Canada Supreme Court Canada Carbon Price Ruling March 25,2021

Canada’s Supreme Court rules carbon price constitutional. Here’s what you need to know

In a 6-3 decision, the country’s highest court has ruled the federal price on carbon, which affects both consumers and large industrial emitters, does not violate the rights of individual provinces and is a critical response to the existential threat of climate change

In a 6-3 decision, the Supreme Court of Canada has ruled that the federal government’s national price on carbon pollution is entirely constitutional, putting an end to a two-year battle with conservative premiers over the policy. 

In the 405-page decision, Chief Justice Richard Wagner, speaking on behalf of the majority, found the Trudeau government’s 2018 Greenhouse Gas Pollution Pricing Act — which requires provinces to meet minimum national standards to reduce greenhouse gas emissions by applying a price on the use of fossil fuels by large industries or consumers fueling their cars — “is critical to our response to an existential threat to human life in Canada and around the world.”

The decision found that the federal carbon pricing plan would ensure greenhouse gas emissions are addressed effectively across the country. “The provinces, acting alone or together, are constitutionally incapable of establishing minimum national standards of GHG price stringency to reduce GHG emissions,” Wagner wrote. “While the provinces could choose to cooperatively establish a uniform carbon pricing scheme doing so would not assure a sustained approach …”

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The majority ruling spoke about climate change in the strongest possible terms, noting that all parties involved in the case, including the provinces who challenged the law, agreed that climate change was “an existential challenge.” Wagner went one step further to describe climate change as “a threat of the highest order to the country, and indeed the world” that will cause “significant environmental, economic and human harm nationally and internationally, with especially high impacts in the Canadian Arctic, in coastal regions and on Indigenous Peoples.” The ruling added that “the undisputed existence of a threat to the future of humanity cannot be ignored.” 

This matter came before the Supreme Court after Alberta, Ontario and Saskatchewan independently asked their provincial appeal courts to rule on the constitutionality of the climate law. Over two days of hearings last September, these three provinces argued the carbon pricing legislation gave Ottawa too much decision-making power over almost everything, as virtually all human activity has an impact on climate. To make the point, the lawyer representing Saskatchewan called it “Big Brother legislation.” The provinces collectively said they are best able to manage their own emissions with policies tailored to their economies and consumer habits. 

The Supreme Court was tasked with determining whether the federal government has the authority to implement a national carbon pricing program — or if doing so unlawfully overruled the independent powers provinces have to make decisions about the climate. At issue is section 91 of Canada’s 1867 Constitution, which gives the federal government the power to make laws on issues of national concern that are not outlined in the constitution. (This power is referred to as the “Peace, Order, and Good Government, or POGG, power.) Climate change is not addressed by the 154-year-old document.  

While this is just a reference case where the decision is purely advisory, it does validate the federal government’s price on pollution. Conservative premiers expressed disappointment in the decision, but there were also early signs of cooperation. Saskatchewan Premier Scott Moe announced a new climate plan and said he would work with Ottawa to implement a provincial carbon pricing scheme. 

What the Supreme Court ruling actually says about climate change and carbon pricing

The majority decision finds that the federal carbon pricing legislation doesn’t limit provincial authority to manage their emissions, as has been argued by six provinces (New Brunswick, Manitoba and Quebec supported this argument as intervenors), but considers “the adequacy of existing provincial regulations” in reducing greenhouse gas emissions.

The legislation functions “only to address the risk of increased GHG emissions that would otherwise ‘slip through the cracks’ as a result of one province’s failure to implement a sufficiently stringent pricing mechanism,” Chief Justice Wagner writes. 

He notes that between 2005 and 2016, Canada’s total emissions fell “by only 3.8 per cent;” while Ontario, Quebec and British Columbia made significant decreases, these were “largely offset by increases of 14 per cent in Alberta and 10.7 per cent in Saskatchewan.” Because of this, Canada “failed to honour its commitment” to international treaties like the Kyoto Protocol. 

Wagner also highlighted that provinces like Saskatchewan, Ontario and Alberta, which together account for 71 per cent of Canada’s total emissions in 2016, withdrew from the 2016 Pan Canadian Framework on Clean Growth and Climate Change, a commitment by all provinces to adhere to a national carbon price to reduce GHG emissions. Their decision to opt out of the cooperative agreement “illustrates the stark limitations of a non-binding cooperative approach” and would have “grave consequences,” he wrote. For one, it doesn’t guarantee a decrease in national emissions, “as businesses could simply relocate to non-cooperating provinces.” 

As a result, Wagner, speaking for the majority in favour, says the legislation is constitutional as it serves to ensure every province is acting effectively to reduce emissions. “If each province designed its own pricing system and all the provincial systems met the federal pricing standards, the [Greenhouse Gas Pollution Pricing Act] would achieve its purpose without operating to directly price GHG emissions in the country,” he wrote. 

