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Business Commentary Ontario court’s decision on pollution pricing act clears skies for business, markets

Janis Sarra is a professor of law at the Peter A. Allard School of Law, University of British Columbia.

The Ontario Court of Appeal has upheld the federal Greenhouse Gas Pollution Pricing Act as constitutional, a welcome signal for the business and investment community.

Released one week after the final report from Canada’s Expert Panel on Sustainable Finance, the judgment last Friday and report together offer capital-market participants greater clarity on costs and opportunities in the transition to a lower carbon and more sustainable economy. The Expert Panel Report charts a course for mobilizing finance for sustainable growth and supporting Canadian businesses to take advantage of the huge opportunities that a climate-smart economy offers.

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The Greenhouse Gas Pollution Pricing Act is aimed at reducing greenhouse gas (GHG) emissions. The Ontario Court of Appeal held that the act’s “pith and substance” is establishing minimum national standards to reduce emissions through the pricing of GHG emissions.

The court observed that temperatures in Canada are increasing at double the global average rate, and that recent manifestations of the effects of climate change include major wildfires in Alberta and British Columbia, and major flood events in Ontario, Quebec and New Brunswick. Climate change will cost Canada’s economy $5-billion a year by 2020, and up to $43-billion a year by 2050 if no action is taken to mitigate its effects.

Section 91 of the Constitution Act provides that Parliament may make laws for the peace, order and good government of Canada. The Court of Appeal held that the existential threat to human civilization posed by anthropogenic climate change was discovered long after Confederation’s constitutional division of powers.

In reaching its conclusion on the act’s constitutionality, the court held that the interprovincial effects of GHG emissions are of national concern and the act meets the long-standing constitutional test of “singleness, distinctiveness and indivisibility that clearly distinguishes it from matters of provincial concern."

The court held that a co-operative national carbon pricing system would be undermined by carbon “leakage” in jurisdictions that do not adopt appropriately stringent carbon pricing measures. Failure of a province to co-operate would undermine actions of other provinces, and would place unfair burdens on other provinces, potentially subverting a co-operative national scheme.

The court further held that GHG emissions are a distinct form of pollution in their contribution to anthropogenic climate change, with potentially catastrophic effects on the natural environment and on all forms of life. It found that the act is the product of extensive efforts originally endorsed by almost all provinces, including Ontario, to develop a pan-Canadian approach to reducing GHG emissions and mitigating climate change, a concern to Canada as a whole.

The failure of those efforts reflects the reality that one or more dissenting provinces can defeat a national solution to a matter of national concern.

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The court held that the Ontario government’s objections result from a mischaracterization of the act. Properly characterized, the act deals only with the establishment of minimum national standards to reduce GHG emissions and leaves scope for provincial standards that meet or exceed that minimum.

It also leaves ample provincial legislative opportunity for regulation aimed at the causes and effects of GHG emissions within the province. The court held that the act strikes an appropriate balance between Parliament and provincial legislatures, having regard to the critical importance of the issue of climate change caused by GHG emissions, the need to address it by collective action, both nationally and internationally, and the practical inability of even a majority of the provinces to address it collectively.

Unfortunately, the judgment is not the end of the issue for Canada. The Saskatchewan Court of Appeal earlier upheld the constitutionality of the act, but that reference is headed to the Supreme Court of Canada, tentatively scheduled for Dec. 5. Alberta recently filed a reference. The Ontario government is likely to appeal Friday’s judgment. While the Supreme Court of Canada is likely to uphold the legislation, given the careful attention paid by the Ontario Court of Appeal to application of longstanding Supreme Court tests for constitutionality, businesses in Canada will have a further period of uncertainty.

Yet, as the Expert Panel’s report observed, “there is a clear and urgent imperative for governments, businesses and the financial community to work together to make deep emissions cuts in virtually every sector.”

With strong support by the Canadian business and investment community, the panel proposes concrete recommendations to shift Canada’s climate change conversation from burden to opportunity, focusing on building blocks to mainstream sustainable finance in Canada. The phenomenal public resources being directed toward continuing litigation on carbon pricing should more productively be directed to supporting cleaner, innovative economic activity that promotes robust economic growth.

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