canada said that CP joining with Kansas City Southern (KCS) “does have a benefit.” KCS provides direct connection to heavy oil markets in Louisiana and Texas.

Premier Kenney called this transaction “good news for Alberta’s economy” as it means that CP Rail may expand.

Morgan quotes CP Rail’s Jim Barry as saying “we can do this as the combination will provide for a more direct and efficient route to refineries on the Gulf Coast.”


CANADA ENERGY REGULATOR AND REPORT ON RENEWABLE ENERGY

In a report released last Tuesday, entitled “Canada’s Renewable Power” the Canada Energy Regulator (CER) stated that Alberta is expected to see the fastest growth in renewable energy capacity between 2018 and 2023. It found that by 2023, 26% of Alberta’s electricity capacity will come from renewable sources as opposed to 16% in 2017.

Saskatchewan will also see renewable energy capacity increase to 33% from 25% in 2017.

The Prairies are leading the way in renewable energy growth according to the CER.

This report from the CER should help bolster Premier Kenney’s argument for partnering with the federal government on Alberta’s $30 billion plan to implement Carbon Capture, Utilization and Storage as well as other emission reduction plans.


HYDROGEN BEING UTILIZED AS FUEL

Last weekend Gabriel Friedman wrote about Canada’s emerging hydrogen fuel cell technology and its use as a clean fuel. Vancouver based Loop Energy Inc. stated that a German group may order 20 of its hydrogen fuel cells for use in its electric truck fleet.

Loop described this as “sort of the green shoots of the application, early adoption coming through.”

The target for use by both Loop and the larger Ballard Power Systems is heavy duty applications such as cargo trucks, rail, marine and aviation.

The Canada Hydrogen Strategy released in December 2020 projects hydrogen could make up 30% of Canada’s total end use of energy by 2050.

TO COME


Today

  • OPEC+ meeting

April 7

  • International trade numbers to be released

April 9

  • Job numbers for March to be released

April 21

  • Bank of Canada deals with interest rates and releases its Monetary Policy Report

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