The ruling leaves provinces with little wiggle room in opposing such measures going forward
By Julius Melnitzer | November 3, 2021
A recent Federal Court ruling validating the federal government’s fuel charge backstop on Manitoba because the province’s own carbon pricing regime was not “stringent” enough leaves provinces with little wiggle room in opposing such measures going forward.
“The decision comes down hard in favour of a wide federal discretion in deciding whether provincially proposed carbon pricing or cap and trade plans meet or exceed the federal standard,” says Catherine Lyons, partner at Goodmans LLP in Toronto.
In March, the Supreme Court of Canada ruled that Ottawa’s Greenhouse Gas Pollution Pricing Act (GGPPA) was constitutional. While the legislation allows the feds to impose a “backstop” carbon price on provincial schemes that are not as “stringent” as the federal one, the SCC allowed that federal decisions assessing stringency were open to judicial review to determine whether they were consistent with the purpose of the legislation.
“Because the Act does not define ‘stringency’, it leaves open the question of whether an assessment of stringency requires consideration only of the unit price or of the overall impact of a provincial scheme in terms of reducing GHGs as well,” said Dennis Mahony in Torys LLP’s Toronto office.
Manitoba’s plan was to have a $25 per tonne carbon tax from 2018 to 2022. The price, however, did not match increases in the federal benchmark, set to rise to $30 per tonne in 2020, $40 per tonne in 2021 and $50 per tonne in 2022.
Still, Manitoba argued that its plan, which included wetland improvements, subsidies for fuel efficiency in the trucking industry, and high use of renewable sources due to its investment of “billions” in developing a hydroelectricity grid, could meet federal targets without escalating the price.
Justice Richard Mosley, however, pointed out that the record did not justify that position.
“According to Manitoba’s own evidence,” he wrote, “Manitoba’s plan is 76,000 tonnes of CO2 (equivalent) less effective in 2022 than a price in accordance with the (federal criteria).”
More importantly, however, Mosley ruled that the standard for evaluating Cabinet’s decisions under the GHPPA was one of “reasonableness.” Here, Canada had introduced “compelling evidence that Parliament intended “stringency” to mean “carbon pricing that increases incrementally over time.”
“This interpretation of stringency was reasonable in light of the text, context and purpose of the Act,” Mosley concluded. “It dovetails with the purpose of the Act to establish minimum national standards of GHG reduction to reduce nationwide GHG emissions.”
Tyson Dyck, Mahony’s partner at Torys LLP, agrees with Mosley’s reasoning.
“It’s significant that the feds didn’t take a cap-and-trade approach, which focuses on results, and instead used a pricing regime where what matters is the price signal,” he said. “If provinces could justify their separate systems by an analysis of results, the price signal could easily get muddled.”
Mosley’s ruling, adds John Terry, another Torys partner, is consistent with courts’ disinclination to “get into complexities or become courts of science” — something which would have been inevitable had Mosley adopted Manitoba’s argument that “stringency” required an analysis of the results produced by individual provinces’ particular regimes.
Lyons is of similar mind.
“What the court accepted was that these were extraordinarily complex issues that the court should not be picking through,” she said.
The upshot is that the court’s affirmation of “pricing that increases incrementally over time” as the standard of “stringency,” if upheld on appeal, substantially limits provinces’ ability to challenge federal determinations.
“The SCC’s ruling upholding the constitutionality of the legislation and this decision means that the feds have a lot of wind in their sails as we move forward on these issues,” Terry said.
And issues there will be. According to the federal government’s website, only the carbon pollution pricing systems in Quebec, Nova Scotia, Newfoundland and Labrador, the Northwest Territories, British Columbia and New Brunswick currently meet federal benchmark stringency requirements. The federal backstop applies in part to Prince Edward Island, Saskatchewan and Alberta, and in full to Ontario, Manitoba, Nunavut and the Yukon.
Still, despite the limitation the Manitoba decision puts on provincial challenges to stringency decisions, the results of future litigation involving stringency are hardly a given.
“Despite Mosley’s deference to Cabinet decisions under the GHPPA, it’s important to remember that the SCC justified the legislation’s constitutionality under the peace, order and good government [POGG] rubric, which is a very wide power that the courts use rarely,” Terry says. “But having done so, the courts have historically demonstrated that they won’t allow the feds to run amok through the constitutional balance by relying on POGG — especially where, as here, the legislation does impinge on traditional areas of provincial jurisdiction.”
Unless Manitoba appeals successfully or agrees on a new scheme with the feds, Ottawa’s $40 per tonne carbon tax in 2021 and $50 per tonne in 2022 will soon roll out in the province.
Julius Melnitzer is a Toronto-based legal affairs writer, ghostwriter, writing coach and media trainer. Readers can reach him at [email protected] or https://legalwriter.net/contact.