Reference re Greenhouse Gas Pollution Pricing Act, 2019 SKCA 40

Court of Appeal for Saskatchewan Docket: CACV3239 Citation: Reference re Greenhouse Gas Pollution Pricing Act , 2019 SKCA 40 Date: 2019-05-03 IN THE MATTER OF THE GREENHOUSE GAS POLLUTION PRICING ACT , BILL C-74,

PART 5 AND IN THE MATTER OF A REFERENCE BY THE LIEUTENANT GOVERNOR IN COUNCIL TO THE COURT OF APPEAL FOR SASKATCHEWAN UNDER THE CONSTITUTIONAL QUESTIONS ACT, 2012 , SS 2012, c C-29.01 Before: Richards C.J.S., Jackson, Ottenbreit, Caldwell and Schwann JJ.A. Disposition: The majority of the Court is of the opinion that the Greenhouse Gas Pollution Pricing Act is not unconstitutional in whole or in part. The minority of the Court is of the opinion that the Act is wholly unconstitutional.

Majority reasons by: The Honourable Chief Justice Richards In concurrence: The Honourable Madam Justice Jackson The Honourable Madam Justice Schwann Minority reasons by: The Honourable Mr. Justice Ottenbreit and The Honourable Mr.

Justice Caldwell Appeal Heard: February 13–14, 2019 Counsel: Mitch McAdam, Q.C., and Alan Jacobson for the Attorney General of Saskatchewan Sharlene Telles-Langdon, Brooke Sittler and Neil Goodridge for the Attorney General of Canada Joshua Hunter, Padraic Ryan and Thomas Lipton for the Attorney General of Ontario William Gould for the Attorney General of New Brunswick Gareth Morley for the Attorney General of British Columbia David Thera, Q.C., and Robert Affleck for Saskatchewan Power Corporation and SaskEnergy Incorporated Bruce Hallsor, Q.C., and Alexander Shalashniy for Canadian Taxpayers Federation Ryan Martin and Steven Dollansky for United Conservative Association Jeffrey Grubb, Q.C., and Khurrum Awan for Agricultural Producers Association of Saskatchewan Inc.

Lisa DeMarco and Jonathan McGillivray for International Emissions Trading Association Jennifer King and Michael Finley for Canadian Public Health Association Amir Attaran and Matt Hulse for Athabasca Chipewyan First Nation Jacqueline Wilson and Theresa McClenaghan for Canadian Environmental Law Association and Environmental Defence Canada, Inc.

Stuart Wuttke and Victor Carter for Assembly of First Nations Joshua Ginsberg and Danielle Gallant for David Suzuki Foundation Stewart Elgie and Nathalie Chalifour for Ecofiscal Commission of Canada Nathan Hume for Intergenerational Climate Coalition Larry Kowalchuk and Taylor-Anne Yee for Climate Justice Saskatoon; National Farmers Union; Saskatchewan Coalition for Sustainable Development; Saskatchewan Council for International Cooperation; Saskatchewan Electric Vehicle Club; The Council of Canadians: Prairie and Northwest Territories Region; The Council of Canadians: Regina Chapter; The Council of Canadians: Saskatoon Chapter; The New Brunswick Anti-Shale Gas Alliance; and Youth of the Earth TABLE OF CONTENTS FOR THE MAJORITY REASONS I.

The question posed . 1 II. Overview .. 1 III. Background . 4 A. The greenhouse gas issue . 4 B. International efforts to address climate change . 6 C. Climate change initiatives in Canada . 8 D. The basic architecture of the Act 10

E. The application of the Act 12 IV. Analysis . 13 A. Does the principle of federalism render the Act unconstitutional? . 15 B. Does the Act impose taxes in contravention of s. 53 of the Constitution Act, 1867 ? . 20 1. Basic principles . 20 2. Does

Part 1 impose a tax or a regulatory charge? . 22 3. Does

Part 2 impose a tax or a regulatory charge? . 25 4. If

Part 1 or 2 does impose a tax, is s. 53 of the Constitution Act, 1867 offended? . 27 C. Is the Act sustainable under the national concern branch of POGG? . 31 1. Basic principles . 32 2. The pith and substance of the Act 33 3. The POGG “matter” in issue . 35 4. Application of the Crown Zellerbach test 41 5. The validity of the Act 46 D. Can the Act be upheld under heads of jurisdiction identified by the intervenors? . 47 1. The general trade and commerce power 47 2. Treaty powers . 50 3. Criminal law power 51 4. The emergency power 57

Section 35 of the Constitution Act, 1982 . 57 E. A final issue . 58 V. Conclusion . 59 Appendix A .. 149 TABLE OF CONTENTS FOR THE MINORITY REASONS I. Introduction . 60 II. The Constitution Act, 1867 . 60 A. The division of powers . 63 B. Sections 91 and 92 . 63 C. Pith and substance . 69 1. Characterisation . 69 a. Background . 69 b.

Preamble to the Act 73 c. The two schemes of the Act 74 d. The two schemes and matter characterisation . 76 2. Scheme of taxation or regulatory scheme? . 77 a. The characteristics of a tax . 79 b. Distinguishing a regulatory charge from a tax . 79

3. Tax or regulatory charge? . 80 a. Lawson tax analysis . 81 b. Regulatory scheme analysis . 84 4. Classification of the Act 100 D. Constitutional limits on the power to tax . 105 1. No clear and unambiguous delegation of the power to tax . 110 2. Overbreadth in the delegation of law-making power 112 3. The backstop aspect of the Act 118 E. Peace, Order and good Government 123 1. Federalism .. 123 2. The POGG power 125 3. The two-step test in Crown Zellerbach . 129 4. Analysis . 133 5. Conclusion under POGG .. 147 III. Climate change and Confederation . 147 IV. Opinion . 148 Appendix A .. 149 Richards C.J.S. I.

The question posed [ 1 ] This is a reference pursuant to s. 2 of The Constitutional Questions Act, 2012 , SS 2012, c C-29.01 . By way of Order in Council 194/2018, the Lieutenant Governor in Council has asked the Court for an advisory opinion on the following question: The Greenhouse Gas Pollution Pricing Act was introduced into Parliament on March 28, 2018 as

Part 5 of Bill C-74. If enacted, will this Act be unconstitutional in whole or in part? [ 2 ] The Greenhouse Gas Pollution Pricing Act , SC 2018, c 12, s 186 [ Act ], came into force on June 21, 2018. It varies in some small particulars from

Part 5 of Bill C-74, as referred to in Order in Council 194/2018. I understand the Lieutenant Governor in Council to be concerned with the Act as it presently stands and will proceed on that basis. All of the participants in these proceedings took the same approach. [ 3 ] As explained below, and in answer to the question posed by the Lieutenant Governor in Council, the Act falls within the legislative authority of Parliament. It is not unconstitutional in whole or in part. II.

Overview [ 4 ] The factual record presented to the Court confirms that climate change caused by anthropogenic greenhouse gas [GHG] emissions is one of the great existential issues of our time. The pressing importance of limiting such emissions is accepted by all of the participants in these proceedings. [ 5 ] The Act seeks to ensure there is a minimum national price on GHG emissions in order to encourage their mitigation.

Part 1 of the Act imposes a charge on GHG-producing fuels and combustible waste.

Part 2 puts in place an output-based performance system for large industrial facilities. Such facilities are obliged to pay compensation if their GHG emissions exceed applicable limits. Significantly, the Act operates as no more than a backstop. It applies only in those provinces or areas where the Governor in Council concludes GHG emissions are not priced at an appropriate level. [ 6 ] The sole issue before the Court is whether Parliament has the constitutional authority to enact the Act . The issue is not whether GHG pricing should or should not be adopted or whether the Act is effective or fair.

Those are questions to be answered by Parliament and by provincial legislatures, not by courts.

[ 7 ] The Constitution Act, 1867 distributes legislative authority between Parliament and the provincial legislatures. Broadly speaking, a statute is valid if its essential character falls within a subject matter allocated to the legislative body that put the statute in place. Neither level of government has exclusive authority over the environment.

As a result, Parliament can legislate in relation to issues such as GHGs so long as it stays within the four corners of its prescribed subject matters and the provinces can do the same so long as they stay within their prescribed areas of authority. [ 8 ] The Attorney General of Saskatchewan [Saskatchewan] challenges the Act by submitting it imposes taxes in the constitutional sense of the term. This would normally be legally unobjectionable because Parliament enjoys a broad taxing authority.

