What the Supreme Court’s Carbon Tax Ruling Means – And What to Do about It

F.L. Ted Morton
April 30, 2021
Canada’s constitutional deck – or at least the cards our Supreme Court justices keep drawing – seems increasingly loaded towards centralism, with established provincial jurisdiction and clear division of power becoming quaint habits of a bygone era. Last month’s carbon tax ruling threatens to supercharge that trend, cementing federal dominance and relegating provinces to the level of glorified municipalities carrying out Ottawa’s wishes. Constitutional scholar F.L. (Ted) Morton reminds us that previous provincial premiers overcame seemingly crushing legal defeats through imaginative policy ideas and determined inter-provincial cooperation.

What the Supreme Court’s Carbon Tax Ruling Means – And What to Do about It

F.L. Ted Morton
April 30, 2021
Canada’s constitutional deck – or at least the cards our Supreme Court justices keep drawing – seems increasingly loaded towards centralism, with established provincial jurisdiction and clear division of power becoming quaint habits of a bygone era. Last month’s carbon tax ruling threatens to supercharge that trend, cementing federal dominance and relegating provinces to the level of glorified municipalities carrying out Ottawa’s wishes. Constitutional scholar F.L. (Ted) Morton reminds us that previous provincial premiers overcame seemingly crushing legal defeats through imaginative policy ideas and determined inter-provincial cooperation.
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The Supreme Court of Canada’s 6-3 ruling on March 25 to uphold the constitutional validity of the federal carbon tax was a disappointment, but it should not have been a surprise. It was quite predictable. In the recent book I co-edited with Jack Mintz and Tom Flanagan – Moment of Truth: How to Think About Alberta’s Future – we identify the Supreme Court as one of several constitutional defects that systemically disadvantage Western Canadian interests.

From its creation in 1875, the Supreme Court was intended to serve as an indirect way for the federal government to curb perceived provincial excess. It was a replacement for the failing power of “disallowance,” a carry-over from the colonial era that allowed Canada’s new federal government to unilaterally veto any provincial law it disapproved of. But disallowance so offended the logic of Canada’s new federal system of government that it quickly fell into disuse.

The Supreme Court in theory was a “neutral umpire” to impartially resolve federal-provincial disputes over jurisdiction. But its centralist supporters, such as Prime Minister John A. MacDonald, hoped it would serve a purpose similar to disallowance. Located in Ottawa, its members all unilaterally appointed by the Prime Minister, with six of the nine justices required to be from Ontario and Quebec, the Supreme Court has been a quiet but consistent ally of Central Canadian interests.

Six of the Supreme Court’s nine judges consider climate change an “existential crisis” and decided that the end – saving the planet – justified the means, the federal carbon tax, and all that it might do to undermine federalism.

The Supreme Court’s decision to uphold the so-called Greenhouse Gas Pollution Pricing Act was no exception; it is less about the law and more about Canada’s deep regional differences.

In a strictly legal sense, there is not any clearly “correct decision.” In terms of precedents and legal reasoning, the majority and dissenting opinions are equally coherent. A fair-minded law professor could give each a grade of A. This legal ambiguity is reflected not just in the 6-3 division among the justices, but also in the divisions on the three provincial courts of appeal that earlier ruled on reference cases sent to them on the same issues: Ontario (4-1 supporting), Saskatchewan (3-2 supporting) and Alberta (1-4, striking down). At eight to seven, these judges were even more equally divided. But it’s not a coincidence that the further West you go, the more judicial support you find for striking down the carbon tax.

How a person, including a judge, thinks Canada should best respond to the climate change challenge depends on where you are sitting. It’s much easier to buy into the climate apocalypse narrative if doing so has no immediate or apparent economic costs. You can sound and feel virtuous for free. That’s why six of the nine judges sitting in Ottawa could describe climate change as an “existential crisis” and decide that the end – saving the planet – justifies the means, the carbon tax.

Likewise, it explains why the four judges on the Alberta Court of Appeal a month earlier had ruled against the tax. In the majority opinion authored by Chief Justice Catherine Fraser, they warned that the federal measure is a “constitutional trojan horse that, under the guise of fighting carbon emissions, would give the federal government potentially unlimited power over provincial regulations.” For them, the existential crisis is Alberta’s economic death spiral caused by the Liberals’ climate change crusade.

