Brian Livingston is an executive fellow at the University of Calgary’s School of Public Policy.
The study of the constitutional basis for federal laws is normally a matter of interest only to constitutional legal scholars, but occasionally it does rise to headline news. That’s the situation we’ve found ourselves in with challenges by the governments in Saskatchewan, Ontario and Alberta to the federal carbon-pricing and backstop legislation. The carbon-tax case, as it is better known, is currently awaiting a decision from the Supreme Court of Canada, where the justices will be weighing whether Ottawa has the constitutional grounds to enact the policy.
Meanwhile, however, another federal proposal – the Clean Fuel Standard (CFS), which is aimed at reducing Canadian GHG emissions by 30 million tonnes each year, or about 4 per cent of Canada’s total GHG emissions – could be on constitutional thin ice.
The federal government has issued draft regulations to implement the CFS under the Canadian Environmental Protection Act (CEPA). CEPA has been determined to be valid legislation under the federal criminal power in the Canadian constitution, but the CFS should not be. If a court accepted the CFS as a valid exercise of the federal criminal power, it is difficult to see any economic activity that the federal “criminal” power could not regulate.
The federal criminal power requires there to be a prohibition plus a penalty. CEPA imposes a penalty for failure to meet the CFS requirements. Fuel suppliers will not want to violate the CFS if it is deemed to be a criminal law, and this may prompt reductions in the amount of fuel they supply, which would cause shortages in the fuel market.
Assuming that the Supreme Court affirms federal jurisdiction in the carbon-tax case using the Peace Order and Good Government (POGG) power, the CFS should be implemented as standalone legislation justified on the same basis as the carbon-tax case. The reason for this is that the CFS is really about the regulation of markets.
The CFS scheme is an intricate mechanism requiring fuel suppliers to earn credits required to meet GHG-emission-reduction requirements in the liquid hydrocarbon fuel market. Credits can be earned by using renewable fuels, by making investments to reduce the emissions of its operations and/or by building electric-charging infrastructure to encourage people to switch to electric vehicles.
Make no mistake, it is not a slam dunk to earn these credits. It will take time and new technology to do so. There will likely be successes and failures along the way, and timing is not certain. As I learned in engineering school, engineers can do the very difficult right away – but the impossible takes a little longer.
The use of standalone legislation would give more transparency to the CFS since it would require the federal government to explain the CFS to Parliament. Finally, this method would show the CFS for what it is: a regulatory regime that requires flexibility in its implementation, rather than the inflexibility of a prohibition under the blunt force of CEPA’s criminal-law power.
The CFS will not be cheap. The target of 30 million tonnes of reduction at a price of up to $350 a tonne could give a cost of up to $10-billion a year. Estimates are that the price of gasoline and diesel fuel could rise by at least 5 cents a litre and possibly even more.
A recent publication by the Canada West Foundation gives a good summary of the CFS. It notes that the rationale for the policy is sound. Canada must do its part to reduce GHG emissions. But there are also risks: to transparency, which is needed to show that the costs of the CFS are affordable; to efforts that can ensure the CFS actually results in fuel decarbonization, rather than just being an expensive and inefficient scheme of payments and penalties to ensure compliance; to the need for adaptability, both by listening to all stakeholders as well as being prepared to make changes when needed as technology evolves in the future; to accountability, to make sure government leaders build the required infrastructure; and to trade-exposed sectors, which require protections so that businesses won’t be motivated to leave the country.
If the CFS policy is designed and implemented properly, it can be an effective tool that actually results in lower emissions. If not, it could potentially put Canada out of business. The feds should use the right constitutional tool for the job.
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