Canada’s top court rules federal carbon pricing is legal, defeats provincial challenges

“Parliament has jurisdiction to enact this law as a matter of national concern,” the Supreme Court of Canada said in its ruling Thursday, which was supported by six of nine judges. “This matter is critical to our response to an existential threat to human life in Canada and around the world.”

The decision means the country’s most ambitious environmental policy to date, which would see the baseline price on carbon rise to C$170 ($135) per metric ton by 2030, will stand.

The ruling is key to Canada’s goal of reaching net-zero emissions by 2050. It’s also a victory for Trudeau, who came to power in 2015 pledging to tackle climate change, but has faced strong opposition from the fossil-fuel sector and oil-rich western provinces like Alberta.

“There should be no question as to whether climate change is real, or whether climate action is the right thing to do for the planet, for jobs and as human beings,” Environment Minister Jonathan Wilkinson said in an emailed statement. “The question is whether this decision will put an end to the efforts of Conservative politicians fighting climate action in court, and whether they will join Canadians in fighting climate change.”

Alberta Premier Jason Kenney criticized the decision, lashing out in a news conference at “Ottawa elites” who don’t respect western interests. “We will continue to fight for our provincial power,” he said, without specifying whether he’d setup a provincial carbon pricing mechanism. “The notion that Alberta is the bad actor in the federation is the opposite of the reality. We have been the leaders from Day One.”

Biden Factor

Canada, like the U.S., has pledged to get to net-zero emissions by 2050. While a blow for the country’s oil sector, the ruling provides a road map and removes uncertainty on Canada’s emissions policy.

“Carbon pricing is the biggest, most effective tool” for Canada to meet its global climate commitments, said Richard Florizone, chief executive officer of the International Institute for Sustainable Development, a Winnipeg-based think tank. “I’d encourage companies to look at the long term, to look where the global economy is going and therefore where the Canadian economy is going.”

Canada produces more greenhouse gas per capita than almost all the world’s top emitters. Geography works against it: distances are vast, temperatures extreme and the population relatively small. Although it’s helped by an abundance of clean hydroelectric power, it’s hurt by an historic dependence on extractive natural resources. Factor in emissions generated outside Canada when the fuel exported from its oil sands is actually burned, and its carbon footprint gets larger still.

Until recently, provincial resistance to the carbon tax was, to some extent, bolstered by climate-backtracking in the U.S. under former President Donald Trump, which in turn fed fears energy investment would flow south. The election of President Joe Biden, whose near-immediate cancellation of the Keystone XL pipeline established his climate priorities, has shifted that dynamic. Since then, the two leaders have begun working to deepen cooperation around climate.

In 2016, Trudeau announced Canada’s plan to slash emissions would be centered on a national, but flexible, price for carbon. Provinces would be allowed to choose whether to adopt cap-and-trade systems, carbon taxation, or a mix of both. By 2018, though, some provinces were pushing back, leading Trudeau to impose a carbon tax on four that had balked at implementing their own: Ontario, Alberta, Saskatchewan and New Brunswick. That led to provincial appeals and ultimately to this week’s Supreme Court ruling.

The decision upholds legislation that is meant to be a backstop, only kicking in if provinces fail to meet the national emissions benchmarks on their own, said Nathalie Chalifour, professor of environmental law at the University of Ottawa. “I think the message is very clear that there’s a role for both provinces and parliament to act on this issue.”

The Greenhouse Gas Pollution Pricing Act is composed of two parts: a surcharge on various types of fuel and combustible waste and a carbon pricing system for industrial emitters. The latter is based on targets set relative to the sector’s current average: companies that produce more than the target either pay a tax or can buy credits from those who do better. A key selling point of the act was that much of the revenue would flow to individual Canadians in the form of a rebate, more than compensating them for the higher-cost of fuel.

That rebate structure disproportionately hurts small businesses, according to Dan Kelly, president of the Canadian Federation of Independent Businesses. “Small firms simply cannot afford a further increase in their overall tax burden, especially as many remain in full lockdown or subject to significant Covid-19 related restrictions.”

The Canadian Chamber of Commerce also expressed concerns. “Understanding that the federal carbon tax and its incremental increases on the price on carbon over the following decades are here to stay is one thing,” said Aaron Henry, the lobby group’s senior director of natural resources and sustainable growth. “Ensuring businesses are able to successfully navigate a carbon price with confidence is quite another.” Businesses will need sustainable finance and public policy supports to weather the tax, he said.

The initial C$20 per metric tonne charge was equivalent to 4.42 cents per liter of gasoline, with the aim of boosting that to C$50 by 2022. In December 2020, Trudeau said Canada would more than triple that target price by 2030, bringing the government more in line with the incoming U.S. administration.

“Global climate change is real, and it is clear that human activities are the primary cause,” the court said in its ruling. “The effects of climate change have been and will be particularly severe and devastating in Canada.”