On October 13, 2023, the Supreme Court of Canada (“SCC”) released Reference re Impact Assessment Act, 2023 SCC 23 (“SCC Reference”), in which the majority found a large portion of the federal Impact Assessment Act, SC 2019, c 28 (“IAA”) exceeds federal jurisdiction.
The majority, five of the presiding seven Justices, found that the portion of the IAA that dealt with “designated projects” was ultra vires Parliament, both because it is not directed at regulating “effects within federal jurisdiction” and because the defined term “effects within federal jurisdiction” is out of step with Parliament’s legislative jurisdiction.
The SCC Reference
The SCC was tasked with considering an appeal of a reference to the Alberta Court of Appeal (“ABCA”) Involving the evaluation of the constitutional validity of the IAA and the related Physical Activities Regulations, SOR/2019-285 (“Regulations”), enacted to protect the environment from certain human activities.
The Scheme Under the IAA
The scheme established by the IAA and the Regulations has two components. The first concerns projects carried out or financed by federal authorities on federal lands or outside Canada. The second component operates to consider projects that do not fall within the first component.
Under the IAA, the Governor in Council has enacted the Regulations. The Regulations list physical activities – “designated projects” – that, in the government’s view, are major projects with the greatest potential for adverse effects on areas of federal jurisdiction related to the environment and include any physical activity that is incidental to those physical activities”.
Beyond these designated projects, the Regulations also allow the Minister to “designate a physical activity that is not prescribed by regulations . . . if, in his or her opinion, either the carrying out of that physical activity may cause adverse effects within federal jurisdiction or adverse direct or incidental effects”, or if public concern warrants the designation.
A key feature distinguishing the first and second components of the scheme “is that assessments under [the first component] are conducted by the federal authority with primary regulatory decision making responsibility for the project rather than by the [Impact Assessment Agency of Canada] or a review panel”  who conduct assessments under the second component.
The impact assessment process for “designated projects” has three main phases: the planning phase, the impact assessment phase, and the decision-making phase. During the planning phase, a proponent provides the Impact Assessment Agency with a project description. After consultation, the Agency decides whether the project requires an impact assessment.
In the impact assessment phase, the proponent provides the necessary information to the body conducting the assessment, which then prepares an assessment report. The assessment report sets out the likely adverse direct and incidental project effects.
In the decision-making phase, the decision maker determines whether such effects are in the public interest. If the decision maker concludes they are, the Minister of the Environment issues a Decision Statement that sets out the determination and any conditions that the project must meet.
The majority found that the first component of the IAA scheme is constitutional but that the second component dealing with “designated projects” is beyond Parliament’s constitutional competence. The unconstitutionality of the second component hinges on its focus on the impacts of “designated projects” instead of any effects arising within federal jurisdiction. That is, due to the second component of the scheme having a broad designation mechanism, projects with little or no potential for adverse federal effects may be required to undergo an impact assessment.
The majority found the pith and substance of the “designated projects” component “is to assess and regulate designated projects with a view to mitigating or preventing their potential adverse environmental, health, social and economic impacts…” In the view of the majority, this component of the scheme is not, by contrast, aimed at regulating the “effects within federal jurisdiction” as defined in the IAA.
In describing the impact assessment process under the IAA, the majority highlighted how that process enables a public interest decision that lies at the heart of the scheme. The IAA sets out factors the decision maker must consider in determining whether adverse effects within federal jurisdiction, and the adverse direct or incidental effects noted in the assessment report, are in the public interest.
In this regard, the majority found that the “decision-making process transforms what is prima facie a determination of whether adverse federal effects are in the public interest into a determination of whether the project as a whole is in the public interest,” and is in this way an arrogation of power by Parliament.
The factors set out in in the IAA that must be considered in the public interest determination allow “the decision maker to blend their assessment of adverse federal effects with other adverse effects that are not federal…” The decision maker therefore enjoys untrammeled power to regulate projects whether or not the physical activity is within federal jurisdiction.
In considering the definition of “effects within federal jurisdiction” contained in the IAA, a term central to the scheme’s decision-making functions, the majority concluded it was overbroad. The definition shifts the decision maker’s focus from solely areas of federal jurisdiction to the overall adverse effects of the project in question, including those adverse effects that are non-federal or solely provincial in nature.