The majority ruling stressed that the price on pollution was not a “carbon tax,” the term that has been made popular by dissenting premiers and policymakers. It is instead a constitutionally valid regulatory charge.

Which Supreme Court justices didn’t agree with the carbon price ruling and why?

Wagner’s remarks make sure to define the government’s POGG power in this case very carefully, restricting his comments to only the carbon pricing plan and how it can be used if a province fails to produce an effective one of its own. Not everyone agreed with his measured decision: Justice Malcolm Rowe and Justice Russell Brown wrote lengthy dissents, arguing the majority decision would give Ottawa precedent to set minimum national standards in other areas of provincial jurisdiction, “including intra-provincial trade and commerce, health, and the management of natural resources.” 

“This is a model of federalism that rejects our Constitution and rewrites the rules of Confederation,” Brown wrote. “It is bound to lead to serious tensions in the federation.”

Justice Suzanne Cote dissented in part. She agreed that climate change is an issue of national concern but questioned the “unlimited power” the federal government was using to impose the national price on pollution across provinces. 

How Canadian leaders and stakeholders are reacting to the carbon price ruling

The decision comes three months after the federal government extended its carbon pricing plans up to 2030, when the price will increase to $170 per tonne. On April 1, the price for consumers is set to increase to $40 per tonne. Rebates to taxpayers will increase in kind, and will be paid quarterly by direct deposit beginning in 2022. Industry would see a similar increase through a separate output-based pricing system. 

Lawyers and climate experts alike hope that the Supreme Court’s decision will end the longstanding political football and stay the power of carbon pricing across the country, however, much remains to be seen. 

Lisa Demarco, a senior partner and CEO at Resilient LLP who intervened in this case on behalf of the International Emissions Trading Association, told The Narwhal the decision “ends any looming business uncertainty around carbon pricing in Canada and thereby requires corporations to diligently respond to the threat of climate change.” Demarco said the majority ruling was “a fairly ringing endorsement that carbon pricing is a valid mechanism to address climate change” that will be relied upon across the world.  

Ecojustice’s Josh Ginsberg, who intervened on behalf of the David Suzuki Foundation, told The Narwhal the decision delivered “the strongest language we have seen on climate emergency from any court in Canada or any court around the world” and solidified carbon pricing as “an integral part of the solution, not just a policy tool.” 

“I really hope provinces don’t view this as a loss or a defeat but as an opportunity to take a breath and fight this existential challenge together as one country,” Ginsberg said. “This decision could indicate to the world that Canada has a serious plan for climate change.” 

Others are less certain that this changes anything. Aaron Wudrik, federal director of the Canadian Taxpayers Federation, which intervened against the carbon price, told The Narwhal while they accept the mechanism is constitutional, “we will continue to oppose it because it’s bad policy.” Wudrik said “just because it’s legal doesn’t mean it’s the right thing to do.” 

Conservative provincial leaders across the country conveyed a similar sentiment. While all acknowledged the validity of the decision, they remained undeterred in their opposition to the carbon price and highlighted the three dissenting opinions. The premiers continued to use the term “carbon tax” despite the Supreme Court’s advice against it.

But the winds may have shifted a little. Saskatchewan Premier Scott Moe told reporters he was still resolved in his conviction “that the federal carbon tax is bad environmental policy, bad economic policy, and simply wrong.” But he also released details of a new made-in-Saskatchewan climate plan that includes a carbon pricing regime for fuel similar to the one in New Brunswick, which has been approved by Ottawa. 

Moe also said he would be working with the federal government to comply with the carbon price act. He asked Ottawa to deliver the province’s share of any revenue coming from low-carbon economy initiatives “in the spirit of collaboration,” which he said would be reinvested in green projects. “This was certainly the right fight to have,” Moe said, “and it will certainly precipitate some further discussion. 

“I think this is a good thing that we have a system in place to question policies by the federal government,” Moe added. “I’m not going to spend time arguing with a referee when the game is done.”

Moe invoked the 2016 Vancouver Declaration in his comments — the last time all provinces agreed to a climate strategy — and asked the federal government to “have a real hard look at the dissenting opinions” and take steps to “reassess how they engage with the provinces and how they enacted a policy in a really divisive way and not do that in the future.”

Alberta Premier Jason Kenney told reporters he was “obviously disappointed” that the Alberta Court of Appeal’s decision did not bear more weight in the decision. “To me, it’s inconceivable that a court would allow the federal government to pull a rabbit out of the constitutional hat to say that the clear meaning of the Constitution over provincial jurisdiction on resources does not exist.” When asked if he would consider a provincial carbon tax in the wake of the ruling, Kenney didn’t dismiss the idea outright, saying he would consider whatever approach “imposes the least damage on jobs and Alberta’s economy.” 

