Federal role in assessing project impacts is reset, not rejected, by Supreme Court of Canada

18 Oct Federal role in assessing project impacts is reset, not rejected, by Supreme Court of Canada

Authors: Brenda Heelan Powell  & Jason Unger

Has the Supreme Court of Canada dismantled the foundation of federal project assessments or have we simply reset the foundation of the past? Alberta is the home of the Oldman Dam which provided the foundation for the SCC’s examination of federal environmental assessment in 1992 (the SCC decision in Friends of the Oldman River Society v. Canada (Minister of Transport).[1]

It’s been over 30 years and the role of federal decision-making in commercial activities remains a contentious issue.  Last Friday, the SCC again looked at federal environmental assessment (which has undergone significant changes since Oldman) and found certain aspects of the current Impact Assessment Act (IAA) to be unconstitutional.

On October 13^th, the Supreme Court of Canada (SCC) released its decision in the Reference re Impact Assessment Act (IAA).[2] This decision arises from a reference question wherein a government asks the court to provide an advisory opinion on a legal issue (which differs from a typical legal case arising from specific set of facts).

In this case, the Province of Alberta questioned the constitutionality of the federal Impact Assessment Act which became law in 2019. Specifically, the province asked:

• • 1. Whether the IAA was unconstitutional, in whole or part, as being beyond the legislative authority of Parliament under the Constitution, and
    2. Whether the IAA regulations were unconstitutional, in whole or part, by virtue of purporting to apply to certain activities listed in Schedule 2 that relate to matters entirely within the legislative authority of the provinces under the Constitution.

In the spring of 2022, the ABCA released its opinion. ^[3] The ABCA found the IAA provisions as they relate to intra-provincial projects to be unconstitutional and ultra vires Parliament. The federal government sought appeal of the ABCA decision and the matter was heard by the SCC in March 2023.

The majority of the SCC held that both questions should be answered in the affirmative finding that the IAA is unconstitutional in part.  The SCC found that the scheme set out in sections 81 to 91 of the IAA (dealing with assessment of federal projects or federally funded projects by the relevant federal authority) is fine but the rest of the scheme set out in the IAA is unconstitutional, as are the regulations.

Despite finding that the bulk of the IAA in unconstitutional, the SCC is clear that the federal government has authority to enact legislation designed to protect the environment, including enacting environmental assessment schemes.  Furthermore, the SCC clarified that:

Alberta’s concerns about the scheme’s designation mechanism are, with respect, misplaced.  The fact that a project involves activities primarily regulated by the provincial legislatures does not create an enclave of exclusivity.  Even a “provincial” project may cause effects in respect of which the federal government can properly legislate.  Accordingly, the inclusion in the Regulations of some “provincial” projects – in the sense that they involve activities primarily regulated by the provinces – is not itself problematic.[4]

In other words, there are no province-only projects.  Even those projects occurring wholly within the boundaries of one province may affect matters of federal jurisdiction, justifying a federal environmental assessment.  The SCC is clear that both levels of government play a role in environmental protection and that the governments should seek cooperative solutions.[5]

The Constitution and the Environment

Since this decision involves a challenge to the constitutionality of the IAA, a brief overview of the constitutional context as out pertains to environmental matters is in order.  In Canada, the authority of the federal and provincial governments to make laws is dictated by the Constitution, in particular sections 91 and 92, which list the subject matters over which the federal and provincial governments have jurisdictional authority. Although the Constitution does not assign legislative authority over the environment to either the federal or provincial governments, both levels of government have legislative authority relevant to environmental matters.

Relevant to environmental matters, the federal government has authority over fisheries, navigation, extra-provincial works (such as pipelines), migratory birds (pursuant to its treaty powers), taxation and criminal law.  The federal government also has residual powers to address matters not specifically addressed by the Constitution, and for peace, order and good government.  The provinces have authority over local works and undertakings, property and civil rights within the province, local and private matters, and management of natural resources.  Both levels of government also have authority as owners of their lands and natural resources.  As such, the environment is a matter of overlapping and concurrent legislative authority.

A Very Brief History of Federal Environmental Assessment Legislation

Before getting into the details of the SCC decision, it is worthwhile to provide a bit of background to federal environmental assessment law and policy in Canada.  This is because the IAA adopted a significant change in approach that was introduced by the Harper government in 2012 (a project list approach) that effectively untethered the selection of projects to be assessed from federal decision-making.

