Ontario to Challenge Federal Carbon Pricing Statute as Unconstitutional

The Government of Ontario recently filed a reference with the Court of Appeal challenging the federal government’s carbon tax legislation as unconstitutional. On July 25, 2018, the newly-elected Ontario government introduced legislation to cancel the Ontario Cap and Trade Program.

The federal government adopted the Greenhouse Gas Pollution Pricing Act¹ on June 21, 2018. The Act imposes minimum carbon pricing in provinces that have not enacted their own carbon-pricing mechanisms:

• Part 1 of the Act levies charges on fuel delivered, used, brought into or produced in a listed province and combustible waste burned in a listed province.
• Part 2 of the Act establishes a cap-and-trade regime for pricing industrial greenhouse gas emissions and levies a charge on facilities that emit greenhouse gases in a quantity that exceeds their emissions limit.
• Sections 165 and 188 of the Act require the Minister of National Revenue to distribute the revenues raised by the charges levied under the Act to the province in which they were levied or to other prescribed persons or classes of persons.
• Sections 166 and 189 of the Act permit the Governor in Council to determine in which provinces the Act will apply, taking into account, as the primary factor, whether the federal government believes provincial pricing mechanisms for greenhouse gas emissions are sufficiently stringent.

On September 13, 2018, the Attorney General of Ontario filed a statement of particulars, which sets out the reasons why the provincial government submits that the Act is unconstitutional and of no force and effect. Ontario advances two arguments. First, Ontario submits that putting a price on greenhouse gas emissions is not authorized by the national concern branch of the federal peace, order and good government power. Second, Ontario submits that the Act imposes unconstitutional taxes contrary to section 53 of the Constitution Act, 1867.

The Act Exceeds the Federal Government’s Jurisdiction

A “nearly unlimited swath of human activity” can result in greenhouse gas emissions, Ontario argues. Expanding the scope of the national concern branch to allow Parliament to regulate that activity “would represent an unprecedented and unwarranted intrusion into provincial jurisdiction that is irreconcilable with the fundamental distribution of legislative power under the Constitution.”² The statement of particulars also argues that such an “amorphous and ill-defined jurisdiction […] would distort the existing division of powers, unduly expand the scope of federal jurisdiction, and erode the constitutional balance inherent in the Canadian federal state.”

The Act Imposes Unconstitutional Taxes

Even if the Act falls within the scope of federal powers, Ontario argues that the Act does not authorize regulatory charges. In the province’s view, these charges are invalid disguised taxes. Ontario submits that the Act allows the federal government to spend the revenue generated by the Act as it sees fit, “an irrefutable indicator of taxation.”³ The provincial government further submits that this freedom to spend “would severely undermine the ‘no taxation without representation’ principle” that underlies section 53 of the Constitution. Ontario calls the nexus between the regulatory charge and the regulatory scheme under which it is levied “weak” and argues that this precedent would allow governments to levy “any number of purportedly non-tax charges on negative behaviours […] without ever having to seek clear and explicit legislative authorization to impose a tax.”⁴

The Reference

The Attorney General of Ontario will elaborate on these arguments in a further filing by the end of November. The Attorney General of Canada will file its responding arguments by mid-February, 2019. Any province that wishes to intervene must do so by February 2019.⁵

The Court of Appeal of Saskatchewan will hear a similar reference filed by that province’s government to challenge the constitutionality of the federal carbon pricing legislation.

The Government of Manitoba also considered filing its own reference regarding the federal Act. The government commissioned a legal opinion by a University of Manitoba legal scholar. The legal opinion concluded that the federal government has the authority to impose its carbon pricing policy and that there was a “strong likelihood” that the Supreme Court would uphold its constitutionality.

The hearing of Ontario’s reference is set for April 2019.