P.E.I.’s climate plan will not include a carbon tax

On Wednesday, July 11th, P.E.I’s Environment Minister Richard Brown stated that the province will submit a climate plan to Ottawa by September 1st, 2018. This climate plan will not include a carbon tax nor a plan for a cap-and-trade system; the two options that the federal government has given the provinces for pricing carbon pollution. According to Minister Brown, P.E.I’s plan to reduce emissions 30% below 2005 emission levels by 2030 “doesn’t require a tax” to meet the applicable targets. Minister Brown is of the opinion that if the federal government’s objective is to reduce carbon emissions and there is a plan in place why is a tax necessary?

University of P.E.I economist Jim Sentence stated that carbon tax would have the following results: (i) raise the relative cost of carbon-based fuels like gas and heating oil to encourage the use of alternatives; and (ii) redistribute the carbon tax revenues through perks like household rebates or income tax cuts.

The concern expressed by P.E.I. is that any carbon tax would result in economic consequences to the province. As we blogged earlier this month Saskatchewan is already challenging the federal authority to apply a carbon price. Also, the newly-elected premier of Ontario, Doug Ford has indicated that he will join Saskatchewan’s court challenge.

Saskatchewan submitted a reference to the Saskatchewan Court of Appeal in April 2018 asking the Court of Appeal to decide whether the federal government’s federal carbon tax bill, the Greenhouse Gas Pollution Pricing Act (the “GHG Act”), is “unconstitutional in whole or in part.” The GHG Act requires provinces and territories to implement carbon pricing systems on or before January 1, 2019, or adopt a federally administered carbon pricing system referred to by the federal government as the ‘backstop.’ In provinces and territories where no carbon pricing system is adopted, or where the pricing system fails to meet federal standards, the backstop will be imposed on January 1, 2019.

The federal government has made its intention to the provinces abundantly clear. It will introduce carbon pricing across the country in January 2019 and if provinces fail to develop a plan that fits the federal requirements, the applicable rule will be what is set out in Ottawa’s plan. While it is impossible to predict the result of the court challenge, most constitutional experts are of the opinion that the federal government does have the authority to impose such a tax on the basis that the federal government has broad taxation powers.

In October 2016 Prime Minister Trudeau announced that it will impose a price on carbon beginning in January 2019 with a ‘floor price’ of $10 per tonne of greenhouse gas emissions, rising to $50 per tonne by 2022. The federal government has also indicated its intention to impose a ‘backstop’ price on any province that fails to develop its own pricing scheme.

The background for the federal government’s approach is set out in the Paris Agreement and the Pan-Canadian Framework on Clean Growth and Climate Change. The Paris Agreement sets out a variety of measures to achieve a reduction of greenhouse gas emissions (“GHG”) including (i) reduction of GHG emissions; (ii) increase of sinks and reservoirs for GHGs; (iii) non-market measures, such as direct prohibition of various carbon-producing activities; and, (iv) carbon pricing.

Following the signing of the Paris Agreement at the end of 2016, the federal and provincial governments agreed on the Vancouver Declaration on Clean Growth and Climate Change. The Vancouver Declaration acknowledged that the provinces have been front runners on climate change, including the adoption of carbon pricing mechanisms. The Vancouver Declaration supports the theory that provinces should be provided the flexibility to develop their own approaches to addressing climate change.

Following the Vancouver Declaration a series of federal-provincial working groups were established; one of which focused on carbon pricing mechanisms. The Final Report considered carbon pricing mechanisms established by provincial governments including: British Columbia’s revenue neutral carbon tax; Alberta’s carbon levy; Ontario’s cap-and-trade; Quebec’s cap-and-trade; and Nova Scotia’s commitment to cap-and-trade.

The Pan-Canadian Framework included the federal government and provinces, except for Manitoba and Saskatchewan, and developed a statement of principles that includes, among others: recognition of the diversity of provincial and territorial economies and the need for both fair and flexible approaches while transition to a low-carbon economy; and, acknowledgement of a growing economy and achieving GHG emission targets requires an integrated, economy-wide approach. The Pan-Canadian Framework also includes a proposal for a ‘Federal Carbon Pricing Benchmark’.

The results of the constitutional challenge on the federal government’s requirement remains unclear. The Court of Appeal’s decision will be of interest as there is overlapping authority amongst the federal, provincial and municipal governments to regulate in the area of environmental matters.

The federal government’s powers to create environmental laws include trade and commerce, navigation and shipping, fisheries, criminal law, aboriginal lands and people, taxation; anything that is a national concern or emergency, residual power over anything not specifically covered in either list, and to make laws for the peace, order and good government of Canada (the “POGG clause”). The federal government also has control over the rules for land it owns, (like the National Parks and military bases) the industries it controls, (like railways and airlines) and the oceans.

Provincial powers that have been used to justify environmental laws include powers over mines, minerals and non-renewable resources, forestry, electricity, public lands the province owns, municipal institutions, matters of a local or private nature, local works and undertakings and property and civil rights within the province.

The Supreme Court of Canada has held that all levels of government (even municipalities through delegated authority) have important roles to play in environmental protection and should do so, within their own allowed jurisdictions. It is arguable that the federal government may potentially have greater powers because of the residual power clause and the POGG clause. However, increasingly the federal government has been happy to allow the provinces to play the lead role when it comes to environmental regulation. It remains to be seen whether this will continue in the area of GHG reductions.