Manitoba Premier Brian Pallister told reporters he was encouraged to see the federal government didn’t have unlimited power to impose “Ottawa’s will” on the province.  Pallister vowed to push ahead with the province’s separate legal challenge currently making its way through the courts.

Ontario Environment Minister Jeff Yurek responded by lauding elements of the province’s environment plan, including increasing renewable content in gasoline and a low-carbon hydrogen budget. It does not include a pricing scheme.

Federal Environment Minister Jonathan Wilkinson issued an immediate statement celebrating the decision as “a win for the millions of Canadians who believe we must build a prosperous economy that fights climate change.” 

“The question is whether this decision will put an end to the efforts of Conservative politicians fighting climate action in court, and whether they will join Canadians in fighting climate change,” he told reporters. 

Federal Conservative leader Erin O’Toole repeated his promise to repeal the carbon tax on consumers, but has indicated he’ll create a pricing system for large industrial emitters. He may face an uphill battle though, as Conservative Party members voted down a resolution recognizing “climate change is real” at the party’s annual convention last week.  

“We need to have an opposition party in government that is serious about climate change,” Wilkinson told reporters.

Andrew Brander, a former federal and provincial Conservative staffer and consultant with Crestview Strategy, told The Narwhal the Supreme Court ruling forces the dissenting premiers’ hands. They will now “want to control what [the carbon price] looks like in their own province, come up with their own solutions for their respective industries and find a way to control their portion of the revenue.” 

“This issue has been so politically charged for the last decade that it’s impossible to expect this final court ruling to settle it immediately,” Brander said. “I don’t think the premiers are going to change their tone about how unfair this is … This decision will become a poster child they can put up to make their case about their independence to make policy moving forward.” 

Meanwhile, in the U.S., the American Petroleum Institute endorsed carbon pricing for the first time, marking a major shift in the oil and gas sector. 

Merran Smith, executive director at Clean Energy Canada, said “any serious climate plan needs a backbone that does the heavy lifting, and carbon pricing is widely considered the most cost-effective way to reduce emissions. It’s the intersection of climate ambition and smart economic policy.”

Canada’s carbon price: how did we get here? 

The carbon price is the centrepiece of the Liberal government’s 2018 Greenhouse Gas Pollution Pricing Act, which aims to exceed Canada’s 2030 emission-reduction commitments under the Paris Agreement. The levy is a Nobel-Prize winning idea that is widely acknowledged as the most effective and economical way to reduce emissions. 

The government’s legislation asked provinces to establish pricing mechanisms that met the minimum conditions set out by the federal government. If they didn’t, Ottawa would impose a pricing scheme of its own known as a “backstop,” the revenues of which would be returning through tax rebates to residents of those provinces. 

The carbon price had broad national support when it was first discussed as a key climate-change tool two years before the legislation was formally introduced, with 11 of 13 provinces agreeing to adopt some version of it at the Pan Canadian Framework. However, this near-consensus unravelled in 2018, with the carbon price becoming a point of contention between Liberals and Conservatives across the country. 

In July of 2018, Ontario’s newly-elected Progressive Conservative government (illegally) withdrew from its cap and trade system with Quebec and California; (that carbon pricing scheme allowed industries in these jurisdictions to buy and sell emissions permits depending on the amount of pollution they produced. In October, Manitoba refused to meet the federal conditions for carbon pricing. In November, Ottawa rejected New Brunswick’s carbon-pricing plan. In April 2019, the federal government applied the carbon price to the provinces whose carbon pricing plans didn’t meet its minimum standards: Ontario, Alberta, Manitoba and Saskatchewan, which has Canada’s highest per-capita carbon emissions and has opposed any price on carbon emissions for years. 

The federal government responded by implementing a carbon price in Saskatchewan, Manitoba, Ontario and New Brunswick in April 2019. A month later, newly-elected Alberta Premier Jason Kenney pledged to get rid of the carbon pricing program, arguing it would devastate the province’s oil and gas economy. 

This matter came before the Supreme Court after Alberta, Ontario and Saskatchewan independently asked their provincial appeal courts to rule on the constitutionality of the climate law. 

Ontario’s top court upheld the federal law in a 4-1 decision. Saskatchewan’s top court also ruled in favour of the federal law, 3-2. In judicial firsts, both courts recognized that climate change was an emergency that presented “a genuine threat to Canada” and recognized the federal government’s jurisdiction to tackle it through carbon pricing.

Only Alberta’s top court ruled against the federal carbon pricing scheme, calling it “a constitutional Trojan horse” that would give Ottawa the power to regulate almost everything, because almost everything produces greenhouse gas emissions. 

Appeals against the pricing plan by Quebec (which wants to maintain and expand its own cap and trade system), Manitoba (which has its own flat carbon pricing regime), and New Brunswick (which wants to create an alternative framework for large emitters) also pushed the issue to the Supreme Court. Only British Columbia, which has had a carbon levy in place since 2008, intervened in support of the federal government. 

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