Supreme Court of Canada rules on the constitutionality of the Greenhouse Gas Pollution Pricing Act

Backgrounder

The provinces and territories on a map of Canada are one of three colours depending on whether or not the federal backstop applies in full, in part or not at all. Provinces and territories in which the provincial or territorial system applies are Newfoundland and Labrador, Nova Scotia, Quebec, British Columbia and the Northwest Territories. Provinces in which the federal backstop applies in part are Prince Edward Island, New Brunswick, Saskatchewan and Alberta. Provinces and territories in which the backstop applies in full are Ontario, Manitoba, Nunavut and the Yukon. In provinces, the Output-based pricing system (OBPS) came into effect in January 2019 and the fuel charge came into effect in April 2019. In Yukon and Nunavut and, both the Output-based pricing system and the fuel charge came into effect in July 2019. The price of carbon is to increase by $10 annually.

What was the case about

In June 2018, the Greenhouse Gas Pollution Pricing Act became law, ensuring that it is no longer free to pollute anywhere in Canada. A price on carbon pollution provides an incentive for climate action and innovation, and in jurisdictions where the federal backstop applies, it puts more money in the pockets of the majority of families. It is a proven, efficient, and cost-effective way of reducing emissions.

Greenhouse gas emissions are a matter of national concern because carbon pollution knows no borders. The provinces of Saskatchewan, Ontario and Alberta each challenged the Act on the basis that it is outside federal jurisdiction. The courts of appeal in both Saskatchewan and Ontario upheld the Act, recognizing the federal role in ensuring all provinces and territories work together to fight climate change. The Court of Appeal of Alberta ruled that the Act is unconstitutional.

Saskatchewan and Ontario appealed these decisions to the Supreme Court of Canada. At the same time, the province of British Columbia challenged the finding by the Court of Appeal of Alberta that the Act is not constitutional. The Supreme Court heard these appeals on September 22-23, 2020.

In court, a diverse group of organizations, including doctors, economists, cities, labour, Indigenous groups, the province of British Columbia and young people supported Canada’s case.

On March 25, 2021, the Supreme Court of Canada found that carbon pollution knows no boundaries and that Parliament has the authority to address it by applying a price on carbon pollution in jurisdictions that do not have their own system that meets minimum national stringency standards.

What does the Greenhouse Gas Pollution Pricing Act do

The Greenhouse Gas Pollution Pricing Act fulfills Canada’s commitment to ensure there is a pricing mechanism on greenhouse gas emissions across the country. It implements a federal carbon pollution pricing system that applies as a backstop in those provinces and territories that do not have a carbon pricing system of their own or that have a system that does not meet the federal benchmark.

The federal carbon pollution pricing system has two parts: a charge on fossil fuels like gasoline and natural gas – the fuel charge; and a regulatory trading system for industry – the Output-Based Pricing System.

How does Canada’s carbon pollution pricing system work

If it is free to pollute, there will be more pollution. Our plan is simple – it puts a price on the carbon pollution causing climate change and returns all direct proceeds from pricing carbon pollution under the federal system to the jurisdiction in which they were collected. In Saskatchewan, Manitoba, Ontario and Alberta, the Government of Canada is returning the majority of proceeds directly to households through Climate Action Incentive payments.

When they claim their Climate Action Incentive payment through their tax return this year, a family of four will receive $600 in Ontario, $720 in Manitoba, $1,000 in Saskatchewan and $981 in Alberta. The majority of families in these provinces will get more money back with low-income families benefitting the most.

The remaining proceeds are used to provide support to key sectors, including small- and medium-sized businesses, municipalities, universities, schools, colleges, hospitals, and not-for-profit organizations, as well as Indigenous communities.

When the Government of Canada introduced a price on carbon pollution across Canada, Quebec, British Columbia and Alberta already had carbon pricing systems. Since then many of the other provinces and territories have introduced their own pollution pricing systems.

Currently five provinces and territories have their own carbon pollution pricing systems. The federal backstop applies in full in four provinces and territories, and the remaining have a mixture of federal and provincial systems.

Canada’s successful carbon pollution pricing approach is an example of how Canada can meet its economic needs and its environmental goals at the same time.

What are the next steps

Currently the Government is reviewing the standards it uses to assess provincial systems, also known as the federal “benchmark criteria” and is consulting with provinces and territories in order to strengthen that benchmark. Strengthening these standards will help Canada meet and exceed its climate goals while allowing provinces and territories to choose the pricing systems that work best for them.

The Supreme Court’s decision means that the Government can continue to proceed with this work. The decision also means that the Government of Canada can continue to ensure that pollution isn’t free anywhere in the country and put more money in the pockets of the majority of families where the federal system applies.

Each jurisdiction has a label that indicates which system applies, as stated in the table below.

Jurisdiction/System that applies

  • Newfoundland and Labrador: Provincial carbon tax plus OBPS
  • Nova Scotia: Cap-and-Trade
  • Prince Edward Island: Provincial fuel charge, Federal OBPS
  • New Brunswick: Provincial fuel charge, as of April 1, 2020. Federal OBPS transitioning to provincial OBPS at a time to be determined.
  • Quebec: Cap-and-trade
  • Ontario: Federal fuel charge and federal OBPS transitioning to provincial OBPS at a time to be determined.
  • Manitoba: Federal backstop
  • Saskatchewan: Federal fuel charge. Provincial OBPS on some sectors, federal OBPS on others.
  • Alberta: Federal fuel charge. Alberta TIER (Technology Innovation and Emissions Reduction) regulation for industry.
  • British Columbia: Provincial carbon tax
  • Yukon: Federal backstop
  • Northwest Territories: Territorial carbon tax
  • Nunavut: Federal backstop

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