On October 13, 2023, the Supreme Court of Canada (the "SCC" or the "Court") released its decision in Reference re: Impact Assessment Act, 2023 SCC 23 (the "Decision") finding the federal Impact Assessment Act ("IAA") was unconstitutional in part.
In a split decision, the Court found the regulatory scheme around "designated projects" under the IAA grants powers to the federal government that are beyond its constitutional jurisdiction. In a word, the Court took issue with the overbreadth of the scheme.
The Decision
The Court divided the "designated projects" scheme under the IAA into four parts:
- The designation phase, which involves a broad power for the Minister of the Environment (the "Minister") to designate projects as being subject to the IAA regulatory scheme;
- The screening decision, which involves the federal Impact Assessment Agency deciding whether a designated project should undergo an impact assessment;
- The impact assessment phase, which involves information gathering and the production of an Impact Assessment Report to consider a broad range of factors, including, among many others: changes to the environment, health, social, or economic conditions; the impact of a designated project on any Indigenous group; considerations related to Indigenous cultures; and comments received from the public; and
- The public interest decision, which requires the federal government to make a determination about whether the adverse effects indicated in an Impact Assessment Report are in the public interest, and if so, impose conditions on a project proponent (or, if not in the public interest, effectively halt the project indefinitely).
The Court found there is nothing constitutionally problematic about either the designation phase or the impact assessment in isolation; rather, it is the overbreadth of the federal government's decision-making powers that create a risk the federal government may regulate or interfere with an activity for reasons falling outside of its constitutional jurisdiction.
Specifically, at the screening decision stage, Section 16(2) of the IAA requires the Impact Assessment Agency to consider mandatory factors – some of which the Court found to be overbroad and pose a risk that projects with little or no potential for adverse federal effects will nonetheless be required to undergo an impact assessment (see para. 154 of the Decision).
Additionally, the Court found the factors the federal government must consider under Section 63 of the IAA when making a public interest decision (for example, the extent to which the designated project contributes to sustainability or climate change commitments) transforms a decision about the public interest related to certain adverse federal effects into a decision about the public interest or wisdom of a project as a whole (see para. 166 of the Decision).
The Court's reasons around this point are, admittedly, convoluted; however, the thrust of the Decision is that the defined federal effects at the impact assessment phase do not necessarily drive the scheme's decision-making functions at the public interest decision stage (see para. 140 of the Decision). For example, an Impact Assessment Report might indicate an adverse effect on fisheries (an area within federal jurisdiction); the Minister is then charged with deciding whether those adverse effects are in the public interest. However, in doing so, the Minister must take into account the mandatory factors in Section 63 of the IAA (e.g. sustainability and climate change commitments), which then transforms the decision about effects within federal jurisdiction into a decision about the public interest of the project as a whole – particularly where the Minister makes a negative decision and effectively halts a project indefinitely.
The Court, therefore, concluded the "designated projects" scheme exceeds the bounds of federal jurisdiction and intrudes more than incidentally into the provinces' constitutional sphere (see paras. 204 and 205 of the Decision).
Legal Effect of the Decision
Procedurally, this matter was brought before the SCC as a reference question, not an appeal of a regulatory decision. The Decision, therefore, does not strike down the IAA; rather, it provides judicial guidance to the federal government.
As a result, the IAA still applies in Canada and the regulatory regime remains in full force and effect. However, the federal government may enact amendments to the IAA in the near future as a result of this Decision. The required amendments to the IAA could be relatively minor in order to bring the decision-making scheme into compliance with the SCC's decision (e.g., amending Sections 16(2) and 63, and the definition of "effects within federal jurisdiction" in the IAA). In the end, the Decision may result in little practical difference to the current regulatory scheme and how project proponents are required to proceed.
Cooperative Federalism
The Decision highlighted important fundamental concepts of Canadian constitutional law and some of the difficulties facing the Canadian federation as sustainability and environmental protection gain importance domestically and internationally.
The constitution of Canada – The Constitution Act, 1867 (the "Constitution") sets out specific legislative authorities – referred to as "heads of power" – for the federal government and the provincial governments. The concepts of sustainability and environmental protection, however, are not explicitly set out in the Constitution as a head of power residing with either level of government. This is not uncommon. Throughout Canada's history, various topics or issues have arisen that are not clearly identified within an existing head of power in the Constitution.
In the Decision, the Court reiterated neither level of government has exclusive jurisdiction over the whole of the "environment" or over all "environmental assessment" and concluded both levels of government can legislate in respect of certain aspects of environmental protection (see para. 116 of the Decision). This is a central feature of environmental decision-making in Canada and is a reflection of the "double aspect doctrine", which allows both levels of government to exercise legislative jurisdiction over the same activity of project (see para. 117 of the Decision) consistent with the principle of cooperative federalism (see para. 122 of the Decision).
The Decision is just one case in a line of many where the SCC was required to work through the scope and limits of each level of government's constitutional powers related to sustainability and environmental protection, which the SCC has acknowledged as "constitutionally abstruse" (see para. 172 of the Decision). The SCC cautioned the "double aspect doctrine" needs to be applied carefully and each level of government must only enact laws rooted in their specific heads of power under the Constitution (see para. 123 of the Decision). Similarly, the Court acknowledged the flexibility offered by cooperative federalism (a jurisprudential concept) cannot erode the constitutional balance inherent in the Canadian federal state (see para. 122 of the Decision).
