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An aerial view of Irving Oil's refinery near Saint John, on Aug. 27, 2013.

Christinne Muschi/Globe and Mail

The federal government has approved proposed industrial carbon tax programs in Ontario and New Brunswick, even though Ottawa says they are “clearly weaker” than the federal system they will replace.

The move was made on the eve of the Supreme Court’s hearing on the constitutionality of the federal carbon pricing programs. A senior federal government source said Monday’s deals were struck to ensure Ottawa’s resistance to the provincial programs wouldn’t impede its argument in court that it has co-operated with the provinces. The Globe and Mail granted the person confidentiality because the person is not authorized to speak publicly.

The case before the Supreme Court applies to Ottawa’s consumer carbon tax and the industrial carbon tax on heavy emitters, which are applied as a backstop in provinces that don’t have their own equivalent programs.

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Details on when and how businesses will transition to the provincial programs still need to be decided. The provincial and federal programs follow the same carbon pricing increases and apply to the same sources of emissions. But the provincial programs apply to a much smaller percentage of emissions and so will cost industry less and have a smaller impact on emissions, according to the Pembina Institute, a green-energy think tank.

Ottawa believed it had to accept the provincial proposals because, while they don’t meet the intent of the federal plans, they meet the letter of the law. The issue, according to Environment Minister Jonathan Wilkinson, is that the federal government’s benchmark didn’t dictate how much the provincial programs had to reduce emissions. So a provincial program doesn’t have to meet the same outcomes as the federal program, but has to meet criteria on price and the sources of emissions that are subject to it.

“That’s obviously a problem and it’s something that we need to talk about and will be addressed,” Mr. Wilkinson said.

Both Ontario and New Brunswick released statements praising the decision, but in letters to his provincial counterparts, Mr. Wilkinson suggested the reprieve could be short-lived. He asked the provinces to consider strengthening their programs to bring them in line with other provinces and said the federal government plans to strengthen the rules for the updated climate plan that will take effect after 2022.

Consultations, he said, will start in the coming months.

Both provinces disputed criticism of their plans, which were submitted to Ottawa last year.

“Our system is consistent with other Canadian output-based pricing systems,” New Brunswick spokesperson Vicky Lutes said. In Toronto, Government House Leader Paul Calandra said “if there’s any criticism it is that it’s taken [Ottawa] a year to get to this decision.”

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“Ontario has always been a leader when it comes to environmental protection,” he said.

In December, Ontario’s Auditor-General said the province’s climate plan falls short of its own targets. The provincial watchdog also said Ontario first estimated its industrial carbon tax would reduce emissions by 2.7 megatonnes in 2030; it later revised that down to just one megatonne.

Ottawa’s decision to accept the provincial programs was criticized by environmental groups. Isabelle Turcotte, director of federal policy at the Pembina Institute, called the move disheartening but said she is encouraged that Mr. Wilkinson is already trying to start talks to eliminate the “shortcoming” in the federal rules.

Whether that discussion is still relevant, will be decided by the Supreme Court of Canada in hearings starting on Tuesday.

The case hinges on whether Ottawa has the right to impose minimum standards for pricing carbon emissions on provinces that decline to adopt such standards on their own. It is not about whether climate change is real – all parties agree it is – or about whether a tax on greenhouse gas emissions is an effective way to deal with it.

It could have far-reaching impact on how Canada is governed because at the heart of the case is the principle of federalism, the original power-sharing bargain between the federal and provincial governments at Confederation in 1867. The country’s founding Constitution does not spell out who is responsible for the environment. It does, however, make Ottawa responsible for “Peace, Order and Good Government” when an issue is of national concern.

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“The current carbon pricing regime is clearly on the line,” Carissima Mathen, a law professor at the University of Ottawa, said in an interview.

Ottawa argues that the country’s existence itself could also be on the line, if it can’t address climate change in a way that reaches across provincial borders.

“To deny Parliament jurisdiction to address this matter would leave a gaping hole in the Constitution: we would be a country incapable of enforcing the measures necessary to address an existential threat,” the federal government said in a written filing at the Supreme Court.

British Columbia warns in a legal filing at the court that the threat has already begun to take its toll on the province. It has devastated a major forestry industry, already led to an average temperature rise of 1.4 degrees since 1900 – the limit recommended by scientists, and the worst forest-fire seasons on record in 2017 and 2018. Wildfires like those in California can be expected in the coming decades, the filing said.

“Are we the only major emitting country in the world whose constitution renders it impossible to make national commitments to reduce greenhouse gases?” the province asked in its legal filing.

But Alberta, Saskatchewan, Ontario, New Brunswick, Manitoba and Quebec argue that Ottawa is stepping into their jurisdiction. Strong support for that notion came from Justice Thomas Wakeling of the Alberta Court of Appeal – the only court, of the three appeal courts that have considered the law, to say that the federal legislation is unconstitutional.

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He called the law an “invasion” of provincial jurisdiction, justifiable only if there is “an environmental emergency that threatened life as we know it on planet earth.” (In fact, the federal government argues that global climate change “is an urgent threat to humanity.”)

If the law were declared valid, “federalism, as we have known it for over 150 years, is over,” Justice Wakeling wrote in a ruling last year.

Also at stake is the question of the environment in the division of powers, Prof. Mathen said. “The decision around that will have very important implications for the country as a whole, for the powers of Parliament, and the relationship, the balance, between the federal and provincial governments,” she said in an interview.

In 2018, the federal government announced that all provinces would need to implement a carbon-pricing system by April 1, 2019 and those that didn't would fall under a federal carbon tax. But what is carbon pricing anyway?

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