Supreme Court of Canada Holds Designated Projects Scheme Under the Impact Assessment Act is Unconstitutional

On October 13, 2023, the Supreme Court of Canada (SCC) released its advisory decision regarding the constitutionality of the federal government’s environmental assessment (EA) regime in Reference re Impact Assessment Act. A majority of the SCC found that much of the federal government’s Impact Assessment Act (the “Act”) and the Physical Activities Regulations ( the “Regulations”) under the Act are unconstitutional.

In summary, the SCC found that the sections of the Act that deal with projects carried out or financed by federal authorities on federal lands or outside Canada (the “federal undertakings” scheme in sections 81 to 91) are constitutional, whereas the remainder of the Act, which deals with “designated projects” and requires that such projects be assessed with a view to mitigating or preventing their environmental impacts, is unconstitutional.

The SCC’s decision reinforces that, although the environment is an area of shared jurisdiction and the federal government can establish a federal EA scheme, such a scheme must be directed at regulating “effects within federal jurisdiction” rather than be broadly focused on assessing and regulating the environmental, health, social and economic impacts of “designated projects”.

Background

As detailed in our earlier Update, under Canada’s Constitution, the federal government and provinces may only regulate matters falling within specifically listed “heads of power”. Provinces typically regulate environmental issues based on their stated provincial authority over property and civil rights, natural resources, and local undertakings. Federal environmental laws are typically justified under the federal government’s authority over fisheries, international and inter-provincial undertakings, criminal law, and matters of national concern. However, there is often overlap in these subject areas and, therefore, overlap in the regulation of environmental matters between the provinces and federal government.

The Act came into force in 2019 and replaced the Canadian Environmental Assessment Act, 2012 (“CEAA, 2012”). The CEAA, 2012 applied to projects designated in regulations or ministerial orders and, for such projects, required an assessment of environmental effects relating to matters falling within the federal heads of power set out under the Constitution.

The Act adopts a broader approach to federal EAs than its predecessor legislation. There are two systems under the Act: (1) a “designated projects scheme”, and (2) a “federal undertaking scheme”. The federal undertaking scheme applies only to projects undertaken by the federal government, projects funded by the federal government, and projects outside of Canada.

The designated projects scheme applies to projects that are designated by the Regulations or projects that are designated by ministerial order. If a project is designated, the Impact Assessment Agency of Canada (the “Agency”) must perform a preliminary screening of the project to decide whether the Act applies. The Agency has broad discretion in making this determination, based on whether the project would cause an “adverse effect” (including adverse impacts to land, water, air, and socio-economic impacts) on matters that fall within federal jurisdiction.

If the Agency determines a project will cause an adverse effect on a matter within federal jurisdiction, it must conduct an impact assessment of the project including requiring information from the proponent to assess the project’s environmental effects. The Agency then issues an assessment report to the Minister of Environment and Climate Change (the “Minister”), which may also recommend conditions.

Under the Act, the Minister must determine whether any identified adverse effects of a designated project are in the “public interest” and must ultimately issue a decision approving (conditionally or unconditionally) or refusing the project.

The Reference Case

In September 2019, Alberta brought a reference case to the Alberta Court of Appeal to determine whether the Act and its associated Regulations are unconstitutional.

While no one disputed the Act was valid as it related to inter-provincial projects, Alberta argued the Act was unconstitutional because it intruded into provincial jurisdiction to regulate local projects. Alberta and other interveners argued the Act granted the federal government the ability to consider environmental effects beyond its jurisdiction and provided it with a “veto power” over local projects.

In May 2022, the Alberta Court of Appeal found, in a 4-1 decision, that both the Act and the Regulations were unconstitutional. The Court of Appeal held the Act would “permanently alter the division of powers and forever place provincial governments in an economic chokehold controlled by the federal government.”

The SCC Decision

In a 5-2 decision, the SCC found the designated projects scheme under the Act is unconstitutional. The SCC unanimously found that the “federal undertakings” scheme under the Act is constitutional.

The “Pith and Substance” of the Act

The SCC found the subject matter of the designated projects scheme under the Act is to assess and regulate designated projects with a view to mitigating or preventing potential adverse environmental, health, social, and economic impacts. The Chief Justice stated that the designated projects scheme is “not in pith and substance directed at regulating ‘effects within federal jurisdiction’ because “these effects do not drive the [designated project] scheme’s decision making functions.”¹ The SCC also stated the definition of “effects within federal jurisdiction” was overbroad and did not align with matters within federal legislative jurisdiction. For these reasons, the SCC found the designated project scheme could not be classified under federal heads of power and is, therefore, not a valid exercise of Parliament’s authority.

Classification of the Act and Regulations

In providing guidance on the constitutional scope of the federal government’s power to require an EA, the majority classified two types of designated projects:

• projects squarely within federal jurisdiction, such as inter-provincial projects like oil pipelines or railways. The SCC stated that such projects are within federal jurisdiction and the federal government can properly regulate a broad array of environmental, social, health, and economic effects arising from the project, and

• projects that are wholly located within a province, but which may result in impacts to areas under federal jurisdiction, such as impacts on shipping, navigation, fisheries, and migratory birds. For these types of projects, the federal government’s ability to legislate is limited to areas that fall within federal jurisdiction such as, for example, regulating the project’s impact on fisheries.

The majority found that the scope of the Agency’s powers under the Act to gather information and assess environmental effects was broad but not “constitutionally problematic”.² Given that the environmental effects of a proposal are uncertain, the SCC adopted the precautionary principle to accept that the Agency may, at the information gathering stage, consider effects that may extend beyond the strict heads of federal power.

However, the majority stated that the federal government’s decision-making powers under the Act are unconstitutional as they extended beyond matters within federal jurisdiction. In particular, the SCC found the designated projects scheme under the Act allowed the federal government to accept, refuse, and/or regulate projects based on factors outside of federal jurisdiction, and was a constitutional overreach. Based on these findings, the majority was of the opinion that the designated projects scheme is unconstitutional in its entirety.

Implications

The SCC decision confirms that, given the uncertainty of potential impacts of a project, the federal government has broad powers to require proponents to provide information on a wide range of environmental and socio-economic impacts. However, any decisions made by the federal government on the project must focus on effects within federal jurisdiction. On this point, the Chief Justice was clear that a federal EA 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…”³

Currently, there are 23 projects across Canada proceeding through the designated projects scheme under the Act. The majority’s decision confirms that projects specifically within federal jurisdiction, including inter-provincial pipelines, aerodromes, railways, and ports, will likely continue to be assessed in the same manner. However, local projects that may cause effects to areas of federal jurisdiction (such as fisheries), including mining projects, may be subject to a modified assessment. The federal government announced it will review the SCC’s decision and quickly propose legislative amendments to address the majority’s findings. In the meantime, the federal government has stated only that projects currently before the Agency “will continue to be assessed”.

We will continue to monitor this development and provide updates. Please contact any member of our Environmental Group for more information.

The authors would like to thank Cristin Hunt, Articling Student, for her assistance in writing this Update.