Supreme Court of Canada Rules Impact Assessment Act Unconstitutional: Implications and Future Directions

Supreme Court of Canada Rules Impact Assessment Act Unconstitutional: Implications and Future Directions

Introduction

Canada’s legal system has long been familiar with environmental impact assessment processes and the judicial considerations surrounding the protection of the environment. On October 13, 2023, the Supreme Court of Canada (SCC) delivered a significant ruling on the constitutionality of the federal Impact Assessment Act (IAA). The IAA, previously known as Bill C-69, was ruled to in part constitute an impermissible intrusion by the federal government into areas of provincial jurisdiction and thus unconstitutional.

The IAA was introduced in 2019 after a four-year review and is the latest version of the federal government’s environmental assessment scheme. Critics of the IAA labelled it the “No More Pipelines Act.” Along with the Physical Activities Regulation, the IAA allows the federal government to evaluate the potential environmental and social impacts of a wide range of resource and infrastructure projects. The ruling is an important addition to the ongoing conversation between the federal and provincial governments on how to regulate environmental protection since neither level of government has exclusive jurisdiction over environmental matters. The IAA and any resulting amendments after the SCC’s ruling will have significant impacts on project developments in the energy, renewable, and natural resource industries for years to come.

The Alberta government had previously filed a constitutional challenge with the Alberta Court of Appeal and was supported by the governments of Saskatchewan and Ontario, as well as three First Nations and the Indian Resource Council on this matter. They asked the Court of Appeal to rule on whether the federal government was acting within its constitutional authority when it passed the IAA, arguing that the federal government infringed on the constitutional rights of the provinces over natural resources. On the other side, various environmental and legal groups as well as other First Nations supported the federal government’s position. After the majority of the Alberta Court of Appeal ruled that the IAA and its regulations were unconstitutional in their entirety, the case was appealed to the SCC. The issue on appeal to the SCC thus was whether the IAA and the Physical Activities Regulation were beyond the legislative authority (or ultra vires) of Parliament.

The ruling by the SCC will help shape the law moving forward. Rather than striking down the legislation altogether, the SCC left it open to Parliament to amend the IAA in a way that would conform with the Court’s ruling. The federal government immediately announced plans to move forward with amendments to ensure the law’s constitutionality and on October 26, 2023, the Minister of Environment and Climate Change, the Honourable Steven Guilbeault, released interim guidance on the administration of the IAA to provide a clear path for projects currently in the assessment process. The government advised that, among other guidance, (i) the Impact Assessment Agency of Canada will assess all projects currently under assessment and provide an opinion on whether they impact areas of federal jurisdiction; (ii) the Minister of Environment will pause his discretionary authorities to designate projects; and (iii) consideration of any new designation requests will only resume once the amended IAA is in force.  The Government also advised that the three regional assessments underway, the Ring of Fire in Ontario and offshore wind in Nova Scotia, and Newfoundland and Labrador, will continue, as these seek only to understand impacts and do not involve decision-making on specific project. In addition, the Minister advised that the Impact Assessment Agency remains prepared to provide an opinion on whether a full impact assessment is warranted, and to invite proponents to collaborate on an assessment.[1]

For the energy, renewable, and natural resource industries, this highly anticipated decision is not expected to have an immediate impact on project developments as of now. Project development in these industries for the time being will continue to be subject to the challenges of often unharmonized parallel provincial-federal regulatory impact assessment requirements as well as other stakeholder issues common to project development in these areas.

The Decision

A majority decision, penned by Chief Justice Wagner (with Côté, Rowe, Martin, and Kasirer) held that aspects of the IAA were outside Parliament’s law-making authority. In reaching its conclusion, the SCC noted that the IAA scheme is two schemes which must be considered separately. The first scheme, which deals with projects carried out or financed by federal authorities on federal lands or outside Canada, was held to be constitutional. The second, which concerns “designated projects,” was held to be beyond the legislative authority of Parliament.

Concerning the first aspect of the IAA, the SCC ruled that it was within the power of Parliament to establish a scheme to guide how federal authorities that carry out or finance projects on federal land or outside of Canada assess their environmental effects. This specific aspect of the IAA had not been challenged and so this part of the ruling is relatively non-controversial. The bottom line is that if it undertakes or funds a project, the federal government can properly consider all its potential adverse impacts.

With respect to the second and key aspect of the scheme, the SCC found that the “designated projects” scheme was not in substance directed at regulating “effects within federal jurisdiction” but rather it was directed at regulating designated projects even when primarily regulated by the province to mitigate or prevent potential adverse environmental, health, social and economic impacts which are beyond the power of Parliament to do.

In reaching its conclusion, the SCC emphasized the importance of maintaining a constitutional balance between federal and provincial powers within a functioning Canadian federation while stressing that although environmental protection is essential, it must be carried out within the framework of the Constitution. Wagner C.J. recognized, as did the SCC in earlier cases such as the carbon tax reference, that environmental protection poses a significant challenge today and that Parliament does and must have the authority to regulate the environment and establish among other things, an environmental impact assessment regulatory scheme in areas within its jurisdiction.

