Providing coverage of Alaska and northern Canada's oil and gas industry
April 2021

Vol. 26, No.14 Week of April 04, 2021

Supreme Court of Canada rules against provinces on carbon tax

Gary Park

for Petroleum News

Almost one-third of Canada’s provinces - Ontario, Alberta and Saskatchewan - representing one-half of the national population have been left licking their wounds following a landmark verdict by the Supreme Court of Canada that the federal government has the authority to tax carbon emissions across the country.

But what they suffered was far from a resounding defeat, with three of nine judges on the nation’s top court challenging the Greenhouse Gas Pollution Pricing Act imposed by Prime Minister Justin Trudeau in 2018.

One said the law gave the federal cabinet the power to override the provinces ownership and control over development of their natural resources.

The other two were even more sweeping in their dissenting votes, rating the act as unconstitutional.

Provinces ponder next moves

Having apparently exhausted their legal fight against Trudeau’s tax - which University of Calgary economist Trevor Tombe declared is now “here to stay” - the three provinces are now pondering new consumer carbon pricing regimes, including extra fuel charges.

Alberta Premier Jason Kenney said his government will “consult with Albertans and also talk to our allied provinces to determine the best way forward to protect jobs and our economy.” In other words the fight is now turning political.

Regardless of the Supreme Court’s belief, contained in a 3,500-page judgment, that a carbon tax is essential to combat climate change as an existential threat to Canada and the globe, Alberta and Saskatchewan will not back down from their hard line that a carbon tax raises questions about Canada’s continuing ability to compete against other energy producers around the world.

The court ruling sets the stage for a shift in power over the development of natural resources to the federal government and away from the provinces that have the most expertise in regulating and promoting the industry, said Richard Masson, an executive fellow at the University of Calgary’s School of Public Policy.

“If we don’t see production growth (of oil and natural gas) it doesn’t mean the world is better off, it just means somebody else is producing the oil because its overall demand has to be satisfied,” he told The Canadian Press.

Higher costs projected

Other analysts and industry leaders said the ruling means higher costs for both consumers and industry if the Trudeau government carries out its pledge to raise the carbon tax from C$50 per metric ton in 2022 to C$170 by 2030.

The current federal carbon price adds 8.8 cents to every liter of gasoline, or about C$3.50 to fill a 40-liter tank and about C$15 on a monthly natural gas bill.

The idea of a carbon price is to make it more expensive to pollute, putting pressure on the provinces to find ways to reduce emissions attributable to individuals or industries.

Canada returns 90% of revenues from the tax to families through income tax rebates, with the other 10% going in grants to smaller businesses, schools, hospital and municipalities.

The decision facing Kenney is whether to go along with the federal program, or meeting the Trudeau government’s greenhouse gas emissions objective through a made-in-Alberta consumer tax, expanding the province’s existing carbon levy on large industrial emitters or joining a cap-and-trade program like Quebec which allows emitters to buy and sell credits based on their emissions over or under a set cap.

Kenney told the Canadian Association of Oilwell Drilling Contractors he will talk with Ontario and Saskatchewan to determine whether there is “broader interest” in cap-and-trade that avoids “being captive to the California market like Quebec currently is.”

New reality?

While Kenney grapples with his response to the court verdict and his ongoing battle with the Trudeau administration, others indicate they are more willing to accept a new reality.

Tim McMillan, chief executive officer of the Canadian Association of Petroleum Producers, said in a statement that his industry is developing “world leading technology” to lower emissions.

“Based on the Supreme Court of Canada’s decision, it will be important for the federal government and provinces to work together to support Canada’s environmental and economic objectives.

“In Canada, each province has very different opportunities to mitigate climate change based on their unique circumstances and we support continued flexibility to allow for provincial input,” he said.

Goldy Hyder, chief executive officer of the Business Council of Canada, welcomed the Supreme Court ruling, but said convincing business to invest the billions of dollars needed to cut emissions will require a stable and predictable regulatory environment, not just carbon pricing.

Federal Environment Minister Jonathan said provinces and the three northern territories “have the flexibility to be able to introduce their own carbon-pricing mechanisms, so long as they meet certain national minimum standards.”

He said the federal government is “open to conversations with provinces.”


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