According to the Alberta Court of Appeal’s Chief Justice, Catherine Fraser, the federal carbon tax is a “constitutional trojan horse that, under the guise of fighting carbon emissions, would give the federal government potentially unlimited power over provincial regulations.” (Source of left image: Connor Mah, licensed under CC BY-SA 4.0)
On a strictly legal level, the opposing justices on the Supreme Court explained their rulings based on different sections of the Constitution. The majority invoked Ottawa’s Section 91 “POGG” power – the power to make laws for the “peace, order and good government of Canada” – and what is called the “national dimensions” test. This is a constitutional doctrine allowing the federal government to enact policies beyond its enumerated powers to address clearly national problems (thus beyond the capacity of any one province). Examples are interprovincial telephones, railroads, nuclear power and, in recent decades, environmental risks.
 

The dissenters grounded their decision in protecting the principles and benefits of Canada’s federal system, especially s. 92A. It explicitly affirms each province’s “exclusive jurisdiction” over the “exploration, development, conservation and management of non-renewable natural resources.” Wherever non-renewable resources are abundant in Canada, this jurisdiction has proved critical to that province’s ability to manage its own economic development and, from there, its affairs in general.

But behind these different legal choices are different answers as to a deeper question: how best to balance the seriousness of the climate-change and carbon emissions issue against the consequences of a collapse of Western Canada’s oil and natural gas sector. Consciously or otherwise, where you live clearly influences how you strike this balance.

The Supreme Court’s decision represents a major policy setback for Western Canada. Short-term, the federal carbon tax will make investing in oil and natural gas more expensive – and thus less attractive – than similar opportunities in the U.S. and elsewhere. This phenomenon is known as “carbon leakage.” Consequently, the tax will do nothing to reduce global COemissions, merely pushing new energy development out of Canada.

Short-term, the federal carbon tax combined with the “no more pipelines” Bill C-69 and other recent federal measures, further weakens investor confidence in Western Canada, exacerbating the regional economic crisis. The longer-term consequences are even more serious. (Source of bottom image: Adam Jones, Ph.D. – Global Photo Archive, licensed under CC BY-SA 2.0)

And it could get worse. The Court’s ruling has also given a constitutional green-light for the Justin Trudeau government’s “build back better” program. This includes more anti-oil policies, such as Bill C-69, the aptly named “No more pipelines bill.” Such policies will further weaken investor confidence in Western Canadian oil and natural gas, exacerbating the region’s downward economic spiral.

The longer-term consequences for Alberta and all provinces may be even worse. The Alberta Court of Appeal warned that the carbon tax “would forever alter the constitutional balance that exists between the heads of power allotted to Parliament and the provincial Legislatures in the federal Canadian state…[facilitating] a wholesale takeover of a collection of clear provincial jurisdictions and rights.” Combined with their other comment about “unlimited power,” Alberta’s senior-most judges evidently believe that affirming the constitutionality of the carbon tax would all-but destroy federalism in any meaningful sense.

At the time, central Canadian legal commentators (predictably) dismissed this warning as nothing more than an expression of parochial regional bias. But the same concerns have now been echoed – indeed, strengthened – by the dissenting justices on the Supreme Court.

Justice Russell Brown, who not coincidentally is from Alberta, said the federal government is “leveraging the importance of climate change and the relative popularity of its policy response to fundamentally alter the division of powers.” He warned that the majority’s ruling opens 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.”

Justice Malcolm Rowe, not coincidentally from Newfoundland, warned that the majority’s reasoning “would permit Parliament to amass unique jurisdiction over issues that fall squarely inside provincial jurisdiction and flatten regional variations.”

The third dissenter was Justice Suzanne Côté from Quebec. While she agreed with the majority on the national dimensions test, she still ruled that the act was unconstitutional because “the breadth of the discretion conferred by the Act on the [federal Cabinet] results in the absence of any meaningful limits on the power of the executive.”

Three federal judges, the Hon. Russell Brown from Alberta (left), the Hon. Malcolm Rowe from Newfoundland (middle) and the Hon. Suzanne Côté from Quebec (right), all considered the carbon tax unconstitutional and illegitimately intrusive into provincial jurisdiction. (Sources: (left and middle) Andrew Balfour Photography/SCC Collection; (right) Philippe Landreville/ SCC Collection)

These judicial warnings cannot be dismissed as parochial regional bias. They come from three Supreme Court justices from three different provinces. They confirm the seriousness of the longer-term jurisdictional loss if the majority’s decision goes unchallenged – not just to Alberta but to all provinces.

