Federal Carbon Law Constitutional, Not a Tax
Ontario's constitutional challenge to the Greenhouse Gas Pollution Pricing Act ("GHG Act") has failed by a 4-1 margin (2019 ONCA 544
), reinforcing the 3-2 loss from Saskatchewan's similar challenge (2019 SKCA 40
Although Ontario's principal argument—that the content of the
legislation fell outside federal jurisdiction—was turned aside by the
court's finding that the legislation fell under the national concern
branch of the "peace, order and good government" power, the decision
also provided interesting insights into the distinction between a tax
and a regulatory charge.
The GHG Act puts a price on carbon pollution in order to reduce
greenhouse gas emissions; it applies only to those provinces and
territories that have not adopted sufficiently stringent carbon-pricing
mechanisms. Currently the act applies to Manitoba, New Brunswick,
Nunavut, Ontario, Saskatchewan, and partially to Prince Edward Island,
although it is expected to be extended to Alberta as well.
The GHG Act levies two distinct charges. Under part 1, it places a "fuel
charge" on carbon-based fuels, which is imposed on certain producers,
distributors, and importers. Under part 2, it establishes a regulatory
trading system applicable to large industrial emitters of greenhouse
gases; the system includes limits on emissions, a credit to those who
operate within their limit, and an "excess emission charge" on those who
Under section 91(3) of the Constitution, Parliament has jurisdiction to
enact laws for raising money by any mode or system of taxation. Given
the breadth of this power, one might wonder how a tax imposed by the
federal government could possibly be challenged. However, under
section 53 of the Constitution, any bill for imposing a tax must
originate in the House of Commons. As established in Eurig Estate (Re)
( 2 SCR 565
) and 620 Connaught Ltd. v. Canada (Attorney General)
(2008 SCC 7
section 53 codifies the principle that there should be no taxation
without representation, by ensuring that the executive branch must call
the legislative branch into session to raise taxes.
The GHG Act delegates to the governor in council (that is, the federal
Cabinet) the authority to determine to which provinces or territories
the GHG Act will apply, giving no say to Parliament in this matter.
Thus, Ontario argued that the GHG Act, as a tax, is unconstitutional.
The federal government argued, and the court agreed, that this basis for
challenge could not succeed because the GHG Act is not a tax; instead,
it is a regulatory charge. The court drew on Westbank First Nation v. British Columbia Hydro and Power Authority
( 3 SCR 134
where the Supreme Court established that in assessing whether a charge
is a regulatory fee or a tax, the primary purpose of the charge is
decisive. Where a charge is imposed primarily for a regulatory purpose,
or as necessarily incidental to a broader regulatory scheme—as opposed
to being primarily for the raising of revenue for general fiscal
purposes—it is a regulatory fee. An additional condition for a charge to
be regulatory is that the charge must be connected to the regulatory
scheme itself. This will apply where the revenues raised are tied to the
costs of the regulatory scheme or where the charges themselves have a
regulatory purpose, such as the regulation of certain behaviour.
The ONCA found that the GHG Act imposed a valid regulatory charge
because its purpose is primarily regulatory, and the purpose of the
charges is behaviour modification. Ontario argued that the charges could
not be regulatory because (1) the revenues generated by the charges are
not linked to the cost of administration of the regulatory scheme, and
(2) those revenues will not be spent in connection with the purposes of
the GHG Act (instead, the part 1 funds are to be returned to taxpayers);
however, the court rejected those arguments.
It will be interesting to see whether the Ontario judgment is appealed. On a similar topic, Hunt v. The Queen
(2018 TCC 193
), which also considers the difference between a regulatory fee and a tax, is currently before the FCA.
Fasken Martineau DuMoulin LLP, Toronto