Energy & Federalism

Wrecking the Federation to Save the Planet

Dwight Newman
April 3, 2019
The federal carbon tax came into effect this week in Ontario, Manitoba, New Brunswick and Saskatchewan. It may soon be imposed in Alberta, depending on the outcome of this month’s election. Starting with Saskatchewan, the provinces are taking Ottawa to court over who has the right to regulate greenhouse gases under Canada’s constitution. The much larger question is how the case will affect the balance of powers within the federation.
Energy & Federalism

Wrecking the Federation to Save the Planet

Dwight Newman
April 3, 2019
The federal carbon tax came into effect this week in Ontario, Manitoba, New Brunswick and Saskatchewan. It may soon be imposed in Alberta, depending on the outcome of this month’s election. Starting with Saskatchewan, the provinces are taking Ottawa to court over who has the right to regulate greenhouse gases under Canada’s constitution. The much larger question is how the case will affect the balance of powers within the federation.
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Near the end of two days of hearings before the Saskatchewan Court of Appeal in mid-February, one lawyer commenced his presentation by wishing the five-judge panel a happy Valentine’s Day. It was a rare moment of levity during an otherwise loveless high-stakes federal-provincial jurisdictional fight – a battle with huge implications for the future of environmental policy, natural resource development, taxation, and the balance of powers within the Canadian federation.

The Court of Appeal justices and dozens of lawyers had gathered in the Regina courthouse for the first phase of legal challenges to the federal government’s carbon tax legislation. Any province is entitled to initiate “reference cases” to its own Court of Appeal (as the federal government may do at the Supreme Court of Canada). Such cases are most commonly used to test the constitutionality of new legislation before it comes into force.

The Government of Saskatchewan initiated the reference a year ago, in hope of getting a ruling before Ottawa’s carbon tax took effect April 1. It got bogged down by procedural delays, and despite a request by Saskatchewan’s lead lawyer Mitch McAdam for a quick decision, the Court was still pondering its decision when Saskatchewanians started paying the new tax on carbon-based energy in all its forms last Monday.

Saskatchewan’s argument, laid out at the opening of the hearing on a bone-chilling morning of a brutally cold February, asserts a vision of federalism profoundly at odds with that of the federal government. It contends that the selective imposition of a federal tax on a province – Ottawa is imposing carbon taxes on provinces that refuse to levy their own – is an act of coercion involving a matter that properly falls under provincial jurisdiction.

Constitutional wrangling over division of powers is as old as Canada itself. Ottawa has tried many times to expand its powers by legislating and defending its newly claimed areas in the courts. It has gained jurisdiction over trade and commerce powers through competition legislation, for example, and expanded its power to regulate firearms via the (now-defunct) long gun registry under the federal criminal law power. But the provinces have successfully pushed back in some important cases, including on taxation of provincial resources in the 1980s and on federal securities regulation in 2011.

From the beginning, Canada’s constitutional arrangements envisaged a relatively loose federation in which provinces hold many areas of exclusive jurisdiction. These include all private law (contracts, torts, property, and other matters), health care, education, and land and natural resources. But natural resource issues have been a chronic source of contention. Ottawa originally withheld ownership from the prairie provinces when they were created in 1905, and they had to fight long and hard to get the same rights as all other provinces, finally succeeding in 1930. Subsequent jurisdictional disputes over natural resources in the 1970s led the prairie provinces to insist on a clarifying amendment as part of the 1982 constitutional package. As a result, section 92A of the Constitution Act, 1982 unequivocally asserts that primary regulation of natural resource development and management lies with the provinces.

Contemporary environmental regulation has again muddied the waters. Most responsibility for environmental protection falls under provincial jurisdiction over land and resources. But the federal government has jurisdiction on certain lands, such as national parks, military bases, and Indian reserves. It also has jurisdiction over navigable waters and fisheries, and it has used this expansively, even to regulate small waterways, like ditches through farms. It also has some ability to regulate environmental matters through criminal law, and through judicially-established federal jurisdiction over matters of “national concern,” in the context of its constitutional authority over “peace, order, and good government.”

This “POGG” power, as defined by the courts, applies to certain matters that are found to be “single, distinctive, and indivisible” across the nation, and thus beyond the regulatory reach of provinces. Though seldom-used, it has been applied by Ottawa to regulate marine pollution on the grounds that both inland waterways and offshore waters transcend provincial boundaries. There have been some judicial suggestions that it might apply to nuclear facilities because of their potential for large-scale impacts. In the carbon tax reference, the federal government tried to apply the same legal logic to greenhouse gases. Saskatchewan challenged the claim, partly by showing that it and other provinces are already independently regulating emissions. If the Court buys this argument, then the POGG test is not met.

