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Brad Wall Could Challenge Federal Carbon Tax On Crown Corps

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BRAD WALL
Brad Wall says he could challenge a federal carbon tax on Crown corporations. | Jonathan Hayward/CP
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OTTAWA — "We would constitutionally challenge any attempt by a federal government to impose a tax on, for example, a government Crown (corporation) like SaskPower or SaskEnergy. This does not come into play with the private sector, but it does with respect to government entities, we believe. And we would challenge it." — Saskatchewan Premier Brad Wall.

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The federal government has started working with the provinces and territories on a national plan to cut emissions, an effort that includes putting a price on carbon across the country.

But while provincial leaders have offered varying degrees of support for such a push — including those that have already established their own carbon-pricing systems — some like Saskatchewan Premier Brad Wall have argued the timing isn't right.

Wall told the CBC last week that he's already asked government lawyers to prepare for a constitutional challenge should Ottawa act unilaterally to impose a carbon tax. His remarks followed recent comments by Prime Minister Justin Trudeau reiterating his goal to set a national price on carbon.

justin trudeau
Justin Trudeau has said he intends to set a national price on carbon. (Photo: Reuters)

Wall, the most vocal opponent of carbon taxation among the premiers, argued that governments cannot tax other governments or their Crown corporations.

Would Saskatchewan have grounds to launch a constitutional challenge if Ottawa tried to impose a carbon tax on its provincial Crown corporations?

Spoiler alert: The Canadian Press Baloney Meter is a dispassionate examination of political statements culminating in a ranking of accuracy on a scale of "no baloney" to "full of baloney" (complete methodology below).

This one earns a rating of "no baloney" — the statement is completely accurate. Here's why:

THE FACTS

The federal Liberals won last year's election on a platform that vowed to provide "national leadership" while engaging with the provinces and territories to reduce pollution by putting a price on carbon.

"We will work together to establish national emissions-reduction targets and ensure that the provinces and territories have targeted federal funding and the flexibility to design their own policies to meet these commitments, including their own carbon pricing policies," the Liberal platform says.

The feds, provinces and territories agreed in March to set aside their deep divisions over carbon pricing and work together toward the country's first national consensus on climate policy.

"We will work together to establish national emissions-reduction targets and ensure that the provinces and territories have targeted federal funding and the flexibility to design their own policies to meet these commitments, including their own carbon pricing policies."

The deal called for first ministers to meet again this fall after four working groups reported back on broad policy areas. The aim, Trudeau said at the time, was to finalize "a pan-Canadian plan" to fight climate change.

Trudeau also acknowledged that obstacles lay ahead for himself and the premiers.

In recent weeks, the issue has re-emerged following public remarks by Trudeau and federal Environment Minister Catherine McKenna.

Trudeau told the CBC last week that his government was looking to put a "strong price on carbon right across the country."

Earlier this month, McKenna rejected criticism that carbon pricing was simply another tax.

"What it is, is pricing pollution — we need to be doing this," McKenna said July 15 in Toronto.

"It doesn't discriminate: It just says you will pay less if you pollute less."

That same day, McKenna also told Bloomberg that the country will have a national price on carbon emissions by the end of the year.

The remarks prompted Wall, who argues Saskatchewan already has a price on carbon with its carbon capture and storage technology, to send a warning to Ottawa in case it's thinking about imposing a solution on the provinces.

Wall threatened to launch a constitutional challenge on the basis that governments cannot tax other governments or their Crown corporations.

WHAT THE EXPERTS SAY

As a general principle of Canadian constitutional law, governments cannot tax one another, as Wall suggested, said Eric Adams, an associate law professor at the University of Alberta.

Crown corporations that are government "agents" are also protected from being taxed by another government, he added.

Since all of Saskatchewan's Crown corporations are agents of the province, Wall could challenge the federal government if Ottawa tries to tax them. Even the 2015-16 annual report for Saskatchewan's Crown Investments Corp. states they're "not subject to federal and provincial income taxes."

"Yes, it's certainly possible," Adams said when asked if Wall could mount a legal challenge, before noting that other factors make it a rather tricky field of constitutional law.

saskpower carbon capture
Brad Wall wants to protect Crown corporations like SaskPower from a federal carbon tax. (Photo: SaskPower)

"That's the easy part. The complicated part is that governments, through a number of agreements with one another, decide to pay various taxes for various purposes in different scenarios."

If Wall fights back to avoid paying a carbon tax on his province's Crown corporations, Adams said Ottawa could respond by, for example, exiting any intergovernmental taxation deals they have under which the feds have agreed to pay Saskatchewan taxes.

Still, if any legal battle is going to take place over pricing carbon, it would depend whether or not it's characterized as a tax or a regulation of greenhouse gases, Adams said. In some cases, provincial Crown corporations may also be immune to federal regulation.

"I suspect that the federal government is well aware of the constitutional limitations of its taxation power ... and I'm sure it's taking steps to characterize its carbon taxation in a way that's going to be able to apply to provincial Crown corporations," he said.

"Now, whether that's successful or not may ultimately be decided by a judge.... Sometimes it's political negotiation in the shadow of the law, as we say, that actually finds a solution to this kind of impasse before the challenge becomes full blown."

Jack Mintz, a tax-policy expert for the University of Calgary, agreed that Wall could very likely challenge a federal carbon tax imposed on his province's Crown corporations.

"The devil is in the details."

Mintz said such a situation could become even messier if the federal government characterized a price on carbon as a regulation. The environment, he noted, is a joint federal-provincial power and the provinces have jurisdiction over their resources.

"The devil is in the details," Mintz said.

"If it's more like a consumer tax, it's OK, I think. But I don't think you can do that with a carbon tax because it's not meant to be solely a tax on consumers, it's also a tax on businesses and others."

THE VERDICT

Since Crown corporations like SaskPower and SaskEnergy are legislated as agents of the province, it's entirely possible Wall could launch litigation to ensure they remain exempt from a federally imposed carbon tax, experts say.

It's likely a judge would ultimately decide on any court case, but that wouldn't mean that Wall couldn't mount a challenge.

For those reasons, Wall's threat of taking Ottawa to court to protect his Crown corporations from a carbon tax contains no baloney.

METHODOLOGY

The Baloney Meter is a project of The Canadian Press that examines the level of accuracy in statements made by politicians. Each claim is researched and assigned a rating based on the following scale:

No baloney — the statement is completely accurate

A little baloney — the statement is mostly accurate but more information is required

Some baloney — the statement is partly accurate but important details are missing

A lot of baloney — the statement is mostly inaccurate but contains elements of truth

Full of baloney — the statement is completely inaccurate

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