The Supreme Court of Canada Rules the Federal Impact Assessment Act Largely Unconstitutional

On October 13, 2023, the Supreme Court of Canada (the “Supreme Court”) released its long-awaited decision on the constitutionality of the federal government’s Impact Assessment Act (“IAA”).

By way of a 5-2 majority, the Supreme Court concluded that the portions of the IAA (that were not challenged), dealing with projects carried out or financed by federal authorities on federal lands or outside Canada was constitutional; the remainder of the IAA and in particular the designated projects were unconstitutional based on the division of powers set out in the Constitution.

Background to the Supreme Court’s Decision

As part of the Canadian government’s overhaul to Canada’s federal environmental assessment regime, the IAA came into force on August 28, 2019, replacing the Canadian Environmental Assessment Act 2012 (“CEAA”). The IAA was criticized by the Government of Alberta and several other provinces as well as a number of industry groups who asserted that the new assessment regime impermissibly intruded into areas of provincial jurisdiction, was overly broad, gave regulators too much latitude to consider issues unrelated to the environment, and introduced additional uncertainty into the environmental assessment process. These concerns culminated in the Government of Alberta referring the matter of the constitutionality of the IAA to the Alberta Court of Appeal.

Alberta Court of Appeal

On May 10, 2022, the Alberta Court of Appeal (“ABCA”) held that the IAA was unconstitutional. In essence, the ABCA found that the IAA intrudes on provincial powers regarding the environment, particularly for projects taking place entirely within one province. Simply, the ABCA viewed the IAA as granting the federal government a veto over intra-provincial projects (for a more in-depth summary and analysis of the ABCA’s decision, see our previous article).

Supreme Court of Canada

Majority Opinion

The Majority of the Supreme Court upheld the IAA as unconstitutional in part. Although the portion of the scheme dealing with projects carried out or financed by federal authorities on federal lands or outside Canada (sections 81 to 91) is constitutional and can continue to operate, the balance of the scheme dealing with designated projects is unconstitutional for two main reasons:

First, the Court found that the IAA’s purported purpose of regulating effects within federal jurisdiction was not the driving-force behind decision making functions. The Majority noted that the IAA scheme required decision makers to consider a host of equally important factors many of which were not tied to federal jurisdiction and focused on the project as a whole rather than the adverse effects within federal jurisdiction. As such, the Majority found that the scheme grants decision makers unlimited power to regulate projects, regardless of whether the federal government has jurisdiction to regulate the physical activity in its entirety.

Second, the defined term “effects within federal jurisdiction” does not align with federal legislative jurisdiction. The designated project scheme treats all designated projects the same regardless of whether the federal government is vested with broad jurisdiction over the activity itself or narrower jurisdiction over the activity’s impacts on federal heads of power. This over broadness dilutes the focus of decision makers shifting the focus away from federal aspects and encompassing aspects that are within provincial jurisdiction. As such, prohibited conduct and the ongoing supervision and regulation imposed by the IAA extended beyond the federal government’s jurisdiction.

Dissenting Opinion

In the dissenting opinion, the Minority viewed the IAA as validly building upon earlier federal environmental assessment regimes. Its purpose of assessing designated projects for adverse effects within federal jurisdiction and determining whether restrictions need to be imposed to safeguard against significant adverse federal effects falls within federal powers. Ultimately, while the Minority found some of the IAA’s listed factors extended beyond exclusive federal jurisdiction, they were ancillary to the purpose. Considering such factors were essential for decision makers to make fully informed decisions regarding the costs and benefits of the designated project. Therefore, as long as decision making is anchored in federal jurisdiction based on adverse federal effects, decision makers are entitled to consider ancillary factors to ensure an integrated and proportionate cost-benefit analysis is undertaken.

Takeaways

This decision reaffirms the challenges governments face when attempting to legislate aspects impacting the environment. Environmental management cuts across many different areas. Accordingly neither level of government has exclusive jurisdiction over the environment. Both the federal and provincial government’s may enact legislation in respect of certain aspects of environmental protection, however it must be done within the constitutional authority of each of the levels of government.

Ultimately, the Supreme Court’s majority appeared to view the IAA as an improper attempt by the federal government to expand its project assessment authority and broaden federal regulation over projects falling broadly within areas of provincial authority. The Supreme Court confirmed that decision makers must only consider factors within federal jurisdiction and not broader policy based considerations absent a sufficient link to a federal head of power.

This distinction distinguishes the IAA Reference from the Greenhouse Gas Pollution Pricing Act Reference (“GGPPA”), which was upheld as constitutional. In that case, the GGPPA regulatory mechanism was narrow and specific grounded in a matter of national concern, thereby falling within the federal head of power of peace, order and good government. Conversely, the designated project scheme under the IAA lacked specificity and a clear connection to a recognized federal head of power.

Notably, the Supreme Court explicitly stated that the national concern recognized in the GGPPA does not extend to enabling the federal government to comprehensively regulate greenhouse gas emissions, and therefore the inclusion of such sweeping regulatory powers in impact assessment legislation is impermissible. Interestingly, this statement raises the question of whether other recent federal government’s plans such as a cap on oil and gas emissions and a clean electricity standard may also exceed the federal government’s jurisdiction and subject to Constitutional challenge.

Ultimately, this decision can be seen as a win for the Government of Alberta and other provincial governments who claimed the IAA and assessment process was both unconstitutional and a major impediment to investment in Canadian major projects.

However, it is important to note that as a reference decision the Supreme Court’s judgment is merely advisory and not legally binding. Nevertheless, the decision carries significant weight, and we will have to wait and see how the federal government responds. Recent statements from the federal government concede that it will be required to amend the IAA but that changes will be tailored to address the Supreme Court’s concerns and will not significantly alter its approach to project review. What also remains unclear in the immediate aftermath is the status of current projects going through the impact assessment process. In any event, we expect the federal government to respond in some manner and despite the Supreme Court’s ruling the debate surrounding the IAA is unlikely to be over.