However, Saskatchewan contends the Act is invalid because the Governor in Council determines the provinces where it operates. This is said to offend the principle of federalism in that the application of the Act depends on whether a province has exercised its own jurisdiction in relation to pricing GHG emissions to a standard considered appropriate by the Governor in Council. Saskatchewan also says the Act runs afoul of s. 53 of the Constitution Act, 1867 .

Section 53 requires, in effect, that taxes be authorized by legislative bodies themselves, not by executive government or otherwise. [ 9 ] Saskatchewan’s arguments on this front cannot be accepted. The principle of federalism is not a free-standing concept that can override an otherwise validly enacted law. Rather, it is a value to be taken into account when interpreting the Constitution. The s. 53 argument cannot be sustained either because, in constitutional terms, the levies imposed by the Act are regulatory charges, not taxes. In any event, even if they were taxes, the Act does not offend s. 53 .

Parliament has clearly and expressly authorized the Governor in Council to decide where the Act will apply. [ 10 ] Saskatchewan submits, by way of an alternative line of argument, that the Act is unconstitutional because it is concerned with property and civil rights and other matters of a purely local nature falling within exclusive provincial legislative authority. The Attorney General of Canada [Canada] responds by seeking to uphold the Act as a valid exercise of Parliament’s jurisdiction under the national concern branch of its “Peace, Order, and good Government” [POGG] power.

The national concern branch of POGG applies to matters of national consequence that have a singleness, distinctiveness and indivisibility clearly distinguishing them from matters coming within provincial jurisdiction and, as well, a scale of impact on provincial jurisdiction that is compatible with the basic division of powers between Parliament and the legislatures under the Constitution. Canada contends it should be recognized, under the national concern branch, as having jurisdiction over “the cumulative dimensions of GHG emissions”.

This approach must be rejected because it would allow Parliament to intrude so deeply into areas of provincial authority that the balance of federalism would be upset. Further, it would hamper and limit provincial efforts to deal with GHG emissions. [ 11 ] However, Parliament does have authority over a narrower POGG subject matter – the establishment of minimum national standards of price stringency for GHG emissions. This jurisdiction has the singleness, distinctiveness and indivisibility required by the law.

It also has a limited impact on the balance of federalism and leaves provinces broad scope to legislate in the GHG area. The Act is constitutionally valid because its essential character falls within the scope of this POGG authority. [ 12 ] Various intervenors suggest the Act , or aspects of it, can be sustained under such federal heads of power as trade and commerce, the emergency doctrine, criminal law and treaty powers. Canada has chosen not to make these submissions itself but says it does not object to the Act being upheld on any of these grounds.

At the end of the day, none of these arguments are viable in light of how Parliament has chosen to frame the Act . [ 13 ] As explained below, it follows from all of this that the Act is not unconstitutional either in whole or in part. III. Background A. The greenhouse gas issue [ 14 ] GHGs are gases that absorb and re-emit infrared radiation. Carbon dioxide is the most recognizable GHG. [ 15 ] The general character of the GHG phenomenon and the basic science of climate change are not contested by any of the participants in this Reference. In simplest terms, planet Earth absorbs energy from sunlight.

When that energy is emitted, GHGs capture some of it. This slows the escape of such energy into space and, over time, heats the atmosphere and the surface of the earth. These higher temperatures disrupt global climate patterns. [ 16 ] The broad contours of the impact of anthropogenic emissions of GHGs and of the nature of the climate change issue are summarized in Climate Change 2014 Synthesis Report

Summary for Policymakers [ Climate Change 2014 ]. It was prepared by the Intergovernmental Panel on Climate Change [IPCC], which was established by the United Nations Environmental Programme and the World Meteorological Organization.

The IPCC, as described by John Moffet, Assistant Deputy Minister with Environment and Climate Change Canada, in his affidavit of October 25, 2018, is “the leading world body for assessing the most recent scientific, technical, and socio-economic information produced worldwide relevant to understanding climate change, its impacts and potential future risks, and possible response options”. Climate Change 2014 concludes as follows: (a) “Human influence on the climate system is clear, and recent anthropogenic emissions of greenhouse gases are the highest in history.

Recent climate changes have had widespread impacts on human and natural systems” (at 2). (b) “Warming of the climate system is unequivocal, and since the 1950s, many of the observed changes are unprecedented over decades to millennia. The atmosphere and ocean have warmed, the amounts of snow and ice have diminished, and sea level has risen” (at 2). (c) “Anthropogenic greenhouse gas emissions have increased since the pre-industrial era, driven largely by economic and population growth, and are now higher than ever.

This has led to atmospheric concentrations of carbon dioxide, methane and nitrous oxide that are unprecedented in at least the last 800,000 years. Their effects, together with those of other anthropogenic drivers, have been

detected throughout the climate system and are extremely likely to have been the dominant cause of the observed warming since the mid- 20th century” (emphasis in original, at 4). (d) “Changes in many extreme weather and climate events have been observed since about 1950.

Some of these changes have been linked to human influences, including a decrease in cold temperature extremes, an increase in warm temperature extremes, an increase in extreme high sea levels and an increase in the number of heavy precipitation events in a number of regions” (at 7). (e) “Continued emission of greenhouse gases will cause further warming and long-lasting changes in all components of the climate system, increasing the likelihood of severe, pervasive and irreversible impacts for people and ecosystems.

Limiting climate change would require substantial and sustained reductions in greenhouse gas emissions which, together with adaptation, can limit climate change risks” (at 8). (f) “Surface temperature is projected to rise over the 21st century under all assessed emission scenarios. It is very likely that heat waves will occur more often and last longer, and that extreme precipitation events will become more intense and frequent in many regions.

The ocean will continue to warm and acidify, and global mean sea level to rise” (emphasis in original, at 10). (g) “Climate change will amplify existing risks and create new risks for natural and human systems.

Risks are unevenly distributed and are generally greater for disadvantaged people and communities in countries at all levels of development” (at 13). (h) “Without additional mitigation efforts beyond those in place today, and even with adaptation, warming by the end of the 21st century will lead to high to very high risk of severe, widespread and irreversible impacts globally ( high confidence ). ...” (emphasis in original, at 17).

None of these conclusions were challenged or put in issue by the participants in this Reference. [ 17 ] Climate change impacts affecting Canada and Canadians include thawing permafrost, increases in extreme weather and extreme weather events such as forest fires, degradation of soil and water resources, increased frequency and severity of heat waves, and expansion of the ranges of vector-borne diseases. Predictions show that Canada’s temperature, particularly in the Arctic, will warm at a faster rate than that of the world as a whole. See: Affidavit of John Moffet at paras 18–26. B.

International efforts to address climate change [ 18 ] The United Nations Framework Convention on Climate Change [ Framework Convention ] was ratified by Canada in December of 1992 and came into force internationally in March of 1994. The objective of the Framework Convention , as described in

Article 2 , is to achieve the “stabilization of greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system”. [ 19 ] Canada’s commitments under the Framework Convention include a commitment to adopt “national policies and take corresponding measures on the mitigation of climate change, by limiting its anthropogenic emissions of greenhouse gases” (Article 4 at para 2(a)) with the aim of “returning [GHG emissions] individually or jointly to their 1990 levels” (Article 4 at para 2(b)). [ 20 ] The Framework Convention established a Conference of the Parties [COP], which is the decision-making body of the Convention .

All states that are parties are represented at the COP. [ 21 ] The third session of the COP [COP 3] took place in Kyoto in 1997. The resulting Kyoto Protocol observed that the GHG emission reduction targets established by the Framework Convention were inadequate and established binding GHG reduction commitments for developed country parties. Canada ratified the Kyoto Protocol in 2002 and committed to reduce its GHG emissions for 2008–2012 to an average of six percent below 1990 levels. Canada withdrew from the Kyoto Protocol in 2012. [ 22 ] COP 15 took place in Copenhagen in 2009.

The Copenhagen Accord , agreed to by 114 of the 194 parties to the Framework Convention , declared that “climate change is one of the greatest challenges of our time” and recognized the scientific view that, to achieve the objective of the Convention , the increase in global temperature should be below two degrees Celsius. Canada joined the Copenhagen Accord and pledged to reduce its GHG emissions by 17 percent from its 2005 levels by 2020. [ 23 ] COP 21 was held in Paris in 2015. The resulting Paris Agreement was ratified by Canada in October of 2016 and entered into force in November of 2016.