That’s the bad news. And it’s bad. But there is a path forward. Legal defeats need not translate into policy defeats. The end of the legal battle is not the end of the political battle. Faced with similar policy and constitutional setbacks in the Supreme Court in the 1970s, Alberta Premier Peter Lougheed rallied other Western premiers – and Quebec – to demand new constitutional protections for provincial management of their natural resources. The result was the addition of s. 92A to the Constitution in 1982.

Section 92A was Lougheed’s most historic achievement. It was designed to ensure that Alberta would never again see a federal government implement anything like then-Prime Minister Pierre Trudeau’s disastrous National Energy Program (NEP). During the drawn-out process in the late 1970s to patriate and amend Canada’s Constitution, s. 92A became a non-negotiable demand of Lougheed and the other Western Premiers. Without it, the elder Trudeau would never have received their consent to the 1982 Constitution Act and the new Charter of Rights and Freedoms.

Turning legal defeat into political victory: Stung by court rulings, former Alberta premier Peter Lougheed (left) waged an interprovincial campaign to force protection for every province’s natural resource rights into Canada’s amended Constitution in 1982 – or Prime Minister Pierre Trudeau wouldn’t get his Charter of Rights and Freedoms. Trudeau agreed. (Source: Canadian Press)

But with the Supreme Court’s carbon tax ruling, Alberta and the other Western provinces now face the prospect of an important constitutional victory being reversed by another Liberal government led by another Prime Minister Trudeau. The cumulative effects of his government’s national environmental policies, including the carbon tax, Bill C-69 and bill C-48, amount to an NEP 2.0 and will leave s. 92A and the Alberta economy in tatters.

This is precisely why the carbon tax is unconstitutional. It is a transparent attempt by the Liberal government to do indirectly what s. 92A prohibits it from doing directly. Ottawa does have broad constitutional powers to levy taxes. But the carbon tax is not a true tax. Taxes are defined by their purpose: to raise money for government programs. But Trudeau proposes to give back all the carbon tax revenues.

The real purpose of the carbon tax – as everyone knows – is to regulate COemissions (and the name of the law hints at this purpose, while omitting the word “tax”). In Alberta’s case, the regulatory impact will fall primarily on the development and management of the province’s non-renewable natural resources – coal, oil and natural gas. That is, exactly what s. 92A declares to be the “exclusive jurisdiction” of each province.

But s. 92A – like the rest of the Constitution – does not speak for itself. Its practical meaning comes from the mouths and pens of judges. Judicial interpretations in this sense are like mini-constitutional amendments. They establish the operational effect of a constitutional rule until or unless the decision is reversed by a future Supreme Court decision. In the case of the carbon tax ruling, given the Court’s built-in regional bias, this is highly unlikely. This concern was explicitly raised by the Alberta Court of Appeal. It stated that “92A [cannot] be interpreted in a constitutional vacuum. It is directly linked to another provincial power and that is the provincial opt out right under s 38(3) of the Constitution.”

Fully aware of Western Canada’s political vulnerability to Central Canadian majorities, Lougheed and his allies also insisted on s. 38(3) as an insurance policy for s. 92A. It provides a form of legal exit ramp in case some future federal government (with the support of seven other provinces, as per Canada’s constitutional amending formula) were to vote to remove section 92A from the Constitution. Section 38(3) gives Alberta (and other provinces) the legal right to “opt out” of such an amendment. That is, to retain its “exclusive jurisdiction [over the] exploration, development, conservation and management of non-renewable natural resources.”

Where one is situated in Canada has always had a profound influence on how one regards issues of regional fairness, provincial roles and freedoms, and even the Constitution itself. The Supreme Court of Canada continues to reflect those differing regional views today.

Knowing that their ruling to strike down the carbon tax would be appealed to the Supreme Court, the Alberta Court of Appeal sent a message to Ottawa: “Courts ought to be careful not to allow the national concern doctrine to be used to sidestep the amending formula and thereby render the opt out right nugatory.” The majority chose not to listen to that message. But the rest of us can and should.

When the Supreme Court issued its decision, a Globe and Mail columnist chided Western Canadians that, now that the legal fight over carbon “pricing” is over, the political one needs to end too.

