Note to readers: A somewhat different, shorter version of this post was published on March 31, 2022 by the Macdonald-Laurier Institute (MLI) think tank.

Your Rising Cost of Energy (and everything else)

On April 1 Canada’s carbon tax increased, and when that increase works its way to the gas pumps it will add approximately 10-14 cents a litre to the price of gasoline. And it doesn’t end there. You will also, shortly, pay more for natural gas for heating and for electricity generated with natural gas. These energy price increases will work into, and increase, the price of your food, and the cost of living generally.  But the carbon tax is only the most obvious way to reduce your energy consumption.  Another, less visible technique Canada is using is to keep Canadian oil and gas in the ground. 

This second way is being done subtly, through new legislation, the Impact Assessment Act (IAA). The stated purpose of the IAA is to require proposed projects like mines, pipelines and electricity transmission lines to go through a federal assessment of their estimated environmental, financial and social impacts, to determine whether the projects will be licensed to proceed. However, the IAA makes new energy projects like pipelines prohibitively costly. I have explained why that is: pipelines, the environment and the economy. If one can’t affordably transport oil to a refinery or natural gas to consumers across Canada there is no business case to take these commodities out of the ground.

Alberta had hoped that it could end this newly legislated federal control (to lock in its petroleum resource development) though constitutional litigation.  But Alberta will probably lose its case, now before the Supreme Court of Canada (SCC).  This loss was predictable from the SCC’s decision in the 2021 carbon tax litigation. In that case, as in this one, the provinces conceded Ottawa’s position on the facts Ottawa used to justify its legislation, thereby ensuring their loss.

The Real Dispute Behind the Constitutional Litigation

Federal and provincial environmental assessments have been used, with Federal-Provincial cooperation, for large scale projects for half a century.  Some assessments have had representatives from each level of government on the assessment panel.  So why the court battle now?

Because the new IAA has greatly expanded the scope of the federal assessment process, making it practically impossible to construct any new pipelines.  That’s why Alberta politicians have called it the No More Pipelines Act. In my testimony before the Canadian Senate I proposed amendments to the IAA that would open the way for new energy projects to be assessed in less time, and with relevant criteria, summarized here: my presentation to the senate on amendments to the impact assessment act. However, the government accepted none of my proposals nor those of any other commentators that were intended to shorten and simplify the assessment process, to make it a real assessment rather than an energy barrier masquerading as an assessment.

The last pipeline assessed, the Trans Mountain Extension (TMX), demonstrated just how broken our assessment process was. The assessment process took a decade – two or three times the length of similar US assessments. After the approval, pipeline opponents subjected that decision to two successive rounds of litigation.  The frustrated investors walked away from their project while the litigation was ongoing. The message from TMX to investors is that Canada is no longer as open for business as it once was.

However, that overly-lengthy pipeline assessment was still under the old (2012) impact assessment law.  Under that law the National Energy Board had to assess 12 issues.  The new IAA almost doubled that, to 22 issues, including new ones, like the downstream impact on climate change for the entire planet, which is virtually impossible to estimate.  This massive increase in the cost, length and uncertainty of an already interminable process ensures that no new energy project of any size is likely to be built anywhere in Canada. “Keep it in the ground” is real purpose of the IAA, and why Alberta wanted to nullify it. I have explained this in greater detail here: assess the project, not the planet.

Why Ottawa Will Probably Win

Canada’s impact assessment process is broken, but Alberta’s constitutional litigation is unlikely fix it.  That’s because of the important SCC precedent set in the 2021 carbon tax case.

As the Chief Justice of the Supreme Court of Canada wrote, on behalf of the majority of the court:

“….these gases are a specific and precisely identifiable type of pollutant. The harmful effects of GHGs are known … Moreover, GHG emissions are predominantly extraprovincial and international in their character and implications. …. GHG emissions represent a pollution problem that is not merely interprovincial, but global, in scope.”

That decision effectively amended the Canadian constitution without changing any words in the written law.  The Court’s holding on the international aspects of GHG emissions left no room for provincial natural resources jurisdiction.  As all large scale industrial activity emits CO2, and has social and economic impacts, the CO2 “hook” in the IAA makes all natural resources subject to federal assessment and veto. This is not limited to interprovincial projects, but also captures projects within a province (such as any pipeline longer than 40 km) if it could potentially have any effect on a federal concern (such as increasing GHG emissions).

The Provinces’ Fatal Concession

The provinces are the authors of their own litigation misfortune. In the carbon tax case the federal government argued that Canada’s CO2 emissions needed to be reduced massively and immediately to fight the global climate crisis.  The provinces did not contest this argument, despite significant scientific controversy about the rate, the causes and the effects of climate change in Canada, and sharp policy controversy about what to do about it.  Once the provinces had effectively conceded the necessity of urgent global action to fight the global climate crisis, and that Canada as a nation had committed to certain emissions reductions in the 2015 Paris Agreement, it was all over for them. A sub-national unit like a province can never be more efficient at fighting a global crisis than a nation. Thus, the provinces conceded control over their natural resources, and possibly other areas of provincial jurisdiction.

Reference Cases Do Not Test the Facts

These two constitutional cases came to the SCC through an unusual Canadian legal procedure: the reference case.  Usually, constitutional litigation starts with a trial, with competing testimony and cross examination of witnesses, and then, perhaps, appeals up the judicial ladder, over many years, to the SCC. However, to avoid a long trial, a province can refer a case straight to its provincial Court of Appeal for a non-binding opinion; or, Ottawa can refer a case to the SCC for a binding opinion.

But reference cases do not test facts. The “evidence” presented is usually rudimentary, without cross-examination.  The court assumes the stated facts to be uncontroversial, and considers which level of government has the constitutional authority to deal with those facts.  If the facts presented are one-sided the decision will probably also be one-sided.

Looking Ahead

The SCC’s decision about the constitutional jurisdiction over natural resources will have a huge economic and social impact, not just for Alberta, but for all Canadians. This expansion of federal control over the economies of resource-rich provinces will also greatly stress Canadian national unity.  The provinces that have most of the high value natural resources will be the obvious losers.  But less obvious, thanks to the IAA, all Canadians will also be losers, through escalating energy prices raising many other prices.  It remains to be seen for how long Ottawa’s victory in this case, and the new IAA, will be sustainable.