Federal, provincial battle over carbon tax goes before Supreme Court this week

Prime Minister Justin Trudeau's carbon tax is going on trial Tuesday.

The Supreme Court of Canada is set to hear appeals in three separate cases to determine if the federal carbon tax legislation is constitutional or if it encroaches unacceptably on areas of provincial jurisdiction.

Appeals courts in Saskatchewan and Ontario upheld the law, while the Alberta Court of Appeal ruled it unconstitutional.

The Supreme Court case could be a make-or-break moment for one of the central pillars of the Liberal climate agenda. It accounts for as much as 40 per cent of the cuts to greenhouse gas emissions needed to meet Canada's obligations under the Paris climate change agreement.

The case is to be heard over two days, with submissions from at least seven provinces, the federal government, the Assembly of First Nations and nearly two dozen interveners that include provincial utilities, environment groups and unions.

Stewart Elgie, director of the Environment Institute at the University of Ottawa, says the case is not going to decide if carbon pricing is good policy, but rather who has jurisdiction over it.

"The basic issue is who has the constitutional power to price carbon," said Elgie.

The Alberta, Ontario and Saskatchewan governments argue the law steps into their jurisdiction over natural resources and provincial taxation, while Ottawa conversely says carbon emissions are an issue of national concern, which do not respect provincial boundaries and require a national approach to address.

The federal Greenhouse Gas Pollution Pricing Act was passed in June 2018 and sets minimum national thresholds for a price on carbon pollution, starting at $10 a tonne, and rising each year until it hits $50 a tonne in 2022.

The idea is that making it more expensive to produce greenhouse-gas emissions will change behaviour, provoking people to drive less, buy more efficient cars or homes, or adjust their buying habits so they pay less tax. At the same time, it spurs the development of technologies to allow individuals to curb their emissions.

4 provinces initially didn't meet threshold 

Ottawa is returning 90 per cent of the revenues in the form of income-tax rebates to individuals in provinces where the carbon price is paid, and the rest is going to funds to help businesses make themselves more climate-friendly. The rebates are built on the premise that you can save yourself even more money if you reduce your personal carbon footprint.

The law allows provinces to meet the price threshold however they want, but if a province doesn't have a carbon tax or a provincial cap-and-trade type program that meets the standard, Ottawa steps in and imposes a federal carbon tax on that particular province.

In 2019, when the law took effect, four provinces — Saskatchewan, Manitoba, Ontario and New Brunswick — didn't meet some or all of the federal thresholds, so Ottawa stepped in.

New Brunswick's government has since introduced its own system after Premier Blaine Higgs conceded following the 2019 federal election that voters in his province had voted in favour of a carbon tax by electing mostly Liberal MPs.

Alberta was added to the federal carbon-tax program in January, after Premier Jason Kenney killed the provincial carbon tax that had been introduced by the previous NDP government.

Environment minister confident in Ottawa's position 

When the Alberta court struck down the federal law in February, federal Environment Minister Jonathan Wilkinson expressed confidence that Ottawa would ultimately prevail.

"Our government will look to the Supreme Court of Canada's decision and we are confident that the price on pollution is within federal jurisdiction," he said.

The courts in Saskatchewan and Ontario both found that the power falls with Ottawa under the broad constitutional principle that the federal government has the authority to make laws to promote peace, order and good government. In Alberta, the court found it infringed on a province's right to regulate its own natural resources.

In its written submission to the Supreme Court, Saskatchewan said the federal carbon price creates a new federal power over greenhouse-gas emissions, "would profoundly upset the division of powers" laid out in the Constitution and violates fundamental principles about taxing powers in Canada.

Elgie said that the case is before the Supreme Court because when the Constitution was written, nobody had ever heard of greenhouse gas pollution or climate change.

Carbon pricing has become the subject of a major partisan divide in Canada, with successive federal Conservative parties campaigning against it. In the last federal election, all the other major parties supported carbon pricing.

If the court upholds the law, nothing will change as long as the Liberals remain in government. If the court strikes it down, the tax will be dropped — but the Liberals could try to reimpose it in a different way, if the court leaves them room to do so.

In Ontario and Saskatchewan, judges who disagreed with the majority opinion that the law was constitutional nevertheless said pricing carbon could be done using federal taxation power, for example, if the system were structured differently.