Currently, the Paris Agreement has been ratified by 179 states and the European Union. [ 24 ] The

preamble of the Paris Agreement reflects the COP’s assessment of the urgency of addressing climate change.

It includes the following terms: Recognizing that climate change represents an urgent and potentially irreversible threat to human societies and the planet and thus requires the widest possible cooperation by all countries, and their participation in an effective and appropriate international response, with a view to accelerating the reduction of global greenhouse gas emissions, Also recognizing that deep reductions in global emissions will be required in order to achieve the ultimate objective of the Convention and emphasizing the need for urgency in addressing climate change, … Emphasizing with serious concern the urgent need to address a significant gap between the aggregate effect of Parties’ mitigation pledges in terms of global annual emissions of greenhouse gases by 2020 and aggregate emission pathways consistent with holding the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels.

[ 25 ] To repeat, the aim of the Paris Agreement is to strengthen the global response to the threat of climate change by “[h]olding the increase in the global average temperature to well below 2 °C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5 °C above pre-industrial levels” (

Article 2 at para 1(a)). In order to achieve this goal, the parties “aim to reach global peaking of greenhouse gas emissions as soon as possible, recognizing that peaking will take longer for developing country Parties” (Article 4 at para 1). C. Climate change initiatives in Canada [ 26 ] Prior to Canada signing the Paris Agreement , the Prime Minister and all provincial and territorial premiers [First Ministers] met in Vancouver to discuss climate change issues. The result was the March 3, 2016, Vancouver Declaration on Clean Growth and Climate Change [ Vancouver Declaration ].

First Ministers recognized the call in the Paris Agreement for significant reductions in GHG emissions and committed to “implement GHG mitigation policies in support of meeting or exceeding Canada’s 2030 target of a 30% reduction below 2005 levels of emissions, including specific provincial and territorial targets and objectives” (at 1). [ 27 ] The Vancouver Declaration spoke to increasing the level of ambition in relation to limiting GHG emissions, promoting clean economic growth, and increasing action on adaptation and resilience. In the

section on GHG mitigation, the Declaration observed that carbon pricing mechanisms were being used in Canada and elsewhere to “drive the transition to a low carbon economy” (at 3). The Declaration also indicated that “the provinces and territories have the flexibility to design their own policies to meet emission reductions targets, including their own carbon pricing mechanisms” (at 3). The Declaration went on to provide for the establishment of a Working Group on Carbon Pricing Mechanisms.

The Working Group was to “provide a report with options on the role of carbon pricing mechanisms in meeting Canada’s emissions reduction targets, including different design options taking into consideration existing and planned provincial and territorial systems” (at 7). [ 28 ] The Working Group prepared a Final Report . It observed in the “Context”

section that many experts regard carbon pricing as “a necessary policy tool for efficiently reducing GHG emissions” (at 5) and that there was a widespread international trend toward carbon pricing. The Final Report went on to describe various carbon pricing mechanisms and to explore design parameters for such mechanisms. It identified three options for carbon pricing: (

a) a single broad-based pricing mechanism for the entire country; (

b) broad-based pricing mechanisms in all jurisdictions but with flexibility of instrument choice; and (

c) a range of broad-based pricing mechanisms in some jurisdictions with the remaining jurisdictions instituting other mechanisms or policies to meet specific GHG reduction targets within their jurisdictions (at 44). [ 29 ] The federal government released a document entitled Pan-Canadian Approach to Pricing Carbon Pollution on October 3, 2016.

The approach outlined in the document was grounded both on the proposition that economy-wide carbon pricing was the most efficient way to reduce GHG emissions and a recognition that several jurisdictions including British Columbia, Ontario and Québec had already introduced carbon pricing regimes. The approach proposed by the government involved a pan-Canadian “benchmark” for carbon pricing. The benchmark involved a requirement that pricing regimes apply to essentially the same emission sources as British Columbia’s carbon tax.

The required stringency of the benchmark, for an explicit price-based system, was that carbon pricing should start at a minimum of $10 per tonne in 2018 and rise by $10 per year to $50 per tonne in 2022. The provinces with cap-and-trade systems would have to ensure that emission reduction targets were in line with Canada’s overall reduction target. As well, the federal government’s approach was stated to involve a “backstop”.

This was the idea that the federal government would introduce an explicit price-based carbon pricing system in jurisdictions that did not meet the benchmark. [ 30 ] First Ministers convened on December 9, 2016, to adopt the Pan-Canadian Framework on Clean Growth and Climate Change [ Pan-Canadian Framework ]. It addressed carbon pricing as well as matters concerning adaptation, clean technology and innovation issues.

In relation to carbon pricing, the Framework said the provinces and territories had the flexibility to design their own policies to meet emission reductions targets and that the approach should be flexible and recognize already implemented carbon pricing policies in some provincial jurisdictions. It annexed the federal benchmark announced in October of 2016. [ 31 ] It is also worth observing here that the Pan-Canadian Framework proceeded on the basis that GHG pricing was a necessary, but not sufficient, response to the GHG problem.

As a result, the Pan-Canadian Framework also outlined extensive complementary actions in relation to electricity generation, construction practices, transportation, industry, forestry, agriculture and waste management. It also addressed financing for clean technology research and innovations. [ 32 ] In May of 2017, the federal government released a document entitled Technical Paper on the Federal Carbon Pricing Backstop [ Technical Paper ]. It outlined the components of the proposed carbon pricing system and sought feedback from stakeholders.

Further information was provided in Guidance on the Pan-Canadian Carbon Pollution Pricing Benchmark , a document published by the federal government in August of 2017. Supplemental Benchmark Guidance followed in December of 2017. [ 33 ] The Government of Saskatchewan did not accept the federal government’s proposed carbon pricing scheme and did not adopt the Pan-Canadian Framework . In December of 2017, Saskatchewan released its own climate change strategy. Prairie Resilience: A Made-in-Saskatchewan Climate Change Strategy outlined the steps the Province plans to take in order to address climate change.

This strategy does not include a broad-based carbon tax or levy. This was explained as follows at page 1: We wholeheartedly support efforts to reduce greenhouse gases. But those efforts must be effective and they must not disadvantage one region of Canada more than another. A federal carbon tax is ineffective and will impair Saskatchewan’s ability to respond to climate change. Our opposition to the federal government’s carbon tax should not be seen as reluctance to act. Rather, it is a recognition that we must act, and act decisively, with all our economic strength. For Saskatchewan, mitigation is not enough.

Our agriculture and resource-rich province must also focus on climate adaptation and resilience in order to be effective. The Strategy includes a plan to impose sector-specific output-based performance standards on facilities emitting more than 25,000 tonnes of CO 2 equivalent per year and to obligate facilities that emit more than the regulated standard to take compliance actions.

D. The basic architecture of the Act [ 34 ] The federal government proceeded with the legislative steps necessary to establish minimum national standards of price stringency of GHG emissions. The Act was introduced in the House of Commons in March of 2018 as

Part 5 of the Budget Implementation Act , 2018, No. 1 , SC 2018, c 12 ( Bill C-74 ). [ 35 ] The Act came into force on June 21, 2018. It has four parts. [ 36 ]

Part 1 implements a fuel charge. It applies to 22 GHG-producing fuels listed in

Schedule 2 of the Act . These include such things as gasoline, kerosene, fuel oil, propane, coke oven gas, and methanol. The Governor in Council may add to, or delete from, this list (s 3, definition of “fuel”; s 17(1)). [ 37 ] The charge under

Part 1 applies to fuels that are produced, delivered or used in a listed province (ss 17, 18, 21(1), 34 and 35), brought to a listed province from another place in Canada (ss 19(1) and 20(2)) or imported into Canada at a place in a listed province (ss 19(2) and 20(3)). Generally, a registered distributor will pay the fuel charge. The registered distributors will typically be fuel producers or wholesale fuel distributors.

Part 1 also imposes a charge on the burning of combustible waste used to generate heat or energy (s 25). [ 38 ] The amount of the charge for each fuel is set out in

Schedule 2 of the Act . For 2019, the specified rates represent $20 per tonne of CO 2 equivalent emitted by each fuel. The rates rise to a total of $50 per tonne of CO 2 equivalent in 2022. [ 39 ] The

Part 1 charge is not payable on fuels delivered to specified persons. Such persons include farmers and fishers in respect of qualifying fuels (s 17(2)). Further, the charge is not payable on fuels delivered to industrial facilities subject to the output-based performance standards under

Part 2 of the Act . This is because GHG emissions for such facilities are priced under

Part 2. [ 40 ]

Part 1 also provides specific rules for determining the fuel charge applicable to certain interjurisdictional air, marine, rail and road concerns (ss 28–35). [ 41 ] The fuel charge is administered by the Minister of National Revenue acting through the Canada Revenue Agency.

