Carbon, Taxed: The Saskatchewan Court Of Appeal Ruling On The Federal Carbon Tax – What Happened And What's Next?

On May 3, 2019, the Saskatchewan Court of Appeal (the "Court") issued its highly anticipated decision on the constitutionality of the controversial federal carbon tax scheme in Reference re Greenhouse Gas Pollution Pricing Act (the "Reference").1 In this 155-page decision, Saskatchewan's highest court considered complex legal issues going to the root of Canadian federalism and ruled by a 3:2 majority that the federal carbon tax is constitutional. As a milestone ruling of a provincial government's challenge of the carbon tax, this decision provides the first insight for the lengthy litigation to come as the provinces of Saskatchewan, Ontario, Manitoba and, likely soon, Alberta, continue their challenges to the federal carbon tax. In this article, we consider the Saskatchewan court ruling and its implications.

Background

The federal carbon tax is a pillar of the Liberal government's climate plan. In October 2016, the federal government unveiled its proposed Pan-Canadian Approach to Pricing Carbon Pollution, which includes as its central component an economy-wide carbon pricing policy. The proposal consisted of a federal benchmark that would require all Canadian jurisdictions to implement carbon pricing by 2018 through a price-based or cap-and-trade system. The benchmark also provided a floor pricing of $10 per tonne of greenhouse gas ("GHG") emissions, increasing by $10 each year to reach $50 per tonne in 2022.

In June 2018, the federal government introduced the Greenhouse Gas Pollution Pricing Act (the "Act")2, which forms the legislative foundation for the federal carbon tax. As of April 1, 2019, the federal carbon tax of $20 per tonne of GHG emissions applies to every Canadian jurisdiction that has not adopted its own provincial or territorial carbon pricing scheme in satisfaction of the criteria established by the federal government, being Ontario, New Brunswick, Saskatchewan and Manitoba. All other Canadian jurisdictions have implemented their own carbon pricing scheme.

To date, three provincial governments have formally challenged the constitutionality of the Act. Saskatchewan and Ontario have both commenced action in their respective Courts of Appeal, while Manitoba has taken its challenge to the Federal Court of Canada. Alberta's newly elected UCP government has also vowed to repeal Alberta's provincial carbon tax and challenge the federal scheme.

The Saskatchewan Court of Appeal's decision followed two days of hearing in February 2019. In addition to the participation by the Attorneys General for Canada and for Saskatchewan, a lengthy list of parties obtained intervenor status and participated in the hearing, including: the Attorney General of Ontario; the Attorney General of New Brunswick; the Attorney General of British Columbia; Saskatchewan Power Corporation and SaskEnergy Incorporated; Canadian Taxpayers Federation; United Conservative Association; Agricultural Producers Association of Saskatchewan Inc.; International Emissions Trading Association; Canadian Public Health Association; Athabasca Chipewyan First Nation; Canadian Environmental Law Association and Environmental Defence Canada, Inc.; Assembly of First Nations; David Suzuki Foundation; Ecofiscal Commission of Canada; Intergenerational Climate Coalition; Climate Justice Saskatoon; National Farmers Union; Saskatchewan Coalition for Sustainable Development; Saskatchewan Council for International Cooperation; Saskatchewan Electric Vehicle Club; the Council of Canadians: Prairie and Northwest Territories Region; the Council of Canadians: Regina Chapter; the Council of Canadians: Saskatoon Chapter; the New Brunswick Anti-Shale Gas Alliance; and Youth of the Earth.

Legislative Framework

The preamble of the Act expressly recognizes the impacts of climate change and the responsibility of the present generation to minimize these impacts, as well as Canada's participation in the United Nations Framework Convention on Climate Change and the Paris Agreement. The preamble also describes the absence of carbon pricing systems in some provinces as contributing to "significant deleterious effects" on the environment, human health and economic prosperity, necessitating a federal scheme to ensure that GHG emissions pricing - based on a "polluter pays" principle - applies broadly in Canada.

Structurally, the Act is organized into four parts. Part 1 provides for a fuel charge that is applicable to 22 fuels listed in Schedule 2 of the Act. The fuel charge is paid by registered distributors and applies to fuels that are produced, delivered or used, or brought to or imported into a listed province. The fuel charge is not imposed on fuels delivered to specified persons such as farms and fishers, or on fuels delivered to facilities subject to Part 2 of the Act. Part 1 also imposes a charge on burning combustible waste for the purposes of producing heat or energy.

Part 2 imposes output-based performance standards for "covered facilities" - industrial facilities that meet the criteria set out in the regulations or are so designated by the Minister. The covered facilities are required to pay compensation for the portion of its GHG emissions in excess of an annual limit identified in the regulations. Such compensation can be provided by way of: (a) surplus credits previously earned, (b) an excess emissions charge payment, or (c) a combination of both. If a covered facility emits less than the annual limit, it will receive surplus credits...