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Canada's Supreme Court rules national carbon tax constitutional

25 March 2021 Kevin Adler

The Supreme Court of Canada ruled 25 March that the government's pollution pricing regime, the Output-Based Pricing System (OBPS), which includes a national carbon tax, is constitutional.

In a 6-3 decision, the court upheld the OBPS, saying the government has the right to set minimum standards for GHG emissions, and it can set a floor price for emissions to ensure those standards are met.

As part of Canada's commitment to the Paris Agreement, Prime Minister Justin Trudeau set a 2030 target of cutting emissions to 30% below 2005 levels ahead of reaching net zero in 2050. The carbon tax is a critical component of that plan. It was introduced through the Greenhouse Gas Pollution Pricing Act, which passed in June 2018. The tax on fuels is set at C$30 (US$24) per ton of carbon dioxide equivalent (CO2e), and set to rise annually to C$170 (US$135) in 2030.

The provinces of Ontario, Alberta, and Saskatchewan each challenged the law, arguing that it encroached on provincial jurisdiction. Province-level courts differed in their rulings, leading to the consolidated case for the Supreme Court. The tax had been rejected by an Alberta provincial court, but upheld by courts in the Ontario and Saskatchewan lawsuits.

Citing the "Peace, Order and Good Government" clause in Canada's constitution, Chief Justice Richard Wagner, who wrote the majority opinion, said the impact of climate change justifies the enactment of the broad legislation. "Climate change is real. It is caused by greenhouse gas emissions resulting from human activities, and it poses a grave threat to humanity's future," Wagner wrote.

The bottom line is that all of the country must participate in a program with the same goal, the court said, rather than giving each province free rein to decide how to address climate change.

"Although this restriction may interfere with a province's preferred balance between economic and environmental considerations, it is necessary to consider the interests that would be harmed — owing to irreversible consequences for the environment, for human health and safety, and for the economy — if Parliament were unable to constitutionally address the matter at a national level," the opinion stated.

"A failure to include one province in the scheme would jeopardize its success in the rest of Canada," the opinion read. "What is more, any province's refusal to implement a sufficiently stringent GHG pricing mechanism could undermine GHG pricing everywhere in Canada."

The ruling also noted that the national government had granted flexibility to the provinces by allowing them to propose a pricing and regulation mechanism that would produce equivalent emissions reductions. Alberta, Manitoba, Ontario, and Saskatchewan have submitted plans.

Subsequent to the ruling, the government of Ontario announced on 29 March that it will implement its alternate program beginning in 2022. "This follows the announcement in fall 2020 that the Government of Ontario's carbon pollution pricing system for industrial facilities met the federal government's minimum stringency benchmark requirements and that the federal OBPS would be stood down at a future date," said the government in a statement.

The national government also has announced plans to "stand down" OBPS in New Brunswick.

Fight to continue

The Supreme Court's decision puts an end to the legal fight, but analysts said the political battles are likely to continue.

"This ruling, ironically, may tear up the constitution and divide the country into pro or con oil," warned Roger McKnight, chief petroleum analyst at En-Pro International, in a comment sent to OPIS. "The prime minister is against the oil industry as a whole and the carbon tax is his best weapon being disguised as his personal crusade to save his planet."

McKnight told OPIS that if the carbon tax continues maintaining its upward spiral, then it will alienate Western Canada even further.

"All of this drama could have been avoided if the prime minister had just increased the excise tax on gasoline and diesel," McKnight added. "All he had to do was tell the provinces and his friends in the media that the federal excise tax was being increased to fund the climate change war chest."

Canada's Minister of Environment and Climate Change Jonathan Wilkson said in a statement that the carbon tax was necessary and beneficial. "This decision is a win for the millions of Canadians who believe we must build a prosperous economy that fights climate change…. It is also a win for the hard-working families who will continue to receive more money in their pockets through the Climate Change Initiative rebate," he said. Under the law, 90% of the carbon tax is rebated to individuals.

"The question is whether this will put an end to the effort of conservative politicians fighting climate action in court, and whether they will join Canadians in fighting climate change," Wilkinson added.

If a vote by the Conservative Party last week is any indication, the fight is not over. On 19 March, the Conservative Party voted down a resolution that recognized "climate change is real," while issuing its economic recovery plan.

According to media reports, Conservative leader Erin O'Toole, who has vowed to scrap the carbon tax, urged party members to support the motion to avoid another electoral defeat. The party's loss in the last federal election in 2019 was blamed on its stance on climate, and especially on the carbon tax.

With an average output of 5.5 million barrels per day in 2019, Canada is the world's fourth-largest oil producer after the US, Saudi Arabia, and Russia. More than 80% its oil is produced in Alberta.

Article includes reporting by Abdul Latheef, OPIS.

Posted 25 March 2021 by Kevin Adler, Editor, Climate & Sustainability Group, IHS Markit

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