Part 1 sets out a variety of administrative rules dealing with filing obligations, filing periods and so forth. It also prescribes penalties and means of recovery. [ 42 ]

Part 2 of the Act establishes output-based performance standards for GHG emissions by large industrial facilities. It applies to “covered facilities”. These are facilities either designated by the Minister or meeting criteria specified in the regulations (s 169). Mr. Moffet indicates in his affidavit that the initial intention is that the output-based performance standards will apply primarily to facilities with annual CO 2 equivalent emissions of 50 kt or more annually (at para 111). See: Notice Establishing Criteria Respecting Facilities and Persons and Publishing Measures , SOR/2018-213 . As noted, covered facilities are exempt from the

Part 1 fuel charge. [ 43 ] The annual GHG emissions limits for covered facilities will employ an emissions intensity standard established by regulation. The output-based standard for an industry will be prescribed as a percentage of the GHGs emitted on average by the facilities in the industrial sector for a given unit of product. [ 44 ]

Part 2 requires a covered facility to provide compensation for the portion of its GHG emissions that exceeds its annual limit (s 174). This can be done in one of three ways: (

a) by submitting surplus credits earned in the past or acquired from other facilities; (

b) by paying an excess emissions charge; or (

c) a combination of both. If a facility emits less than its annual limit, it will receive credits that it can bank and use for future compliance obligations or sell to other regulated facilities (s 175). [ 45 ]

Part 2 also includes a variety of administrative enforcement provisions. [ 46 ]

Part 3 of the Act , which is not challenged in this proceeding, authorizes the Governor in Council to make provincial laws applicable to federal works and undertakings, federal lands, Indigenous lands, internal waters of Canada, the territorial sea, Canada’s exclusive economic zone, and the continental shelf. It falls within the jurisdiction of Parliament. [ 47 ]

Part 4 of the Act requires the Minister of Environment to make reports to Parliament. There is no suggestion that it is unconstitutional. E. The application of the Act [ 48 ] Both

Part 1 and

Part 2 apply only in provinces or areas listed by the Governor in Council in

Schedule 1 of the Act . These listings are to be made for “the purpose of ensuring that the pricing of greenhouse gas emissions is applied broadly in Canada at levels that the Governor in Council considers appropriate” (ss 166(2) and 189(1)). In making an order listing a province or area, the Act requires the Governor in Council to take into account, as the “primary factor”, the stringency of provincial pricing mechanisms for GHG emissions (ss 166(3) and 189(2)). [ 49 ] The Minister of National Revenue must distribute the revenues raised under

Part 1 and

Part 2 in a listed province. That distribution may be made to the listed province itself, to prescribed persons in that province, or to a combination of both (ss 165(2) and 188(1)). [ 50 ] The Governor in Council, for purposes of

Part 1 of the Act , has listed Ontario, New Brunswick, Manitoba and Saskatchewan. A modified fuel levy will also apply in Yukon and Nunavut. See: SOR/2019-79. For purposes of

Part 2 of the Act , the Governor in Council has listed Ontario, New Brunswick, Manitoba, Prince Edward Island, Yukon and Nunavut. See: SOR/2018-212.

Part 2 applies only partially in Saskatchewan because the provincial government has implemented its own output-based performance standards system for large industrial facilities. See: SOR/2018-213 .

IV. Analysis [51] Saskatchewan advances two main lines of argument in seeking to have the Act found unconstitutional. The first is that theprinciple of federalism prevents Parliament from enacting a statute applicable in only some provinces because of how those provinceshave chosen to exercise their legislative authority. Saskatchewan’s second argument is that the Act imposes a tax and, because it allows theGovernor in Council to decide where it applies, the Act offends the requirement in s. 53 of the Constitution Act, 1867 that bills imposingtaxes must originate in the House of Commons.

Saskatchewan goes on to deny that, as contended by Canada, the Act can be sustainedunder Parliament’s authority under the national concern branch of POGG. It also denies, as suggested by some intervenors, that the Act, orfeatures of it, can be supported under Parliament’s authority in relation to trade and commerce, emergencies, criminal law or treaties. [52] In light of the arguments presented by Saskatchewan, Canada and the various intervenors, it is appropriate to assess theconstitutional validity of the Act by considering the following main issues: (

a) Does the principle of federalism render the Act unconstitutional? (

b) Does the Act impose taxes in contravention of s. 53 of the Constitution Act, 1867? (

c) Is the Act sustainable under the national concern branch of POGG? (

d) Can the Act be upheld under heads of jurisdiction identified by the intervenors? [53] Each of these matters must be addressed in turn. However, before turning to them, it may be useful to emphasize three basicpoints relevant to the required analysis. [54] First, “the environment” is not a legislative subject matter that has been assigned to either Parliament or the provinciallegislatures under the Constitution Act, 1867.

Rather, as the Supreme Court put it in Friends of the Oldman River Society v Canada(Minister of Transport), (SCC), [1992] 1 SCR 3 at 64, the environment is “a constitutionally abstruse matter which doesnot comfortably fit within the existing division of powers without considerable overlap and uncertainty”.

Justice La Forest explained thisas follows in R v Hydro-Québec, (SCC), [1997] 3 SCR 213 [Hydro-Québec]: 112 In considering how the question of the constitutional validity of a legislative enactment relating to the environment should beapproached, this Court in Oldman River, supra, made it clear that the environment is not, as such, a subject matter of legislation under theConstitution Act, 1867. As it was put there, “the Constitution Act, 1867 has not assigned the matter of ‘environment’ sui generis to eitherthe provinces or Parliament” (p. 63).

Rather, it is a diffuse subject that cuts across many different areas of constitutional responsibility,some federal, some provincial (pp. 63-64). Thus Parliament or a provincial legislature can, in advancing the scheme or purpose of astatute, enact provisions minimizing or preventing the detrimental impact that statute may have on the environment, prohibit pollution,and the like.

In assessing the constitutional validity of a provision relating to the environment, therefore, what must first be done is to lookat the catalogue of legislative powers listed in the Constitution Act, 1867 to see if the provision falls within one or more of the powersassigned to the body (whether Parliament or a provincial legislature) that enacted the legislation (ibid. at p. 65).

If the provision in essence,in pith and substance, falls within the parameters of any such power, then it is constitutionally valid. (Emphasis added) [55] The second general point is that the standard methodology for deciding the constitutional validity of a law applies, of course, tolaws touching on or implicating the environment. This methodology involves a two-stage process. To begin, it is necessary to determinethe “pith and substance” of the law in question. This involves identifying the essential character or dominant characteristic of the lawthrough an examination of both its purpose and its effect.

Legislative history, Parliamentary debates and other such extrinsic material maybe considered in addressing the question of purpose. The “mischief” that the legislation is aimed at curing may also be considered.Assessing the effect of a law focuses on how the law will operate and how it will affect Canadians. See, for example: Reference reFirearms Act, 2000 SCC 31 at paras 16–18, [2000] 1 SCR 783. [56] In the next step of the analysis, the pith and substance of the legislation is slotted into the roster of legislative powers found inss. 91 and 92 of the Constitution Act, 1867.

This is not a precise science and may involve an

interpretation of the scope of the power. Asthe Supreme Court observed in Reference re Firearms Act at paragraph 26, “[l]aws mainly in relation to the jurisdiction of one level ofgovernment may overflow into, or have ‘incidental effects’ upon, the jurisdiction of the other level of government. It is a matter of balanceand of federalism: no one level of government is isolated from the other, nor can it usurp the functions of the other”.

A law is valid only ifit falls within the jurisdiction of the enacting legislature. [57] The third and final general point to note here is that the efficacy of a law in accomplishing its goals does not bear on thedivision of powers analysis. The division of powers issue is whether the law in question falls within the jurisdiction of Parliament or theprovincial legislatures. It is not whether the law is a sound policy initiative.

Justice La Forest, dissenting but not on this point, explained asfollows in RJR-MacDonald Inc. v Canada (Attorney General), (SCC), [1995] 3 SCR 199 at para 44 [RJR-MacDonald]: … the wisdom of Parliament’s choice of method cannot be determinative with respect to Parliament’s power to legislate. The goal in apith and substance analysis is to determine Parliament’s underlying purpose in enacting a particular piece of legislation; it is not todetermine whether Parliament has chosen that purpose wisely or whether Parliament would have achieved that purpose more effectivelyby legislating in other ways; see R. v.

