Lawyers expect more jurisdictional disputes as Ottawa pursues emissions reduction

Courts recently assessed constitutionality of federal carbon pricing and Impact Assessment Act
Lawyers expect more jurisdictional disputes as Ottawa pursues emissions reduction

With the recently enacted Canadian Net-Zero Emissions Accountability Act, the federal government has committed to achieving net-zero greenhouse gas emissions by 2050 and bringing emissions 40–45 percent below 2005 levels by 2030. 

Last year, the Supreme Court of Canada ruled on the constitutionality of the Greenhouse Gas Pollution Pricing Act after three provinces mounted a challenge. The top court will soon also deal with Alberta’s challenge to the federal Impact Assessment Act, which the Alberta Court of Appeal found unconstitutional this spring. 

Lawyers advising clients in the energy sector expect these types of jurisdictional disputes to become more common as Ottawa continues to lay the path to net zero. 

“With respect to the various federal government policies to reduce emissions … that’s going to continue to be a point of contention with the provinces, as we’ve seen,” says Terri-Lee Oleniuk, a partner in Blake Cassels & Graydon LLP’s Calgary office.  

“I don’t think we’re done with that, with the constitutional fight over emissions reduction,” she says.  

The dispute is rooted in the question of who gets to decide how we develop our economies in Canada, says Sander Duncanson, a Calgary-based partner at Osler Hoskin & Harcourt LLP who specializes in environmental, regulatory, and Indigenous law issues for natural resource developers. Historically, it has been left to the provinces to decide how to put people to work and how to stimulate their provincial economy, he says. 

“The current federal administration has gone much further than any government has before – as far as I know – in dictating to the provinces how they must modernize their economies,” he says. This shift also includes phasing out coal-fired power generation and requiring that by 2035, all electricity generation in Canada must come from net-zero sources, Duncanson adds. 

Dennis Langen leads Stikeman Elliott’s energy regulatory team in its Calgary office. He says that before the Alberta Court of Appeal’s ruling on the Impact Assessment Act, the overlap for environmental jurisdiction under the Constitution was “relatively stable and well known.” However, he acknowledges that many would debate that point. The Impact Assessment Act ruling has “created some uncertainty,” he says. 

While it may produce “a little bit of nuance about where the line is between provincial and federal jurisdiction,” Langen does not expect the Impact Assessment Act litigation will ultimately produce a significant shift. 

“It’s going to go to the Supreme Court, in all likelihood. In no way do I think it’s ultimately going to materially change things for industry or the governments involved,” he says.  

“I think that we certainly have more than a few years ahead of us of debate between the provinces and Feds in the courts on exactly where that line lies,” says Langen. This is primarily because the issue holds a much more significant material impact for industries in the western provinces. “I think that debate is going to continue.” 

But that debate creates uncertainty, he adds, because knowing what emissions rules apply and the cost of those emissions and taxes are “a critical component to industry’s decision to invest in infrastructure.”  

In Reference re Impact Assessment Act, 2022 ABCA 165, the lieutenant governor in council asked for the Alberta Court of Appeal’s opinion on whether the federal Impact Assessment Act is unconstitutional and whether it provides powers beyond Parliament’s legislative authority.  

According to four of the five judges on the panel, while climate change poses an “existential threat” to Canada, so does the Impact Assessment Act. The majority also found that the legislative scheme also presents a “clear and present danger” to the Constitution’s division of powers, “and thus, to Canada itself,” which is “pressing and consequential.” 

Parliament enacted the Impact Assessment Act in 2019. Before project proponents and public authorities can execute a designated project – its accompanying regulations lists the “designated projects” under its purview – they must complete an impact assessment. This assessment examines the project’s environmental, health, social, economic, and sustainability impacts, as well as how it will affect Canada’s climate change commitments and the “intersection of sex, gender and other identity factors,” according to “Hold Your (Trojan) Horses: Alberta Court Finds Federal Impact Assessment Act Unconstitutional”, written by Bernie Roth, Laura Estep, Dan Collins, and Laura McPhee of Dentons Canada LLP.  

The majority agreed with Alberta that Ottawa had exceeded its constitutional authority. The court found that the federal government nudged its way into the provincial domain in a manner that would disturb the Constitution Act, 1967’s prescribed balance of legislative power.  

As a reference, the court’s ruling is not binding. The federal government has asked the Supreme Court of Canada to take up the case. 

The SCC ruled on a similar dispute over federal-provincial jurisdiction in Reference re Greenhouse Gas Pollution Pricing Act just over a year before. As with Re Impact Assessment Act, the carbon tax ruling came to the SCC via split decisions at the courts of appeal. Ultimately, in a 6–3 decision, the majority found the Greenhouse Gas Pollution Pricing Act constitutional.  

Parliament enacted the legislation in 2018 to incentivize reducing greenhouse gas emissions by setting a federal backstop for carbon pricing. The attorneys general of Saskatchewan, Alberta, and Ontario mounted constitutional challenges.  

The SCC’s majority found that the national concern branch of peace, order, and good government gave Parliament jurisdiction to establish minimum national standards for carbon pricing. 

“The Supreme Court said the way that that legislation was structured was constitutional because the federal government was creating, essentially, a federal minimum, but they were not going further than they had to, to establish that minimum,” says Duncanson. “They still gave the provinces significant flexibility in controlling their own economy, within their province, within that framework.” 

“The Impact Assessment Act, arguably, goes further because it does give the federal government the ability to veto any development in the country that they don’t like, that doesn’t fit within their vision.” 

That was the view of the Alberta Court of Appeal’s majority, he says, that the Act is unconstitutional because it effectively takes away the province’s authority to decide how to develop its natural resources and its economy. 

“There really are two schools of thought on this,” says Duncanson. While he says there are strong arguments on both sides, Duncanson adds that the issue comes down to how the feds use the Act, whether they use it to “effectively control how provinces are developing.”  

“It does fit within this broader discussion of who gets to make these decisions about how we move forward, how we grow our economies – hopefully, in a way that also complies with Canada’s climate change obligations.” 

Matti Lemmens, a commercial litigator and leader of the environmental group in Borden Ladner Gervais LLP’s Calgary office, notes that Alberta’s concerns with the Impact Assessment Act included how its application could affect solar, wind, and other renewable projects.  

The majority reasons in Re Impact Assessment Act state: “While some may believe the IAA’s primary target is fossil fuel projects, no province should assume that intra-provincial highways or light rail transit systems or flood control or wind farms or solar farms or any of the innumerable intra-provincial activities a province may decide are needed for its citizens would be exempt from the IAA. They would not be.”  

Kimberly Howard, a partner in McCarthy Tétrault’s energy and infrastructure group in Calgary, says the Impact Assessment Act and Greenhouse Gas Pollution Pricing Act litigation does not signify a trend of increasing jurisdictional tension. Instead, she says it shows a necessary process of working out how to regulate new and pressing areas. 

“We are needing to regulate in areas that, potentially, weren’t thought of before,” she says. “This back and forth between the provinces and the Supreme Court, and these federal debates, I think, are an important part of how we legislate and govern.” 

These cases represent “an important dialogue that needs to happen” as Canada and the provinces evaluate how to regulate complex and overlapping areas, says Howard. “I don’t view these as huge political footballs. I think they should just be the jurisdictional and constitutional debate that needs to happen as part of our legislative and judicial systems.”