In concluding that the definition of “effects within federal jurisdiction” in the IAA is overbroad, the majority highlighted the influence of the definition on key decision-making junctures under the assessment scheme:
First, it is on the basis of potential adverse “effects within federal jurisdiction” that some physical activities are designated as “designated projects” (s. 9(1); see also Regulatory Impact Analysis Statement). Second, the ultimate decision made under the scheme is, at least on its face, concerned with whether the adverse “effects within federal jurisdiction” are in the public interest (ss. 60(1) and 62). Finally, conditions imposed along with a positive public interest determination must be “in relation to the adverse effects within federal jurisdiction” (s. 64(1)).
Finally, because the definition informs certain enumerated effects-based prohibitions under the IAA for project proponents of designated projects, Parliament has exceeded the range of conduct that it can validly regulate.
In sum, the majority found that the “designated projects” scheme intrudes more than incidentally into areas of exclusive provincial legislative jurisdiction, including property and civil rights in the province, matters of a local nature, local works and undertakings, and non-renewable natural resources, forestry resources, and electrical energy.
…to establish an environmental assessment process to (1) assess the effects of physical activities or major projects on federal lands, Indigenous peoples, fisheries, migratory birds, and lands, air, or waters outside Canada or in provinces other than where a project is located, and (2) determine whether to impose restrictions on the project to safeguard against significant adverse federal effects, unless allowing those effects is in the public interest.
In the dissent’s view, the IAA’s purpose is not to regulate all aspects of the designated projects, but to consider all positive and negative effects of the designated project.
As to the decision-making criteria and factors to assess the public interest contained in the IAA, the dissent found them to “…promote political accountability, the rule of law, and meaningful judicial review…” In concluding the designated projects scheme is intra vires Parliament, the dissent found that “the adverse federal effects set out in the IAA anchor federal review and decision making under the IAA legislative scheme and fit within multiple heads of Parliament’s legislative jurisdiction…”
Further, the dissent found that the project designation process under the IAA appropriately reflects the precautionary principle and the need to gather information in the early stage of a project to properly inform federal decision making about whether a designated project may cause adverse federal effects.
The Federal Government’s Response
As reference opinions are not binding, there was no immediate legal effect flowing from the release of the SCC Reference. Notably, while acknowledging that Parliament can enact impact assessment legislation to minimize the risks that some major projects pose to the environment, the majority does not direct Parliament on a way forward.
The guidance specifies that:
- The Impact Assessment Agency of Canada will assess all projects currently under assessment and provide an opinion on whether they impact areas of federal jurisdiction;
- Proponents are invited to continue information sharing to advance their assessments;
- Consultation will continue with Indigenous Peoples through existing assessment processes, as they relate to a clear area of federal jurisdictional responsibility;
- The Minister’s discretionary authorities to designate projects will be paused.
- Consideration of any new designation requests will only resume, as appropriate, once amended legislation is in force;
- The Impact Assessment Agency of Canada remains prepared to provide an opinion on whether a full impact assessment is warranted, and to invite proponents to collaborate on an assessment; and
- The three regional assessments underway, the Ring of Fire in Ontario and offshore wind in Nova Scotia and Newfoundland and Labrador, will continue, as these seek only to understand impacts and do not involve decision-making on specific projects.
According to the federal Government, this guidance is intended to provide certainty to ongoing processes while it works to introduce “targeted and meaningful amendments to the IAA” that align with SCC Reference.
The SCC Reference is the most recent case in a series of cases regarding constitutional jurisdiction over matters relating to the environment, including the carbon pricing reference (Reference re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11) (“Carbon Pricing Reference”), that are revisiting the balance between federal and provincial interests in the division of powers. The SCC Reference is a different outcome than in the Carbon Pricing Reference, and the majority’s finding of unconstitutionality in this most recent reference may result in a slightly more restrained approach by the federal government when legislating to meet environmental policy objectives.
Stikeman Elliott will continue to monitor developments following from the SCC Reference. If you have any questions regarding the SCC Reference or its impact, please contact a member of our team involved in this blog.
Dennis Langen is a partner in the Energy Group. He practices regulatory law and litigation, with a focus on oil and gas and electricity, and has an in-depth knowledge of the energy industry.
Matti Lemmens is a partner in the Litigation and Dispute Resolution Group. Her practice focuses on all aspects of dispute resolution, including domestic and international litigation, arbitration, and mediation.
Amy Barrington is an associate in the Energy Group. Her practice focuses on energy regulatory and Indigenous law. Amy has assisted with matters before the Canada Energy Regulator and the Alberta Utilities Commission.
 The majority of the ABCA had found the IAA and the Regulations to be unconstitutional in their entirety, agreeing with Canada’s argument before the
ABCA that it would not be practical to sever any offending provisions from the IAA or the Regulations from the IAA while allowing others to stand (para 55).
 Para 3.
IAA, ss. 81-91.