Big M Drug Mart Ltd., (SCC), [1985] 1 S.C.R. 295, at p. 358 (per Wilson J.) andMorgentaler, supra, at p. 487: Only when the effects of the legislation so directly impinge on some other subject matter as to reflect some alternative or ulterior purposedo the effects themselves take on analytic significance. …

[58] With this background confirmed, I turn to the arguments that have been advanced about the constitutional validity of the Act. A. Does the principle of federalism render the Act unconstitutional? [59] Saskatchewan submits the principle of federalism is an “overarching limit” on Parliament’s powers. It then argues Parliament isnot constitutionally entitled to exercise its legislative authority in ways that offend the principle of federalism.

While not going so far as tocontend all federal statutes must have uniform application across the country, Saskatchewan argues Parliament cannot condition theapplication of laws on how provinces have chosen to exercise their own legislative jurisdiction.

Thus, so the argument goes, the Act cannotstand because it applies only in those provinces that have not adopted GHG pricing regimes considered appropriate by the Governor inCouncil. [60] It is useful to begin by underlining that, as Saskatchewan concedes, there is no recognized constitutional requirement that lawsenacted by Parliament must apply uniformly from coast to coast to coast. To the contrary, a number of decisions have upheld federal lawswith uneven geographic application.

For example, in Russell v The Queen (1882), 7 App Cas 829 [Russell], the Privy Council sustained anAct allowing the Governor in Council, after a petition from the electors of a city or county, to apply alcohol prohibitions to that city orcounty. In Lord’s Day Alliance of Canada v British Columbia (Attorney General), (SCC), [1959] SCR 497, the SupremeCourt upheld a legislative scheme that allowed provincial laws to provide exceptions to federal bans on certain activities.

In R v Burnshine, (SCC), [1975] 1 SCR 693, dealing with a challenge under the Canadian Bill of Rights, the Supreme Court upheld afederal law that gave special sentencing options to judges in British Columbia. Justice Martland, for the majority, said a requirement thatlaws apply uniformly in all areas of Canada would represent a “substantial impairment of the sovereignty of Parliament in the exercise ofits legislative powers” (at 705).

Justice Laskin, as he then was, noted in dissent that “[a]s a matter of legislative power only, there can beno doubt about Parliament’s right to give its criminal or other enactments special applications, whether in terms of locality of operation orotherwise” (at 715). R v Furtney, (SCC), [1991] 3 SCR 89, also warrants mention. It dealt with Criminal Code charges forcounselling the violation of bingo lotteries.

Justice Stevenson observed, at pages 104–105, that Parliament may “incorporate provinciallegislation by reference and it may limit the reach of its legislation by a condition, namely the existence of provincial legislation”. Seealso: R v S. (S.), (SCC), [1990] 2 SCR 254 at 289–290; R v Turpin, (SCC), [1989] 1 SCR 1296 at 1333–1335; Coughlin v Ontario (Highway Transport Board), (SCC), [1968] SCR 569 at 575; Hydro-Québec at para 153. [61] I turn, then, to the notion of federalism. It is one of the fundamental organizing principles of the Canadian Constitution.

See:Reference re Secession of Quebec, (SCC), [1998] 2 SCR 217 at para 57. This is so because the Constitution Act, 1867divides political power between the federal and provincial orders of government by assigning jurisdiction with respect to some subjectmatters to Parliament and assigning jurisdiction with respect to other subject matters to the provincial legislatures. See: Maritime Bank ofCanada (Liquidators) v Receiver-General of New Brunswick, [1892] AC 437 (PC) at 441–442. Provincial legislatures and Parliament aresovereign within their own realms.

Thus, the federalism principle recognizes the autonomy of provincial legislatures to independentlydevelop their own political and policy priorities. As indicated in Re The Initiative and Referendum Act, (UK JCPC),[1919] AC 935 (PC) at 942, the aim of the Constitution Act, 1867 was not “to weld the Provinces into one, nor to subordinate ProvincialGovernments to a central authority”. [62] However, all of this said, federalism is not a free-standing constitutional imperative that somehow independently trumps thedistribution of powers prescribed by the Constitution Act, 1867.

Rather, it is a value that informs how the Constitution, and especially howthe division of powers prescribed by the Constitution Act, 1867, is to be understood and interpreted.

Thus, by way of illustration, thebreadth of Parliament’s jurisdiction over trade and commerce under s. 91(2) of the Constitution Act, 1867 has been heavily concerned with“the need to reconcile the general trade and commerce power of the federal government with the provincial power over property and civilrights” (General Motors of Canada Ltd. v City National Leasing, (SCC), [1989] 1 SCR 641 at 659 [General Motors]).As explained in Reference re Pan-Canadian Securities Regulation, 2018 SCC 48 at para 100, the concern in this regard has been that anaggressive

interpretation of the trade and commerce power could overwhelm provincial authority in respect of matters of a local natureand property and civil rights. [63] A recent illustration of the federalism principle in action can be found in R v Comeau, 2018 SCC 15, [2018] 1 SCR 342. There,the Supreme Court was required to consider the impact of s. 121 of the Constitution Act, 1867 – which provides that all articles ofmanufacture from any province shall be “admitted free” into each of the other provinces – on a New Brunswick restriction on thepossession of out-of-province liquor. After observing that foundational principles underlying the Constitution may aid in its

interpretation,the Court said this about the federalism principle: [78] Federalism refers to how states come together to achieve shared outcomes, while simultaneously pursuing their unique interests.The principle of federalism recognizes the “autonomy of provincial governments to develop their societies within their respective spheresof jurisdiction”: Reference re Secession of Quebec, at para. 58; see also Caron v.

Alberta, 2015 SCC 56, [2015] 3 S.C.R. 511, at para. 5.The tension between the centre and the regions is regulated by the concept of jurisdictional balance: Reference re Secession of Quebec, atparas. 56-59. The federalism principle requires a court interpreting constitutional texts to consider how different

interpretations impact thebalance between federal and provincial interests. The same concern has led to, for example, the development of doctrines like thenecessarily incidental doctrine and the ancillary powers doctrine. (Emphasis added) [64] Another recent case, Quebec (Attorney General) v Canada (Attorney General), 2015 SCC 14, [2015] 1 SCR 693, is alsoinstructive here even though it deals with the concept of cooperative federalism (coordinated action between or among governments) asopposed to the principle of federalism per se.

It arose out of the federal government’s decision to abolish the long-gun registry. Québecannounced its decision to create its own gun registry and asked the federal authorities for their data connected to Québec. Canada refusedthis request and Québec then sought a declaration that it had a right to obtain the data, relying on the unwritten constitutional principle ofcooperative federalism. The Supreme Court ruled against Québec, finding that the principle of cooperative federalism could not prevailover otherwise valid federal legislation.

Justices Cromwell and Karakatsanis, writing for the majority, said this: [20] In our respectful view, the principle of cooperative federalism does not assist Quebec in this case. Neither this Court’s

jurisprudence nor the text of the Constitution Act, 1867 supports using that principle to limit the scope of legislative authority or to imposea positive obligation to facilitate cooperation where the constitutional division of powers authorizes unilateral action. To hold otherwisewould undermine parliamentary sovereignty and create legal uncertainty whenever one order of government adopted legislation havingsome impact on the policy objectives of another.

Paradoxically, such an approach could discourage the practice of cooperative federalismfor fear that cooperative measures could risk diminishing a government’s legislative authority to act alone. [21] We conclude that the principle of cooperative federalism does not prevent Parliament from exercising legislative authority that itotherwise possesses to dispose of the data. (Emphasis added) See also: Reference re Firearms Act at para 48; Rogers Communications Inc. v Châteauguay (City), 2016 SCC 23 at para 39, [2016] 1SCR 467; Reference re Pan-Canadian Securities Regulation at para 18. [65] Notwithstanding these authorities, Saskatchewan suggests the strength of its federalism argument is revealed by asking whatwould happen if a national government, spurned by the electors in a particular province, implemented a tax aimed solely at that provincein order to, in effect, punish the electors in question.

Saskatchewan submits that, in such a circumstance, the principle of federalism wouldhave to be invoked to invalidate the law. This line of argument is not convincing. The easiest and most doctrinally regular answer toSaskatchewan’s hypothetical problem lies in the doctrine of colourability, not in the principle of federalism.

