After Supreme Court’s decision, Ottawa must urgently refocus its climate policy

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Grant Bishop is the Calgary-based founder of KnightFork, which builds data-driven tools for carbon pricing and the energy transition.

On Friday, a majority of Canada’s Supreme Court held that the core of the federal Impact Assessment Act is unconstitutional, implying much of it is a “Trojan horse” of federal overreach into provincial jurisdiction.

Amid much criticism, this legislation was enacted in 2019 under Bill C-69 to overhaul how the environmental and social effects of major projects were assessed and approved.

The Supreme Court’s opinion on the IAA is immediately important for proponents of new major projects in Canada, such as mines and oil sands facilities, but it points to a Pandora’s Box around other federal climate initiatives. Friday’s ruling reinforces concerns about the constitutional vulnerability of Ottawa’s pending legislation for clean electricity standards, an industry-specific cap on greenhouse gases from oil and gas, and quotas for sales of electric vehicles. The already in-force Clean Fuel Regulations also may be deemed federal overreach.

To avoid miring Canadian climate policy in protracted uncertainty, the federal government should promptly seek clarity on its jurisdiction for these proposed regulations by referring the questions around constitutionality directly to the Supreme Court.

The Impact Assessment Act took years to get to the Supreme Court. Alberta first challenged the legislation at its own province’s court of appeal – where provincial governments must initially refer such questions. But the federal government can refer questions directly to the Supreme Court – which it should do when provinces raise constitutional questions on its other climate initiatives. The alternative is to waste precious years and prolong investor uncertainty by waiting for provincial challenges to move through the court system.

For the IAA itself, Ottawa has played down the amendments required to address the Supreme Court’s concerns as simply “surgical.” However, Friday’s decision requires revamping the IAA’s core substance. The Supreme Court majority rebuked the IAA’s inclusion of factors for making a public interest decision on a given project – notably those for “sustainable development” and “meeting climate change commitments” that Ottawa had introduced under Bill C-69. These, the court said, would confer a “practically untrammelled power” for Ottawa to regulate otherwise provincially regulated projects.

Importantly, the majority also chastised Ottawa for attempting to “do an end run” around the limits of federal jurisdiction for GHGs. The majority stressed that, in its earlier decision upholding the federal carbon pricing backstop – under which Ottawa can impose its carbon pricing system in provinces that lack an equivalent – the Supreme Court did not confer wide-ranging jurisdiction for the federal government to regulate every activity that emits GHGs. The decision emphasized that “legislation with respect to roadways, building codes, public transit and home heating, for example” remains outside federal jurisdiction.

The Supreme Court’s decision warns Ottawa of the shaky constitutional grounds for its proposed regulations to require net-zero electricity generation and impose an industry-specific cap on GHGs from oil and gas. The decision also forecloses on what the federal government has taken as a broad federal jurisdiction for regulating each and every GHG-emitting activity.

Some scholars instead argue that the proposed regulations would be constitutional under the federal “criminal” power. (For the federal “criminal” jurisdiction to apply, a law must be a prohibition accompanied by a penalty in response to a threat to a public interest.) But, to uphold these regulations as valid “criminal” law, the Supreme Court would need to contort its previous jurisprudence and confer federal jurisdiction for practically any scheme of detailed, sector-specific regulation.

Instead of continuing to pick these distracting fights with provinces, Ottawa should refocus Canadian climate policy where it has jurisdiction – for carbon pricing. During Ottawa’s earlier carbon pricing fight, widespread consensus among Canadian economists rightly backed carbon pricing as the best way to reduce GHGs. But, after winning, Ottawa became distracted with spawning further regulations rather than concentrating on making a carbon pricing system work well across Canada. To know if a given decarbonization project will pay off, investors must now wade through a jumble of ballooning, labyrinthine rules.

Meanwhile, Ottawa has abdicated any effective “backstop” for Canada’s present provincial carbon pricing patchwork. Alberta’s industrial carbon pricing scheme faces a looming oversupply of credits and offsets. Industry’s lack of confidence in future carbon prices is paralyzing investment decisions for carbon capture and storage projects. Despite a supposedly minimum national carbon price, Ottawa allows a sweetheart arrangement for Quebec, which enjoys a present $47 a tonne carbon price (compared with the $65 a tonne federal minimum) and imports carbon credits from California to meet its purported provincial GHG cap.

Ottawa’s climate policy risks spiralling into an economic and constitutional mess. It should read the latest Supreme Court decision as a “stop sign” for federal overreach. With industry exasperated by policy uncertainty in Canada and diverting investment elsewhere, Ottawa should expend less effort on expanding federal powers and instead bolster its capabilities for competently administering carbon pricing nationally.