Under the Canadian constitutional system, when new topics or issues arise, legislatures and courts engage in a dialogue to determine how such topics or issues fit within existing constitutional heads of powers. Practically, this dialogue occurs as follows:
- a legislature drafts and enacts a law based on its interpretation of its constitutional powers;
- Canadian courts provide corrections or guidance as laws are brought before them through the issuance of decisions; and
- legislatures receive feedback through court decisions and, where appropriate, enact new laws or amend existing laws to address the constitutional challenges raised by a court.
Dialogue between legislatures and courts, in the manner noted above, is important in a healthy democracy and is what happened here in this Decision.
Political Commentary
For constitutional decisions related to the division of powers between levels of government, there is also a dialogue that happens between the applicable levels of government. When the Decision was released, The Honourable Jonathan Wilkinson, federal Minister of Energy and Natural Recourses Canada, summarized how the federal government will respond to the Decision. Minister Wilkinson stated the IAA will remain in force, but stated the Decision requires the federal government to enact "surgical" amendments to ensure the IAA is constitutional. In particular, the federal government's amendments will make it clear the IAA is focused on making decisions on areas of federal jurisdiction.
At the same time, reactions to the Decision from provincial politicians were more celebratory. Two of the IAA's staunch critics, The Honourable Danielle Smith (Premier of Alberta) and The Honourable Scott Moe (Premier of Saskatchewan), praised the SCC for reaffirming provincial rights in relation to environmental protection and the development of provincial resources. Both Premier Smith and Premier Moe seemed to underplay that cooperation with the federal government will need to continue for intra-provincial projects under an amended IAA and in relation to greenhouse gas ("GHG") emissions reductions (which the SCC recently affirmed as being a matter within the federal government's jurisdiction in References re Greenhouse Gas Pollution Pricing Act, 2021 SCC 11).
The Constitution recognizes the inherent right of Indigenous groups to self-government under Section 35 of the Constitution. Recognition of this inherent right in the Constitution by the federal government is based on the view that Indigenous peoples of Canada have the right to govern themselves in relation to matters internal to their communities, integral to their unique cultures, identities, traditions, languages, and institutions, and with respect to their special relationship to their land and their resources. It remains to be seen how Indigenous groups will respond to the Decision of the Court.
Regardless of the differing views, from a commercial perspective, much will remain the same even after the Decision. A "surgically" amended version of the IAA will still remain in force, and project proponents will still need to consider impact assessments under the IAA for matters remaining under the federal government's jurisdiction (such as matters related to species at risk, fisheries and oceans, migratory birds, greenhouse gas emissions, and Indigenous rights). This will remain true even for projects located solely within a single province.
Commercial Perspective
Viewing the Decision from a commercial perspective raises another important point. The Decision, coupled with other recent related decisions, have made it clear the SCC's position is that neither the federal nor provincial governments have exclusive powers over sustainability or environmental protection laws. Each level of government has enacted, and should seek to enact, sustainability-related or environmental protection-related laws falling within their existing heads of powers. The majority reiterated this position at the end of its reasoning in the Decision by encouraging "Parliament and the provincial legislatures to exercise their respective powers over the environment harmoniously" (see para. 216 of the Decision). The SCC will then step in from time to time to determine if a new matter exists that needs to be specifically demarcated and designated.
As commercial lawyers working with domestic and foreign clients throughout the energy sector, the SCC's conclusionary statement resonates with us. It is an important point worth reiterating: harmony and alignment between levels of government are good for business. Project proponents – be it traditional or alternative energy – benefit from cooperation and alignment within Canada's federation. Commercial decisions are difficult to make when political tensions are high and when regulatory clarity or stability are low. For example, investors attracted to Canada by clean energy or clean technology investment tax credits may look elsewhere if they face unexpected permitting moratoriums or uncertainty on impact assessments.
The SCC's Decision also provides certainty for proponents that the federal government will not act beyond its constitutional authority. However, the Decision makes it clear the federal government and the impact assessment regime will continue to have a role in provincially regulated projects. Treating the Decision as a victory against federal overreach may miss the point and serve only to aggravate political tension.
Concluding Thoughts
The above is not to say the discourse between legislatures, courts, and politicians around the constitutionality of environmental regulation needs to stop; on the contrary, it is a fundamental feature of a healthy democracy. But complex environmental issues – particularly climate mitigation and adaptation – will require deep cooperation between all levels of government. It will take a lot of work and creativity across the Canadian federation. For example, the electrification of industries and provincial grids may demand greater transmission interties between provinces and/or the United States. GHG emission reductions may need to consider regional limitations or emissions abatement. Pipelines and dedicated transportation corridors may need to be built across provinces and through Indigenous lands. All of this will generate significant benefits for Canadians, but it will inevitably involve both levels of government and Indigenous groups.
In a time when divisiveness seems to be paramount, we share in the SCC's sentiment that lawmakers and policymakers in Canada should take steps to coordinate and cooperate on sustainability and environmental-protection related laws. More effort and time may need to be spent on the dialogue between lawmakers and Indigenous groups within the Canadian federation, rather than having a dialogue by and through Canadian courts.
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