Dissenting Opinion

In the dissenting opinion, Justices Karakatsanis and Jamal held that the entirety of the IAA and the Physical Activities Regulations were constitutionally valid. Justices Karakatsanis and Jamal recognized that the environment is a complex and multifaceted issue that spans both federal and provincial jurisdictions and that environmental protection requires cooperation between different levels of government. The dissenting Justices reasoned that the shared responsibility between federal and provincial authorities was both necessary and workable within Canada’s federal system, emphasizing the importance of interpreting legislation in a way that promotes cooperation between levels of government and avoids blocking measures aimed at protecting the public interest.

Concerning the IAA itself, the dissenting Justices held that the IAA’s primary purpose was to establish a transparent and informed decision-making process regarding the impacts in areas of federal jurisdiction of “designated projects”. The focus of the legislation was thus on assessing these impacts and determining whether they should be permitted having regard to the public interest. The dissenting opinion held that the legislation was consistent with federal power under the Constitution as it sought to safeguard areas such as fisheries, navigable waters, and Indigenous rights, all of which fall within federal legislative authority.

Importance of the Ruling

This ruling is significant as it underscores the constitutional limitations of federal legislative power in important areas of provincial jurisdiction such as natural resources. Further, it highlights the need for ongoing cooperation between provincial and federal levels of government in regulating the environment as it relates to project development in areas such as energy and mining which will commonly engage provincial as well as federal aspects.

The decision also underscores the need for clear delineation between federal and provincial jurisdictions when it comes to environmental impact assessments. This could lead to more streamlined and better-harmonized impact assessment processes and thus greater regulatory certainty, which is crucial for attracting investment in Canada’s natural resources sectors.

As a non-binding advisory opinion only, the court’s ruling on the “designated projects” aspects of the IAA does not mean that the IAA or any part of it was struck down and is no longer of any effect. Nevertheless, the federal government shortly after announced that it accepted the ruling and that, more importantly, it would ensure that the IAA would be administered in accordance with the ruling, and on October 26, 2023, it advised it will temporarily pause discretionary authorities to designate projects.[2]

Impact on Industry Moving Forward

The ruling will likely not have far-reaching implications for energy industry stakeholders. Project developments will continue to be subject to both federal and provincial regulatory processes. For ongoing projects, what can be reasonably expected from the ruling is a significant revamping of the federal IAA regime now with the clear direction of the SCC as to how to better balance federal and provincial interests in this area. At a minimum, amendments to the IAA considering the SCC’s ruling will need to focus on the federal effects of projects, if any. If nothing else, this should result in fewer projects being subjected to federal impact assessments, a welcome development for affected industries. This approach is reflected in the federal government’s interim guidance, which provides as a first step the assessment of all projects to advise whether they impact areas of federal jurisdiction. However, the Minister also advised that consideration of any new designation requests will only resume once the amended IAA is in force.

Industry can expect a greater emphasis on federal-provincial harmonization of IAA processes, also a welcome development. In addition, it is clear in light of this ruling that the federal government will remain limited in its constitutional ability to regulate greenhouse emissions and their environmental impacts. Thus, the federal government’s plans to cap greenhouse gas emissions from the oil and gas sector as well as its proposed Clean Electricity Regulations restricting emissions from power generation, while unlikely to be immediately impacted by the SCC’s decision, will have to be reconsidered in light of it. Industry stakeholders need to stay informed about these developments and be prepared for potential changes in regulatory requirements.

That said, it is also the case that many of the impediments and uncertainties surrounding resource project developments will continue unabated and unaffected by this decision. In fact, in some respects, this decision could lead to increased uncertainty in the short term as the federal and provincial governments continue to fight and flex their constitutional muscles while industry tries to navigate this evolving regulatory landscape. Furthering this ambiguity in the short term is continuing legal challenges by provinces on the issue, such as Ontario, which has applied for judicial review of the SCC’s decision, in the hope of bringing certainty to the impact assessment processes for ongoing and future infrastructure projects.

Having a strong and experienced team of legal advisors will be key in navigating this evolving regulatory and constitutional landscape. If your project is undergoing an impact assessment, the expected process may be altered by the interim guidance issued by the federal government on October 26, 2023 and future amendments.

McMillan is closely monitoring these developments and will soon publish additional bulletins discussing further implications of this decision including those specific implications for the mining industry and from an environmental perspective. We understand that these changes can bring both challenges and opportunities. Our team of legal professionals is ready to assist with any questions you may have regarding this ruling and its implications for your business. Please do not hesitate to contact us if you have any questions.

[1] Government of Canada Releases Interim Guidance on the Impact Assessment Act – Canada.ca.
[2] Reference re Impact Assessment Act, 2023 SCC 23; Statement by Ministers Guilbeault and Virani on the Supreme Court of Canada’s opinion on the constitutionality of the Impact Assessment Act – Canada.ca.

by Sean Ralph, Ralph Cuervo-Lorens, Stephen Johnson (Student-at-Law) and Elayna Dushenski (Student-at-Law)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2023