Grant Bishop is the associate director of research at the C.D. Howe Institute and the author of a recent report on the constitutionality of federal carbon pricing. He lives in Calgary.
Starting Dec. 16, the Alberta Court of Appeal will hear arguments regarding the constitutionality of the federal Greenhouse Gas Pollution Pricing Act – the so-called carbon-pricing “backstop," under which Ottawa would impose a price on greenhouse gas emissions in any province where it deemed provincial measures are not sufficiently stringent. The Alberta government’s challenge to the federal backstop is just the latest in a months-long string of appeals-court processes by governments in Ontario and Saskatchewan, where the legislation was upheld; those appeals are now headed to the Supreme Court, which will begin its hearings in March.
So the legal arguments being deployed feel, at this point, quite well-trod. However, the federal backstop is likely unconstitutional – just not for the reasons anyone has yet to argue.
Under a consistent application of the peace, order and good government (POGG) power, the Supreme Court should indeed find that “greenhouse gases” are a national concern and therefore under exclusive federal jurisdiction. This would mean only the federal government could price carbon. Just as provinces cannot regulate other national concerns such as aeronautics or radio-communications, any provincial legislation aimed at regulating greenhouse gases (GHG) should be invalid.
But, as it is designed, the federal backstop intrudes too far into provincial jurisdiction by imposing activity-level regulation – specifically, the federal output-based pricing system (OBPS) that establishes different standards depending on the industry.
The OBPS is intended to prevent “leakage” – displacement of production to countries that don’t price carbon. However, the OBPS could intrude on provincial jurisdiction for intra-provincial industrial regulation and natural resources by differentiating per-tonne carbon costs between products and, in the case of electricity, processes. Even under a nominal $30 carbon price, the OBPS would result in average carbon costs of $1.50 a GHG tonne for steel or cement production and $6.00 a GHG tonne for oil sands production.
As well, for electricity, a variety of economists have pointed out the economically inefficient treatment of different fuel types for power generation under the federal backstop. This interference with electricity markets also makes the OBPS unconstitutional, because the OBPS departs from the principle of a uniform economy-wide carbon price and gets into meddling in intra-provincial product markets.
Indeed, in oral arguments before the Ontario Court of Appeal, counsel for Canada conceded that any activity-level regulation should be beyond any federal jurisdiction for greenhouse gases. Moreover, counsel for Ontario pointed out the product-by-product “picking of winners” under the federal OBPS and, therefore, it was surprising that none of the Ontario judges picked up on this issue.
But didn’t the Ontario and Saskatchewan courts uphold the federal backstop? Yes, but their approach to defining the national concern in terms of “minimum national standards” contradicts the Supreme Court’s earlier POGG case law. This approach to defining national concerns would destabilize the division of powers under the Constitution. A “minimum national standards” approach would undermine the exclusive federal jurisdiction for other national concerns such as aeronautics and nuclear power.
In policy-oriented reasoning, both the Ontario and Saskatchewan courts have contorted constitutional law in an attempt to allow both provincial and federal governments to price carbon. Of course, there is a political backdrop: Some future government could rescind carbon pricing and many want the provinces to be able to step in. But political speculation doesn’t belong in the courts. And judges should not muddle our constitutional architecture in favour of their policy preferences.
The “minimum national standards” approach contradicts what the Supreme Court majority said in R. v. Crown Zellerbach. A national concern means exclusive federal jurisdiction for a single, distinct and indivisible subject matter. The quintessential example is pollution with extraterritorial effects for which provinces face a collective action problem in regulating the “negative externalities."
But, in Crown Zellerbach, the Supreme Court also rejected the argument that a national concern “concerns only the risk of non‑co‑operation” and can allow overlapping federal-provincial jurisdiction. A single and distinct subject matter such as greenhouse gases cannot be carved up to fit the legal test.
If the federal government wants carbon pricing, it should get it all. But Ottawa should be prohibited from tweaking standards for favoured industries or products. Regulating GHGs cannot be the Trojan horse to usurp provincial jurisdiction for industrial regulation and natural resources.
The previous rulings have exposed the constitutional mess Ottawa’s overconfidence has created. To mop up, the Supreme Court should find the Greenhouse Gas Pollution Pricing Act unconstitutional and send the federal government back to the drawing board. Options exist to preserve industry competitiveness by working with provinces or using “border carbon adjustments” under the federal jurisdiction for international trade. Co-operative federalism cannot mean Ottawa gets all the cards.
All of this points to a result that will please no camp. However, an outcome where neither Ottawa nor the provinces get their way could be the best thing for the Constitution – and the integrity of our federation. Splitting the baby will please no one, and that’s probably a good thing.
Keep your Opinions sharp and informed. Get the Opinion newsletter. Sign up today.