Federal environmental assessment in Canada goes back to the early 1970s when the federal cabinet passed a policy stating a commitment to undertake assessment of federal decisions.  This commitment was formalized in 1984 as the Environmental Assessment and Review Process Guidelines Order (EARPGO).

Following the SCC decision in Oldman – which determined that EARPGO was applicable whenever the federal government had an affirmative regulatory duty related to a proposed initiative, undertaking or activity – the federal development introduced the Canadian Environmental Assessment Act (CEAA) which became law in 1995.  Both EARPGO and CEAA relied upon “triggers” that would identify which projects should be subject to assessment.  These triggers were the involvement of federal lands, federal funding, federal project proponent or certain federal regulatory decisions.  This last category of triggers was known as the “law list” and included things such as decisions to issue regulatory approvals under the Fisheries Act and the Navigable Waters Protection Act (as it then was).

Following a truncated statutory review of CEAA in late 2011, the Harper government introduced radical changes to environmental assessment laws and processes in an omnibus budget bill.  The old CEAA was repealed and replaced with the Canadian Environmental Assessment Act, 2012 (CEAA, 2012). CEAA, 2012 marked a departure from previous federal environmental assessment processes by abandoning the trigger approach to project identification in favour of a project list approach.  The project list approach was continued into the IAA which otherwise provided a broader approach to federal environmental assessment than that taken under CEAA, 2012.

The IAA Reference Decision by the SCC

The majority decision of the SCC starts by stating that “both Parliament and the provincial legislatures have the ability to enact laws to address various facets of environmental protection, including schemes of environmental assessment. … But this Court has also affirmed that each level of government must confine in legislative efforts to its own constitutional sphere.”[6]  Further, the SCC clarifies that “This appeal is not about whether Parliament can exact legislation to protect the environment.  It is clear that Parliament can do so under the heads of powers assigned to it in the Constitution Act, 1867”.[7]

In other SCC has confirmed that, both the federal and provincial governments have jurisdiction to legislate and regulate with respect to environmental matters.  Neither level of government has exclusive jurisdiction over environmental matters and, in many cases, there is overlapping and concurrent jurisdiction to deal with a single environmental matter.  However, each level of government has the “exclusive power to legislate within their respective jurisdictions, even if by doing so they both regulate the same fact situation”.[8]

Looking specifically at the IAA, the majority of the SCC found that the legislation and its Physical Activities Regulations[9] are unconstitutional in part.  The SCC found that the scheme set out in sections 81 to 91 of the IAA (dealing with assessment of federal projects or federally funded projects by the relevant federal authority) is fine but the balance of the scheme set out in the IAA is unconstitutional, as are the regulations.

As explained by the SCC, the balance of the scheme – comprised of the provisions other than section 81 to 91 and the regulations – deals with designated projects.[10] The SCC concludes that the designated projects scheme is ultra vires for two overarching reasons.  Firstly, it is not in pith and substance directed at regulating “effects within federal jurisdiction” as defined in the IAA because these effects do not drive the scheme’s decision-making functions.  Secondly, the defined term “effects within federal jurisdiction” does not align with federal legislative jurisdiction because, in combination with section 7 of the IAA, it results in impermissibly broad prohibitions.  Section 7 prohibits a project proponent from doing anything connected with carrying out the project if that may any of the “effects within federal jurisdiction” as defined in the IAA.[11]

In the course of its decision, the SCC draws a distinction between environmental assessment and environmental decision-making, and notes that there is a wider scope for environmental assessment.  The SCC states:

Although the federal government can legislate only in respect of activities over which it has jurisdiction or in respect of environmental effects that impact its areas of jurisdiction, it is not similarly limited in its information gathering and assessment. In other words, at the assessment stage, the federal government is not restricted to considering environmental effects that are federal in nature.[12]

However, when it comes to environmental decision-making (i.e. using environmental assessment legislation to make regulatory decisions), then “the regulation of federal aspects [must represent] the dominant characteristic of the law.”[13]  So while the federal government may look beyond its jurisdiction as part of information gathering during an environmental assessment, the thrust of the IAA scheme must be focused regulation of federal aspects as the dominant aspect of the law.[14]

The SCC describes the bounds of “federal aspects” as follows:

The breadth of these “federal aspects” will vary with the circumstances.  Where Parliament is vested with jurisdiction to legislate in respect of a particular activity, it has broad discretion to regulate that activity and its effects [references omitted].  But Parliament’s jurisdiction is more restricted where the activity falls outside of its legislative competence; in these cases, it can validly legislate only from the perspective of the federal aspects of the activity, such as the impacts of the activity on federal heads of power.  Federal legislation that is insufficiently tailored – that is, whose pith and substance is to regulate the activity qua activity, rather than only its federal aspects – is ultra vires [references omitted].[15]

That is, federal legislation must be designed to regulate only activities that fall within federal heads of power or impacts upon those federal heads of power.  Federal heads of power include fisheries, navigation, or interprovincial works.