This comment is as wrong as it is predictable. Canada has a long history of provincial and federal governments recovering from and even reversing negative policy consequences of Supreme Court decisions. As Peter Lougheed demonstrated with s. 92A, it is possible to convert judicial defeats into policy victories, potentially even triumphant ones. The political fight over a carbon price on fuel consumption is only one part of a broader, more complicated debate about climate and energy policy, regional economic differences, and the boundaries between federal and provincial jurisdictions.

The very purpose of a federal division of powers is to minimize the risks of economically destructive or politically destabilizing, one-size-fits-all policies imposed by a far-away central government. The well-established principle of subsidiarity holds that lawmakers closer to the communities for whom they govern are better suited to design workable and responsive policy solutions.

In Canada there is constitutional room for consensual, complementary federal-provincial policies, and multiple examples of how these have been brought about in the past. These have included formal intergovernmental agreements for dovetailing legislation and/or regulatory alternatives. As Jack Mintz has pointed out, climate change policies should be no exception. At present, of course, they are a glaring exception – and, if the Supreme Court’s ruling is not challenged through new policies, they portend the new rule.

In Moment of Truth, we document that the various reform initiatives of our generation to improve Alberta and Western Canada’s position within Confederation have all failed. Indeed, we demonstrate that we are worse off today than we were 30 years ago, the demise of section 92A being a leading example. We conclude that the constitutional status quo is no longer acceptable.

Western Canada suffers from a structural liability to predatory and destructive federal policies. Specifically, we have an electoral system that invites federal political parties to try to win elections by promising policies that transfer wealth from the energy-rich, voter-poor Western provinces to the energy-poor but voter-rich central provinces. Pierre Trudeau’s “screw the West, we’ll take the rest” strategy worked for the Liberals in the 1980 election and still works for them today.

One of Moment of Truth’s most important chapters is by Derek Burney. Burney was a senior civil servant in Ottawa before serving as Canada’s ambassador to the United States during the 1980s. He gets the big picture, both at home and abroad. Burney states bluntly and accurately that without economically competitive access to global markets and global prices for Western Canada’s oil and natural gas, the region’s policy-induced recession of the past six years will become permanent.

The carbon tax is already undermining the competitiveness of our energy sector. Now the Supreme Court’s ruling sets a dangerous precedent for upholding further anti-energy, anti-Western policies such as bills C-48 and C-69, and who knows what comes next. In some ways, we do know what comes next: the carbon tax is scheduled to be hiked from $30 per tonne at present to $170 per tonne by 2030.

The Supreme Court’s carbon tax ruling and the policies it supports must not go unchallenged. The Alberta government must work with other like-minded provinces that care about the future of Canadian federalism to reverse these policies. It has been done before, and it can be done again.

Hydroelectricity is to Quebec what oil and natural gas are to Alberta – the lifeblood of the economy and a critical instrument of provincial development – and Quebec would never stand for it being taxed or controlled by Ottawa. (Sources: (left) Bouchecl 20:56, 11 August 2007 (UTC), licensed under CC BY-SA 3.0; (right) Jeangagnon, licensed under CC BY-SA 3.0)

Ironically, this coalition could and should include Quebec. Hydroelectricity is explicitly protected by s. 92A. Hydroelectricity is to Quebec what oil and natural gas are to Alberta – the lifeblood of the economy and a critical instrument of provincial development. But the logic of the Supreme Court’s ruling makes Quebec hydro just as susceptible to federal regulation as Western oil and natural gas.

Quebec intervened in the carbon tax case to support Alberta and the other provincial challengers. Quebec Premier François Legault explained that his government favours carbon pricing, but that this should be up to the provinces. “For us,” he declared, “It is important to protect provincial jurisdiction.” Lougheed recruited Quebec as an ally in the 1980s, and there’s no reason this can’t be done again. Quebec has as little interest in “one size fits all” federal policies as Alberta.

We must not allow the Trudeau Liberals’ obsession with climate change to destroy the economy – really, the future – of Western Canada. We can start by reminding all Canadians that a strong and prosperous Alberta makes for a strong and prosperous Canada.

Ted Morton is an executive fellow at the University of Calgary’s School of Public Policy and professor emeritus in political science, where he taught for 36 years. He also served in the Alberta government as a minister of finance, minister of energy and minister of sustainable resources development.

 

Source of main image: Skilful/ Shutterstock

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