The original written argument submitted by the federal government was built mainly around the POGG doctrine. It offered the federal power over taxation, which is quite broad and would have seemed a strong case on its own, only as a secondary, supporting argument. Saskatchewan’s arguments against the use of federal tax power focused on its selective imposition on some provinces, which it labelled coercive. It also contended that by applying the carbon tax on Saskatchewan through a cabinet order, rather than law passed by Parliament, it violated the principle of “no taxation without representation.”

At the hearings federal lawyers shifted from their original POGG argument. Instead of insisting that regulation of greenhouse gases in general lie within exclusive federal jurisdiction, they began asserting that only Ottawa can control the “cumulative aspects” of greenhouse gases. Their aim, apparently, was to identify a regulatory need that is “single, distinctive, and indivisible” under the POGG test. If you struggle to understand the distinction, you are not alone: Chief Justice Robert Richards repeatedly questioned the federal lawyers on what their revised argument meant. “I’m having a bit of trouble putting the puzzle together here,” he said, adding that his “key difficulty” was trying to understand what the federal argument meant by distinguishing the cumulative effects. Lead federal lawyer Sharlene Telles-Langdon tried to explain by saying “the provinces can enact carbon pricing, but they can’t enact a national carbon price scheme.”

The federal strategy appeared to be trying to meet the POGG test without trampling on the provinces’ right to regulate greenhouse gases within their own jurisdiction. It effectively conceded there is no federal jurisdiction over greenhouse gases in general but claimed there is federal jurisdiction over their cumulative effects. As Telles-Langdon put it, “it’s not necessary for each of the systems in each province to be the same to achieve the objectives of the legislation or to address the matter of national concern. What is necessary is that the pricing system applies throughout Canada.”

Before the hearings began, many commentators, including legal experts, had openly mocked the Saskatchewan government’s litigation and rated its chances of success at near-zero. Writing in the Globe and Mail in September 2018, University of Ottawa law professor Nathalie Chalifour called Saskatchewan’s case “weak” and dismissed it as “a politically motivated, foot-stomping show.” One of my University of Saskatchewan colleagues told his environmental law students that the province’s case is “awful and an embarrassment.”

As the federal lawyers struggled to explain their case to the justices, however, Saskatchewan’s arguments began to look more credible. The central question now before the Court goes to the heart of Canada’s constitutional division of powers and the key issue of to what degree the federal government can set policies on particular issues and compel or pressure provinces to go along with them. Saskatchewan’s argument was backed by several intervenors. They included the governments of Ontario and New Brunswick, who have also refused federal demands to comply with national carbon pricing, as well as Alberta’s opposition United Conservative Party, which has vowed to repeal the incumbent NDP government’s carbon tax if it wins this month’s election.

Interestingly – perhaps critically, depending on how the case turns out – Saskatchewan carefully avoided framing its argument in terms of the actual policy content of the matters in question, such as the scientific validity of cutting CO2 emissions, limiting greenhouse gases, designating CO2 a form of “pollution”, and so on. Instead, Saskatchewan tried to set the focus strictly on constitutional law. It would be surprising if policy winds up influencing the Court of Appeal’s decision. That often occurs in litigation related to the Charter of Rights and Freedoms, most often at the Supreme Court of Canada, where judges rule that a particular policy approach is either equally required or impermissible for all governments. Because federalism questions revolve strictly around which level of government ultimately makes decisions on a particular issue, there is no inherent ability to affect policy. Historically in such instances, courts at all levels simply try to apply the Constitution and precedent.

That said, the contending parties in the carbon tax reference were obviously in court because of fundamentally differing views on critical policy issues. The federal government focused a surprisingly large part of its written argument on the science of greenhouse gases (perhaps expecting Saskatchewan to attempt a challenge of the science). It lessened this emphasis somewhat in its oral argument – leaving the job to supportive intervenors such as the David Suzuki Foundation and Environmental Defence. It’s unlikely they helped the federal case with some of their hyperbolic climate change alarmism. One intervenor raised the spectre of “rising oceans” increasing the risk of floods in landlocked Timbuktu.

The policy issues generated some quirky positions and alliances. The resource-producing province of British Columbia, for example, intervened in support of the federal government. It argued for Ottawa’s right to regulate emissions at the same time it is advancing its own reference case to challenge the exclusivity of federal power over interprovincial pipelines. The former is not in the constitutional text – yet – while the latter is in the constitutional text, particularly Section 92(10)(a) of the Constitution Act, 1867, which clearly declares federal power over interprovincial transportation.