The SCC summarizes its views on the unconstitutional part of the IAA as follows:

…it is clear that Parliament can enact legislation to protect the environment under the heads of power assigned to it in the Constitution Act, 1867.  It is also open to Parliament to an act an impact assessment scheme as part of its laudable pursuit of environmental protection and sustainability. … However, such a scheme must be consistently focused on federal matters.  At certain stages of an impact assessment process, the focus on federal matters will necessarily be imperfect or imprecise. Projects ought to be designated based on their potential effects on areas of federal jurisdiction because, as I have explained, requiring definitive proof of such effects would put the cart before the horse.  At the assessment stage, it would be both artificial and uncertain to limit the factors that can be considered to those that are federal.  But, for the scheme to be intra vires, its main thrust must be directed at federal matters.  The Agency’s screening decision must be rooted in the possibility of adverse federal effects.  The public interest decision must focus on the acceptability of the adverse federal effects.  The scheme must ensure that, in situations where the activity itself does not fall under federal jurisdiction, the decision does not veer towards regulating the project qua project or evaluating the wisdom of proceeding with the project as a whole. Finally, the effects regulated by the scheme must align with federal legislative competence.  When they exceed these bounds – as the “effects within federal jurisdiction” do – their overbreadth permeates the scheme’s decision-making functions and prohibitions and thereby dilutes the scheme’s focus on federal matters.[16]

Essentially, the SCC found that the main thrust of the IAA was not directed towards federal matters.  This is because the definition of “effects within federal jurisdiction” in section 2 of the IAA were overly broad and not squarely within federal heads of power.  Furthermore, these “effects within federal jurisdiction” were not sufficiently linked to regulatory decision-making under the IAA with the result that activities were regulated rather than impacts upon federal heads of power.

What’s Next?

Obviously, the federal government finds itself in a situation where the SCC has stated its advisory opinion that the bulk of the federal environmental assessment legislation is unconstitutional. While this does not mean that the IAA has ceased to have legal effect, a party that is subject to an impact assessment pursuant to the IAA will be well equipped to challenge its application in light of the SCC decision.  So this means the legislation must be amended in some fashion to bring it back into federal jurisdictional authority.

So what options exist for potential amendment?

It is possible that the government may choose to replace the project list with a trigger approach such as that used in EARPGO or the original CEAA.  The advantage of the trigger approach is that it ties assessment directly to federal decision-making.  That is a project will be be subject to assessment where it involves a federal proponent, federal lands or funding, or a federal regulatory decision (such as under the Fisheries Act).  If this approach is taken, caution to be exercised to avoid a return to previous failings of past CEAA approaches such as late triggering and scoping concerns.

Alternatively, since the SCC has confirmed that there are no truly “provincial” only projects, there could be amendments made to the IAA which address the SCC’s concerns but maintains the list approach to designating projects for assessment.  This could be accomplished by amending the definition of “effects within federal jurisdiction” and ensuring that decision-making is tethered to environmental effects within federal jurisdiction.

[1] [1992] 1 SCR 3 [Oldman].

[2] Reference re Impact Assessment Act, 2023 SCC 23 [SCC decision or decision].

[3] Reference re Impact Assessment Act, 2022 ABCA 165.

[4] SCC decision,  para. 142.

[5] SCC decision, para. 216.

[6] SCC decision, para. 2.

[7] SCC decision, para. 3.

[8] SCC decision, para.121.

[9] Physical Activities Regulations, SOR/2019-285 [the regulations].

[10] SCC decision, para. 49 draws the distinction between section 81 to 91, and the balance of the IAA.

[11] SCC decision, para. 94 to 97.

[12] SCC decision, para. 157.

[13] SCC decision, para. 132.

[14] SCC decision, para. 132.

[15] SCC decision, para. 131.

[16] SCC decision, para. 206.