In other words, the punitivelaw envisioned by Saskatchewan would be struck down not because it offended the principle of federalism but because, in pith andsubstance, it was not a “tax” within the meaning of s. 91(3) of the Constitution Act, 1867. [66] There is little legal merit in Saskatchewan’s specific concern about Parliament conditioning the application of a federal law onwhether a province has chosen to exercise its own jurisdiction. This is because of a very simple point. Parliament can only act within itsown sphere of legislative authority.

Thus, if it can make a law applicable in a province in light of provincial legislative inaction, thatnecessarily means it enjoyed the authority to make the law applicable all along. Parliament cannot somehow acquire additional authoritybecause of a provincial decision not to act in relation to a particular matter.

Parliament either has legislative authority to act or it does not.There is no constitutional magic in the fact a province has failed to move in a particular policy area. [67] This fundamental reality is perhaps somewhat obscured in areas like the regulation of GHG emissions where the constitutionalboundaries between federal and provincial authority might be somewhat unclear and where there is at least some room for both levels ofgovernment to legislate. Nonetheless, the basic point remains the same.

The scope of Parliament’s constitutional authority is notdependent on how or whether a province has exercised its own exclusive jurisdiction. Conversely, and putting the doctrine of paramountcyto the side, the scope of a province’s constitutional authority is not dependent on how Parliament has or has not exercised its jurisdiction. [68] Saskatchewan has referred to no judicial authority which in any way directly supports the idea that the principle of federalismcan or should independently render unconstitutional an otherwise valid law. Its argument on this front cannot succeed. B.

Does the Act impose taxes in contravention of s. 53 of the Constitution Act,1867? [69] Subsection 91(3) of the Constitution Act, 1867 empowers Parliament to raise money “by any Mode or System of Taxation”. Inturn, s. 53 of the Constitution Act, 1867 requires that bills imposing a tax must originate in the House of Commons. It reads as follows: 53. Bills for appropriating any Part of the Public Revenue, or for imposing any Tax or Impost, shall originate in the House of Commons. [70] Saskatchewan acknowledges Parliament’s broad authority to impose taxes. However, it argued in its factum that

Part 1 of theAct imposes an unconstitutional tax because of the discretion enjoyed by the Governor in Council in deciding where

Part 1 applies. Itcontended this discretion offends not only the principle of federalism but s. 53 of the Constitution Act, 1867 as well. In oral argument,Saskatchewan extended the reach of its submissions on this point and, for the first time, took the position that

Part 2 of the Act alsoimposes a tax and that it too is unconstitutional by virtue of non-compliance with s. 53. Canada takes the position that the levies imposedpursuant to the Act are regulatory charges, not taxes. [71] In order to deal with these arguments, it is important to turn first to the controlling legal principles. I will then consider whethereither

Part 1 or

Part 2 impose levies that are “taxes” in the constitutional sense of the term. Finally, it will be necessary to examine how s.53 fits into the analysis. 1. Basic principles [72] The broad characteristics of a tax were stated in Lawson v Interior Tree Fruit and Vegetable Committee of Direction, (SCC), [1931] SCR 357 to be: (

a) a levy enforceable by law; (

b) imposed under the authority of the legislature; (

c) levied by apublic body; and (

d) made for a public purpose. [73] However, there is a difference between taxes on the one hand and regulatory charges, including service charges, on the other.The leading case on this distinction is Westbank First Nation v British Columbia Hydro and Power Authority, (SCC),[1999] 3 SCR 134 [Westbank].

There, the Supreme Court elaborated on the point previously made in Re Exported Natural Gas Tax, (SCC), [1982] 1 SCR 1004 at 1070, that a levy is a tax if its “primary purpose is the raising of revenue for general[governmental] purposes” and that this stands in contrast to a “levy [imposed] primarily for regulatory purposes, or as necessarilyincidental to a broader regulatory scheme”. [74] Justice Gonthier, writing for the Court in Westbank, explained that, in order for charges to be imposed for regulatory purposes

or to be otherwise incidental to a regulatory scheme, it is first necessary to identify a regulatory scheme. He provided a non-exhaustive listof factors to consider when determining if there is such a scheme in the required sense. Not all of these factors need to be satisfied for sucha scheme to exist. [75] The first factor is whether there is a complete and detailed code of regulation. Such schemes are usually characterized bycomplexity and detail. The second factor is a specific regulatory purpose aimed at affecting behaviour.

As Gonthier J. indicated, “aregulatory scheme must ‘regulate’ in some specific way and for some specific purpose” (at para 26). The third factor is actual or properlyestimated costs of the regulation. Thus, for example, the levy found to be a regulatory charge in Ontario Home Builders’ Association vYork Region Board of Education, (SCC), [1996] 2 SCR 929, was said to have been “meticulously limited” to recouponly actual costs.

Significantly, although a regulatory charge may exist to offset the costs of the regulatory scheme itself, “the regulatorycharges themselves may be the means of advancing a regulatory purpose” (at para 29). See also: Confédération des syndicats nationaux vCanada (Attorney General), 2008 SCC 68 at para 72, [2008] 3 SCR 511 [Confédération].

The fourth and final factor identified inWestbank as a consideration in determining whether a governmental levy is a regulatory charge is the existence of a relationship betweenthe regulation and the person being regulated. [76] In broader and more essential terms, Westbank confirms that, in deciding whether a levy is a tax or a regulatory charge, thefundamental point is as follows: 30 In all cases, a court should identify the primary aspect of the impugned levy.

This was the underlying current of the earlier caseson s. 125, which focussed on the “pith and substance” of the charge: “Johnnie Walker” case [(1922), (SCC), 64 SCR 377,aff’d (UK JCPC), [1924] AC 222]; Re Exported Natural Gas Tax [ (SCC), [1982] 1 SCR 1004].Although in today’s regulatory environment, many charges will have elements of taxation and elements of regulation, the central task forthe court is to determine whether the levy’s primary purpose is, in pith and substance: (1) to tax, i.e., to raise revenue for generalpurposes; (2) to finance or constitute a regulatory scheme, i.e., to be a regulatory charge or to be ancillary or adhesive to a regulatoryscheme; or (3) to charge for services directly rendered, i.e., to be a user fee. (Italics emphasis in original; underline emphasis added) [77] With this background in place, it is now possible to turn to the particulars of the Act. 2.

Does

Part 1 impose a tax or a regulatory charge? [78] Saskatchewan argues, correctly, that the fact the levy imposed under

Part 1 is referred to in the Act as a “charge” does notanswer the question of whether it is a tax. The characterization of a levy for constitutional purposes involves an analysis of its substance.The label applied to a levy is not determinative. The Supreme Court has, for example, found probate “fees” (Eurig Estate (Re), (SCC), [1998] 2 SCR 565 [Eurig Estate]) and employment insurance “premiums” (Confédération) to be taxes. [79] Saskatchewan goes on to contend that the fuel charge under

Part 1 bears the hallmarks of a tax in that payments must be madeto the state under the compulsion of the law. Further, says Saskatchewan,

Part 1 is administered by the Minister of National Revenue, themonies in question are paid into the Consolidated Revenue Fund and disputes with respect to the payment of the charge are adjudicated bythe Tax Court of Canada. In this broad sense, the fuel charge does have several features that tend to give it the appearance of a tax.However, getting to the root of the constitutional status of the charge requires a deeper look and, as part of that look, the application of theapproach mandated by Westbank. [80] As for the first Westbank factor,

Part 1 is properly characterized as being a complete and detailed code of regulation. This isbecause

Part 1 (

a) identifies the fuel subject to the charge, (

b) specifies the amount of the charge with a view to influencing decisionsbearing on GHG emissions, (

c) sets out very specific rules about the application of the charge in various circumstances including, forexample, when fuel is brought into a listed province, when fuel is in transit through a listed province and when fuel is held in supplytanks, (

d) lays down specific rules with respect to certain inter-jurisdictional air, marine, rail and road carriers, (

e) specifies reports, returnsand payments, and (

f) goes on to provide, more generally, for the administration and enforcement of the scheme. Further, and importantly,Part 1 dovetails into the regulatory regime established in

Part 2 in that the fuel charge is not applicable to covered facilities. Thus, incombination, Parts 1 and 2 operate as an inter-locking regime. [81] Turning to the second Westbank factor, it is readily apparent that

Part 1 has a specific regulatory purpose which seeks to affectthe behaviour of individuals. As explained above, the Act is the product of a long line of initiatives and agreements tracing back to theFramework Convention in 1992. The Act treats GHG pricing as a core element of the initiative to mitigate GHG emissions and its self-evident regulatory purpose is to attach a minimum national cost to GHG emissions so as to incentivize behavioural changes that willreduce such emissions. [82] The third Westbank factor – actual or properly estimated costs of the regulation – has no application to

Part 1. The levy that Part1 imposes is not designed or intended to raise funds to defray the costs of regulation. Rather,

Part 1 is an example of a scheme where thecharge itself is the means of advancing a regulatory purpose. [83] This brings the analysis to the fourth Westbank factor, the relationship between the regulation and the person being regulated.This too is a somewhat uninstructive inquiry in situations where, as here, the charge itself is the instrument by which the regulatorypurpose is realized. In such circumstances, the person being regulated will necessarily have a connection with the regulation by virtue ofpaying the charge. [84] In

summary, therefore, the Westbank factors indicate that the charges imposed pursuant to

Part 1 are part and parcel of aregulatory regime.

