Environmental Policy is Economic Policy: Climate Change Policy and the General Trade and Commerce Power.

• Author: Leach, Andrew

CONTENTS I. Introduction 101 II. The Law and the Economics of Market Failure 109 III. Economic Solutions to Market Failure: Not Just Carbon Pricing 118 IV. Carbon Pricing and the Laskin-Dickson Test 120 A. Easy Hurdles: Regulations and Monitoring 125 B. Trade as a Whole 129 1. A Truly National Policy? 129 2. Emissions as a Commodity 134 C. The Last Hurdles: Provincial Inability and the 136 Consequences Intransigence 1. Provincial Inability, Incapacity, or Intransigence 137 2. Economic Efficiency: The Fifth GM Criterion 142 3. Impact on Provincial Jurisdiction 149 V. Conclusion 155 I. INTRODUCTION

It is no longer tenable to view environmental policy as separate from economic policy. In the reference case testing the validity of the federal Greenhouse Gas Pollution Pricing Act (GGPPA), the Supreme Court of Canada considered whether federal emissions pricing legislation was valid under the national concern branch of the Peace, Order and Good Government (POGG) power. (1) This paper argues that similar policies might be upheld under the trade and commerce power. The economic rationale for national policies to mitigate climate change is similar to that for national policies in relation to competition, trademarks, and securities. Despite this, in the context of the general branch of the trade and commerce power, both Canadian courts and legal scholars have driven a false wedge between these economic issues and environmental policy. (2) The structure of Canada's Constitution enables and encourages such divisions in that it enumerates exclusive subjects of provincial and federal jurisdiction, but economic policy does not always easily conform to these compartments. Environmental policy should not be viewed as distinct from economic policy, but rather as an important class of economic policy. (3) Climate change and the policies to combat it are rapidly becoming concerns that permeate almost every aspect of trade and commerce in Canada, and the mitigation of climate change is, without doubt, an economic problem of interest to the whole country.

There is no doubt that climate change is among our most pressing economic challenges. Recent work from the Bank of Canada cites a potential reduction of gross output of between 1.5 percent and 23 percent due to unmitigated climate change. (4) Combatting climate change will require policies with major economic implications as well. To keep global climate change below a i.5[degrees]C rise from pre-industrial levels, global greenhouse gas (GHG) emissions will have to be reduced by about 40 percent from 2005 levels by 2030, while limiting climate change to below 2[degrees]C would require GHG emissions declines of 22 percent below 2005 levels by 2030. (5) The rapid and fundamental transformations of global energy and transportation systems that such actions would entail will have significant economic effects. (6) Climate change and the policies to combat it are among the most important economic issues we face today and without a doubt are "question[s] of general interest throughout the Dominion." (7)

Legislation in relation to climate change presents a challenge for the Canadian division of legislative powers. Neither the environment in general, nor climate change specifically, is assigned to either federal or provincial governments in the Constitution Act, 1867. (8) Rather, courts have defined the environment as an area of shared jurisdiction between both levels of government. (9) Canadian jurisprudence on environmental issues is thin and provides only limited grounds on which to support the classification of federal policies that would regulate GHGs. Supreme Court decisions in R v Hydro-Quebec (Hydro-Quebec), (10) R v Crown Zellerbach Canada Ltd (Crown Zellerbach), (11) and Friends of the Oldman River Society v Canada (Minister of Transport) (12) are most often cited as the basis for broad federal environmental management authority. These cases, however, tested the federal government's powers in the context of relatively narrow applications of criminal law and regulatory powers, as well as the power to conduct environmental assessments in relation to major projects. As a result, these cases offer incomplete guidance with respect to the tools to reduce GHGs that are at the disposal of the federal government.