B.C.’s lawyers did not address this contradiction. It is consistent with the current NDP-Green provincial government’s support for carbon taxes and opposition to oil pipelines, but at the expense of putting climate policy ahead of constitutional text and principles, to the potential detriment of future B.C. governments. The Saskatchewan government also appears to be in a contradictory position since it intervened on Ottawa’s behalf in the B.C. reference case, but both there and in the carbon tax reference it is upholding constitutional text and principle, not jettisoning them to advance a transient policy objective.  

One of the most effective non-governmental intervenors on the federal side in Regina was the EcoFiscal Commission. This group of pro-carbon tax economists submitted a legal argument by University of Ottawa law professors Chalifour and Stewart Elgie. It focused on interpretations of POGG but, like the federal government, also devoted a lot of attention to the policy itself, including supporting carbon pricing from a market-based perspective. This contrasted sharply with anti-carbon tax intervenors such as the Canadian Taxpayers Federation, which again focused on the principles of federalism instead of policy.

The provincial governments of New Brunswick and Ontario likewise warned of potential impacts on the constitutional division of powers. And arguing for Alberta’s United Conservative Party, lawyer Ryan Martin said the party’s position is that “allowing Canada to expand its constitutional powers at the expense of the provinces will upset the balance of federalism in Canada.” Furthermore, it would “prevent provinces like Alberta, Saskatchewan, New Brunswick, and Ontario from developing and implementing their own policy solutions to the problem of greenhouse gas emissions that are unique to the individual and local concerns of those provinces.”

Ottawa has always placed a strong central government at the heart of its vision of federalism. Even Stephen Harper’s government – which generally showed great respect for provincial autonomy – sought to impose a national securities regulator over the objection of provinces.  Many assumed the Supreme Court of Canada would uphold the legislation when it considered the Harper government’s constitutional reference case in 2011. It seemed a slam dunk especially in the aftermath of the 2008 financial crisis. Ottawa’s argument, which was rooted in federal power to regulate trade and commerce, included some parallels to the POGG test now at issue with the carbon tax.

Saskatchewan’s lead lawyer, Mitch McAdam, at the Saskatchewan Court of Appeal in Regina.

But the Supreme Court unanimously quashed the federal legislation. The ruling showed that when they function properly, the courts decide cases based on the law and thereby maintain the rule of law and the integrity of Canada’s Constitution, including principles of federalism that define the division of powers. The timeless rules of federalism properly resist the transitory whims of governments and interest groups. And that is again what is at stake in the carbon tax challenge: competing and conflicting visions over whether constitutional disputes should be decided primarily based on the prevailing policy preferences of the age, or on age-old constitutional and jurisdictional principles.

As the carbon tax hearing wound down on February 14, just before the Saskatchewan judges headed off on a cold winter’s night to their carbon-heated homes and the dozens of lawyers from elsewhere boarded their carbon-powered flights, some of the pro-federal intervenors spoke of their vision for better environmental protection and the need to respond through a constitutional interpretation empowering all governments to act. Saskatchewan’s final reply submission emphasized the established, constitutionally recognized values of federalism and the need to respond with interpretations maintaining clear lines and avoiding an all-powerful central government.

As McAdam, the lead lawyer for Saskatchewan, put it: “You don’t need to destroy the federation to save the planet.” It is not an exaggeration to portray the carbon tax reference as an ideological contest between unrestrained progressivism and central government planning versus conservatism and respect for established organizing principles of government. The federal government has taken the view that it may do whatever it wants in the service of international goals, and Saskatchewan has taken a stand for the ongoing role of the agreed constitutional order in determining which governments make which decisions.   

Predicting judicial decisions is a mug’s game. But it is certain that Saskatchewan’s Court of Appeal will engage deeply with the case. Chief Justice Richards, the most active questioner on the five-judge panel, is a former head of the Saskatchewan government’s Constitutional Law Branch and a former constitutional litigator before the Supreme Court of Canada. He will bring incisive analysis to the deliberations. Saskatchewan’s court is likely to release the first judgment on the matter, although Ontario’s Court of Appeal will also hear the issue in the near future. Regardless of the verdict, unless the current federal government and its carbon tax are defeated in this fall’s election, this critical question is all but certain to end up before the Supreme Court of Canada.

Many different values and principles are at stake, and those who initially laughed off the Saskatchewan carbon tax reference may yet be surprised. Either way, the ruling will materially influence the future of Canadian federalism.

Dwight Newman, QC, is Professor of Law and Canada Research Chair in Indigenous Rights in Constitutional and International Law at the University of Saskatchewan as well as a Munk Senior Fellow of the Macdonald-Laurier Institute. His dozen books include Natural Resource Jurisdiction in Canada and a co-authored treatise entitled The Law of the Canadian Constitution.

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