[ 85 ] In addition to the specific matters identified in Westbank , there are two further, and important, considerations that suggest the charges imposed under

Part 1 are not taxes. The first is that the Minister of National Revenue must distribute the amount raised by the charges to the province, or persons in the province, from which that amount was raised. Subsection 165(2) of the Act says this:

(2) For each province or area that is or was a listed province, the Minister must distribute the net amount for a period fixed by the Minister, if positive, in respect of the province or area. The Minister may distribute that net amount (

a) to the province; (

b) to persons that are prescribed persons, persons of a prescribed class or persons meeting prescribed conditions; or (

c) to a combination of the persons referred to in paragraphs (

a) and (b). “Net amount” in s. 165(2) means the charges levied in a province or area less any amounts refunded, rebated or remitted in respect of those charges (s 165(1)). On the face of the Act , therefore, it would appear that the whole of the funds collected by virtue of the fuel charge must be distributed by the Minister. [ 86 ] Saskatchewan suggests this feature of the Act is of little significance because, it submits, tax revenues are also returned to the public. This happens through various payments and grants, through the provision of programs and services, and through the construction of public works.

This, of course, is broadly true. Governments do not typically hoard their tax revenues. But, there is a difference between regular tax revenues and monies raised pursuant to the Act . A dollar taken in by way of taxes can be used by the Government of Canada for any purpose in any part of the country or, indeed, the world. By contrast, monies raised under the Act must be returned to the listed province, persons in that province, or a combination of both.

Fuel charge and combustible waste revenues raised in Saskatchewan could not be employed by the federal government, and at the discretion of the Governor in Council, to build a bridge or to offset the federal government’s cost of making old age security payments. Rather, they must be returned, in the form of cash so to speak, to the province or prescribed persons in the province. This in itself is perhaps not wholly determinative of the status of the charge imposed by the Act .

However, it certainly does serve to distinguish the charges from what would typically be seen as a tax. [ 87 ] The second broad consideration here is equally important. It is this. The Act could fully accomplish its objectives, i.e., the establishment of minimum national standards of price stringency for GHG emissions, without raising a cent. In other words, if every province put in place a level of GHG pricing acceptable to the Governor in Council, the Act would not be brought into operation anywhere in the country and, as a result, it would generate no revenue. This tells the tale.

A taxing statute is one that, in pith and substance, is designed and intended to raise revenue for general purposes. See: Re Exported Natural Gas Tax at 1070; Westbank at para 30 .

It is difficult to see how the Act , which is ultimately wholly disinterested in generating revenue, can nonetheless be seen as a law with a primary purpose of raising revenue for general purposes. [ 88 ] To repeat, the central task of a court attempting to identify the pith and substance of a charge is to determine whether the primary purpose of that charge is “to tax, i.e., to raise revenue for general purposes” or “to finance or constitute a regulatory scheme” or “to charge for services directly rendered”. In the circumstances here, the primary purpose of the

Part 1 fuel charge is not to raise revenue for general purposes. Rather, the fuel charge is the centrepiece of a regulatory plan to increase the cost of GHG emissions and thereby mitigate them. [ 89 ] In the end, and considering all of the relevant aspects of this issue, it must be concluded that

Part 1 of the Act does not impose a tax in the constitutional sense of the term. 3. Does

Part 2 impose a tax or a regulatory charge? [ 90 ] The charge payable under

Part 2 is prescribed by s. 174 of the Act . A person responsible for a covered facility that emits GHGs in a quantity exceeding the applicable emissions limit must provide compensation to the Minister. As noted earlier, s. 174(2) stipulates this may be done either by the remittance of compliance units earned from emitting fewer GHGs than the prescribed limit in the past, by paying an excess emissions charge, or by a combination of both. The amount of the charge is specified in column 2 of

Schedule 4. It is set at the same level as the fuel charge in

Part 1 of the Act , i.e., $10 per tonne of CO 2 equivalent in 2018, increasing by $10 per year until it reaches $50 per tonne in 2022. [ 91 ] With this brief background in place, it is appropriate to turn to the Westbank analysis. As for the first Westbank factor, the excess emissions charge is obviously part and parcel of a detailed code of regulation.

Part 2 establishes the output-based performance standards for GHG emissions by large industrial facilities. In this regard, it specifies such things as registration requirements and GHG reporting obligations and goes on to require covered facilities to measure their emissions output against a GHG limit. The excess emissions charge fits closely into this overall scheme given that it stands as one way in which a person may provide the required compensation for exceeding an emissions limit. [ 92 ] The second Westbank factor asks whether there is a specific regulatory purpose aimed at affecting behaviour. Again, this is beyond dispute.

Part 2 aims to affect the behaviour of large emitters by imposing economic incentives for them to limit and reduce GHG emissions. [ 93 ] The third Westbank factor concerns actual or properly estimated costs of the regulation. As is the case with the

Part 1 fuel charge, this factor has no application to the obligation to pay compensation under

Part 2. It is not intended to raise funds to defray the costs of regulation. Instead, the excess emissions charge itself, because it increases the cost of GHG emissions, is the means of advancing the regulatory purpose. [ 94 ] As for the fourth Westbank factor, I repeat my earlier comment made in connection with

Part 1. This factor engages awkwardly when the charge in issue is itself the regulatory tool. Nonetheless, there is an undeniable connection here between those persons being regulated, i.e., those persons required to pay excess emissions charges, and the regulation. It exists by virtue of the payments themselves. There is also a connection, perhaps more in the sense of what is contemplated in Westbank , because the operations of large industrial

facilities “cause the need for the regulation”. [95] In light of all of this, the Westbank analysis points clearly to a conclusion that compensation collected pursuant to

Part 2 of theAct is tightly integrated into a regulatory scheme. [96] Moreover, just as with the fuel and combustible waste charges under

Part 1, it is important to note that the excess emissionscharge is not intended to raise revenues for general purposes. Rather, by virtue of s. 188 of the Act, the Minister of National Revenue mustdistribute such revenues either to the province where the covered facility is located, or to persons in that province, or to a combination ofboth. Further, the objective of

Part 2 can be realized without the Minister of National Revenue collecting any funds by way of the chargeif provinces implement adequate regimes of their own. In other words, if provinces were to put sufficiently rigorous emission standards inplace,

Part 2 would not come into operation. In any event, even when

Part 2 does apply, the operator of a facility can pay any requiredcompensation to the Minister by way of credits, not cash. And, if all covered facilities stay below their prescribed emissions limits, nocompensation of any sort is payable. This is not the statutory profile of a tax, i.e., of a levy that has a primary purpose of raising revenuefor general purposes. [97] Taking all of the relevant factors into account, it is evident that the excess emissions charge imposed under

Part 2 of the Act isnot a tax. 4. If

Part 1 or 2 does impose a tax, is s. 53 of the Constitution Act, 1867 offended? [98] In light of the conclusion that the Act does not impose taxes, it is not strictly necessary to consider the arguments based on s. 53of the Constitution Act, 1867. However, in the interest of completeness, I will deal with the impact of s. 53 should the Act be seen asimposing a tax. [99] As noted above, s. 53 requires that bills “for imposing any Tax or Impost” must originate in the House of Commons. Ininterpreting s. 53, the Supreme Court has focussed on its root constitutional purpose.