This article uses the tools of economics to argue that the regulation of GHG emissions is economic policy--a form of regulation of national commerce--and that certain categories of GHG emissions reduction policies could be upheld under the trade and commerce power in subsection 91(2) of the Constitution Act, 1867. While textually broad, judicial interpretation of the reach of this head of power has ebbed and flowed through our country's history. (13) The judicial interpretation of the Constitution is crucial since, as Lederman writes, "the power-conferring phrases themselves are given by the [Constitution Act, 1867], but the equilibrium points are not to be found there." (14) Historically, what appears to be a broad federal power was, for a time, effectively nullified. (15) The Laskin-Dickson era's more expansive interpretation of the general trade and commerce power was affirmed in two recent decisions pertaining to securities references. This opens this head of power as a basis for supporting federal legislation in relation to GHG emissions. (16) To support this contention, I demonstrate that substantial parallels exist between the motivation for the regulation of competition, trademarks, and systemic risks in securities markets and the economic motivation for policies to reduce GHGs. (17)

In General Motors of Canada Ltd v City National Leasing (General Motors), Chief Justice Dickson identifies five indicia that have been adopted to answer what a unanimous Court in Reference re Securities Act (re Securities Act) called the "ultimate question" for classification under the general branch of the trade and commerce power. (18) The ultimate question is whether legislation "addresses a matter of genuine national importance and scope going to trade as a whole in a way that is distinct and different from provincial concerns." (19) The first two of the five indicia ask whether the legislation involves a regulatory regime overseen by a regulator. (20) I argue that these are likely to be easily satisfied by any comprehensive GHG emissions regime. The third indicium, whether the legislation involves the regulation of trade as a whole, is the core of the analysis and is rooted in a long doctrinal history that places the regulation of individual industries, workers, or facilities outside the legislative reach of Parliament. (21) This indicium presents two challenges for GHG emissions policies. First, only truly national policies would satisfy this requirement, yet previous federal GHG policy packages have included agglomerations of industry-level measures. Second, the regulation of GHG emissions may be seen as the regulation of an individual commodity, not the regulation of trade as a whole. The final two indicia from General Motors ask whether the subject matter is inherently federal and whether the impugned legislation need to be national to be effective. (22) Recent interpretation of these indicia has limited their applicability to purely questions of "legislative competence, not policy," which cuts against traditional economic efficiency arguments for national GHG policies. (23) I find that arguments for coordination of policies applied in cases of competition and trademarks apply to GHG emissions pricing so as to satisfy these criteria as well. Finally, I argue that the Court has effectively added a sixth indicium limiting the reach of federal legislation into areas of provincial jurisdiction through its decision in re Securities Act. (24) This last consideration leads me to conclude that regulatory charges--regulation in the form of taxation--may be more amenable to classification under the trade and commerce power than other regimes to reduce GHG emissions.

My conclusion that regulatory charges are more likely than other types of GHG emissions policies to be upheld under the trade and commerce power stands at odds with some recent scholarship. While the economics of regulatory charges and quantity-based programs like cap-and-trade regimes are similar, the constitutional limitations affecting their implementation are different. Scholars have argued that national cap-and-trade policies might be upheld under the trade and commerce power because they use economic tools to address a policy problem. (25) I find that these policies are less likely to be upheld because of the need to directly enforce emissions levels in specific facilities, and because a focus on the regulation of emissions trading alone would not meet the General Motors criteria.

While I argue that the door is open to upholding federal GHG policies under the general branch of the trade and commerce power, it is not as wide open as some might like. This article should not be read as a claim that any and all potential federal GHG legislation could or should be upheld under subsection 91(2). Decisions in the two securities references, the Reference Re Anti-Inflation Act (re Anti-Inflation), (26) and other similar cases identify substantial limits to the reach of valid federal legislation. (27) Federal GHG policies designed to trench deeply into areas of provincial jurisdiction, including those which directly regulate production activities or product prices, should not and likely will not be upheld under subsection 91(2) or other federal heads of power. (28) Despite these concerns, I find that there is a sufficient national aspect to GHG emissions to anchor federal regulatory charges on GHG emissions as a matter lying beyond provincial jurisdiction or legislative competence. (29)

This article also should not be read as a claim that the trade and commerce power represents the only head of federal power under which...