Thus, in 620 Connaught Ltd. v Canada (AttorneyGeneral), 2008 SCC 7 at para 4, [2008] 1 SCR 131 [Connaught], the Court indicated that s. 53 gives effect to the basic democraticprinciple that the Crown may levy taxes only with the consent of elected representatives. Justice Major explained this as follows in EurigEstate: 30 In my view, the rationale underlying s. 53 is somewhat broader. The provision codifies the principle of no taxation withoutrepresentation, by requiring any bill that imposes a tax to originate with the legislature. My

interpretation of s. 53 does not prohibitParliament or the legislatures from vesting any control over the details and mechanism of taxation in statutory delegates such as theLieutenant Governor in Council. Rather, it prohibits not only the Senate, but also any other body other than the directly elected legislature,from imposing a tax on its own accord. 31 In our system of responsible government, the Lieutenant Governor in Council cannot impose a new tax ab initio without theauthorization of the legislature. As Audette J. succinctly stated in The King v.

National Fish Co., (CA EXC), [1931] Ex.C.R. 75, at p. 83, “[t]he Governor in Council has no power, proprio vigore, to impose taxes unless under authority specifically delegated toit by Statute. The power of taxation is exclusively in Parliament.” 32 The basic purpose of s. 53 is to constitutionalize the principle that taxation powers cannot arise incidentally in delegatedlegislation. In so doing, it ensures parliamentary control over, and accountability for, taxation. As E. A. Driedger stated in “Money Billsand the Senate” (1968), 3 Ottawa L.

Rev. 25, at p. 41: Through the centuries, the principle was maintained that taxation required representation and consent. The only body in Canada that meetsthis test is the Commons.

The elected representatives of the people sit in the Commons, and not in the Senate, and, consistently withhistory and tradition, they may well insist that they alone have the right to decide to the last cent what money is to be granted and whattaxes are to be imposed. (Emphasis added) As stated in Ontario English Catholic Teachers’ Assn. v Ontario (Attorney General), 2001 SCC 15 at para 74, [2001] 1 SCR 470, “[t]heanimating principle [of s. 53] is that only the legislature can impose a new tax ab initio”. [100] Saskatchewan does not challenge Parliament’s legislative authority to enact the Act under its s. 91(3) taxation power.

Indeed, ittakes the initiative in arguing that the levies imposed by the Act fall under s. 91(3). Saskatchewan’s real point lays one step down the roadfrom this characterization of the Act. It takes issue with the authority of the Governor in Council to determine the provinces and areas towhich the Act will apply. This authority is said to make the Act non-compliant with s. 53. [101] The relevant sections of the Act concerning the

Part 1 fuel charge, ss. 166(2) and (3), read as follows:

(2) For the purpose of ensuring that the pricing of greenhouse gas emissions is applied broadly in Canada at levels that the Governor inCouncil considers appropriate, the Governor in Council may, by regulation, amend

Part 1 of

Schedule 1, including by adding, deleting,varying or replacing any item or table.

(3) In making a regulation under subsection (2), the Governor in Council shall take into account, as the primary factor, the stringency ofprovincial pricing mechanisms for greenhouse gas emissions. Subsections 189(1) and (2) use the same language in conferring an authority on the Governor in Council to decide the provinces and areaswhere

Part 2 of the Act will apply. [102] Saskatchewan’s submissions on the s. 53 issue are not persuasive. The situation concerning the Governor in Council’s authorityto determine where the Act will apply is readily distinguishable from the one considered in Eurig Estate, the key authority invoked bySaskatchewan on this wing of its argument. In Eurig Estate, the Administration of Justice Act authorized the Lieutenant Governor in

Council to make regulations requiring the payment of “fees” in respect of anything done by any person in the administration of justice. In purported reliance on this authority, the Lieutenant Governor in Council put in place a regulation setting out a

schedule of ad valorem charges that had to be paid in order to obtain a grant of probate. The majority of the Supreme Court found the probate charge to be a tax, not a fee, because (

a) it was enforceable by law, (

b) it was levied by a public body, (

c) it was intended for public purposes, and (

d) there was no connection between the amount of the levy and the cost of the service of granting letters probate. Justice Major then went on to find the probate levy to be non-compliant with s. 53, and hence unconstitutional, because it sought to impose a tax “without clear and unambiguous authorization from the legislature to do so” (at para 41). [ 103 ] This is not the situation with respect to the Act . Subsections 166(2) and 189(1) expressly provide that the Governor in Council may amend

Schedule 1 and, in so doing, make Parts 1 and 2 of the Act applicable to a province or area. Indeed, those provisions are the centerpiece of the backstop feature of the Act . In other words, while placing a measure of discretion in the hands of the Governor in Council, the Act leaves no doubt that the Governor in Council is authorized to exercise that discretion and to decide if

Part 1 or

Part 2 should operate in respect of any given province or area. In making a decision in this regard, the Governor in Council does not impose a tax “on its own accord”, to use the words of Major J. in Eurig Estate . [ 104 ] Nor is this a circumstance where, to reference paragraph 32 of Eurig Estate , taxation powers are claimed to arise “incidentally in delegated legislation”. The Governor in Council is specifically authorized, in the Act itself, to amend

Schedule 1 and thereby extend the application of the Act . Read in context, this is a clear and unambiguous authorization to adjust the reach of the Act and to impose the obligation to pay the levies in issue. As a consequence, this situation is also different than the one considered in Conf éd ération .

In that case, the Supreme Court found charges collected under certain provisions of the Employment Insurance Act to be unconstitutional because, in the absence of a clear delegation of taxing authority from Parliament, the Governor in Council had used those provisions to collect funds for general purposes. [ 105 ] The breadth of the discretion conferred by the Act on the Governor in Council to determine where the Act should apply was referred to by Saskatchewan in its submissions but not raised as a distinct issue.

In any event, I am not persuaded that this aspect of the scope of the Governor in Council’s authority is constitutionally problematic. Its discretion in this regard is confined in three ways and is far from open ended. First, ss. 166(2) and 189(1) provide that the Governor in Council may only add or delete a province or area from

Schedule 1 “[f]or the purpose of ensuring that the pricing of greenhouse gas emissions is applied broadly in Canada at levels that [it] considers appropriate”. Second, ss. 166(3) and 189(2) provide that, in exercising this authority, the Governor in Council must take into account “as the primary factor” the stringency of provincial pricing mechanisms for GHG emissions.

Third, and more generally, basic administrative law principles preclude the Governor in Council from making decisions about the application of the Act to provinces or areas if those decisions are based on irrelevant considerations or reasons at odds with the purpose of the Act . See: Katz Group Canada Inc. v Ontario (Health and Long-Term Care) , 2013 SCC 64 at para 24 , [2013] 3 SCR 810. [ 106 ] Another possible dimension of the s. 53 issue involves the suggestion that the delegation of authority to the Governor in Council in relation to the particulars of the

Part 1 fuel charge is so wide that, while express, it nonetheless offends s. 53. The point, as I understand it, is that the very generous authority enjoyed by the Governor in Council under

Part 1 would allow it, in effect, to cut a new tax out of whole cloth. The key sections of the Act underpinning this concern are ss. 26 , 166 and 168 . They are reproduced in Appendix A. [ 107 ] The response to these concerns has several layers. First, the governing case law indicates that, so long as a taxing authority is delegated expressly and unambiguously, it may be exercised to establish the “details and mechanisms” of the tax. See: Conf éd ération at para 92; Eurig Estate at para 30 .

Although they are broadly worded, the sections of the Act in issue here would seem to be aimed at enabling the Governor in Council to do this very thing: to work out and establish some of the details and mechanisms of the fuel charge scheme that are not addressed by the Act itself. [ 108 ] Second, and more fundamentally, if regulations made pursuant to the provisions noted above did, in fact, attempt to implement a wholly or substantially new tax, then the obvious legal response would be to strike down those regulations because they offend s. 53 of the Constitution Act, 1867 or because they are ultra vires the Act in administrative law terms.

The invalidity of the regulations would not impact the constitutionality of the Act just as (

a) in Connaught , where the validity of the business licence fees imposed under s. 24 of the Parks Canada Agency Act was not seen as affecting the validity of s. 24 itself, and (

b) in Eurig Estate , where the validity of the probate fee imposed under s. 5 of the Administration of Justice Act was not considered to impugn the validity of s. 5. [ 109 ] Third, I note that, even assuming arguendo that there is a problem with the constitutional validity of the sections of the Act conferring wide regulation-making authority on the Governor in Council, this would seem to be a circumstance where the doctrine of severance could be engaged or the offending wording would be read down so as to avoid constitutional problems. In other words, an

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