BC Court of Appeal rejects proposed amendments to Environmental Management Act

In a unanimous 5-0 reference decision, on May 24 the British Columbia Court of Appeal ruled against the BC government’s proposed amendments to the Environmental Management Act (EMA), finding that the amendments would impermissibly target a federal undertaking. The proposed law would give BC the ability to control the amount of heavy oil that flows into the province by requiring pipeline companies to obtain a “hazardous substance permit.” The Court of Appeal’s decision has significant, positive implications for the future of the Trans Mountain pipeline expansion project (TMX), and is timely given Alberta Premier Jason Kenney’s recent decision to proclaim legislation that could restrict the flow of crude oil into BC into law.

Background – the Trans Mountain pipeline expansion and Alberta’s Bill 12

Amidst growing tension with the BC government over TMX, former Alberta Premier Rachel Notley passed Bill 12 last year. Bill 12 permits Alberta’s energy minister to restrict oil and gas and refined fuel shipments. BC immediately challenged the constitutionality of Bill 12, but the Alberta Court of Queen’s Bench ruled BC’s claim was premature, given that the government had not yet proclaimed the legislation into force. This changed on April 30, 2019, immediately after new Premier Jason Kenney was sworn in, with the lieutenant governor’s proclamation of the Preserving Canada’s Economic Prosperity Act (the Prosperity Act). BC’s Attorney General David Eby has again sought an injunction against the Prosperity Act, and a hearing is scheduled for June 6.

In parallel, the National Energy Board (NEB) released its expanded reconsideration report in February 2019. In 2018, the Federal Court of Appeal found that the NEB’s original report on TMX was deficient because it had not sufficiently considered marine impacts related to endangered species and potential mitigation measures.

The reconsideration report continues to conclude that TMX is in the public interest. It includes 156 conditions that Trans Mountain must meet in order to resume construction and 16 non-binding recommendations that focus on mitigating marine life impacts and consulting with affected Indigenous communities. The federal government has not completed additional consultation with Indigenous communities, and has therefore not yet decided whether to approve TMX based on the reconsideration report. A decision is expected on or before June 18, 2019.

Environmental Management Act proposed amendments

On January 30, 2018, BC announced it would consult on potential EMA regulations to restrict “the increase of diluted bitumen transportation,” causing significant controversy. In response, BC proposed precise EMA amendments, and referred them to the BC Court of Appeal to confirm their constitutionality. New heavy oil imports – whether by rail, expanded pipeline, or otherwise – would be managed through a discretionary permitting process that would require an applicant to establish a relief fund and demonstrate satisfactory transportation procedures, among other requirements.

The proposed amendments superficially resemble the potential effects of the Prosperity Act. Although the basis of the Prosperity Act is to maximize the value of a provincially owned resource, rather than environmental protection, it would give Alberta control over exporting oil into BC. Similarly, the amendments to the EMA would have given BC the ability to control the inflow of heavy oil into the province.

BC Court of Appeal decision

In the constitutional reference before the Court of Appeal, the Government of Canada argued that the amendments target one substance (i.e., heavy oil) in one particular interprovincial pipeline (i.e., TMX), which is exclusively under the federal power to legislate on the basis of it being an interprovincial (or “federal”) undertaking.

BC first argued that any constitutional concerns were premature absent a permitting decision, and second that the proposed EMA amendments could co-exist with the existing federal scheme under the principle of “cooperative federalism,” untroubled by the constitutional doctrines of either “interjurisdictional immunity” or “paramountcy.” All parties recognized that protecting the environment legitimately falls within the scope of provincial constitutional powers concerning “Property and Civil Rights” and “Matters of a merely local or private Nature,” but differed on how far BC’s measures could go.

All five BC Court of Appeal justices sided with Canada and held that the EMA’s amendments deal with matters outside of the province’s jurisdiction. Justice Newbury, writing for the court, gave short shrift to BC’s prematurity argument, noting the Government of BC initiated the reference.

She then recognized the well-established principles that environmental protection is a shared jurisdiction between the provinces and the federal government, some overlap between the two levels of government’s laws is inevitable and tolerable, but the overlap cannot be too great:

Part 2.1 does cross the line between environmental laws of general application and the regulation of federal undertakings. Even if it were not intended to ‘single out’ the TMX pipeline, it has the potential to affect (and indeed ‘stop in its tracks’) the entire operation of Trans Mountain as an interprovincial carrier and exporter of oil. It is legislation that in pith and substances relates to, and relates only to, what makes the pipeline “specifically of federal jurisdiction” (at para. 101).

She ruled the proposed amendments’ effect would be to “usurp” the NEB’s role, which had already considered and imposed conditions on Trans Mountain for environmental protection, and was the body “entrusted with regulating the flow of energy resources across Canada to export markets.” As “the project affects the country as a whole, [it] falls to be regulated taking into account the interests of the country as a whole” (para. 104).

She rejected BC’s argument that Part 2.1 could be read as restricted to remediation and clean-up of environmental damage once it had occurred, finding that the proposed law did not contemplate this limitation.

Justice Newbury’s analysis did not engage with either of the constitutional doctrines of interjurisdictional immunity or paramountcy, because she ruled the “pith and substance” of the proposed amendments were so clearly aimed at federal matters that they were unconstitutional – this, despite robust efforts by BC to describe its proposed legislation as broadly applicable to any manner of bitumen entering the province.

The BC government does not require leave from the Supreme Court of Canada to appeal this decision, and Attorney General Eby has announced that BC will indeed appeal. If the appeal is ultimately heard by the Supreme Court of Canada, it will be interesting to see whether the court accepts Newbury J.A.’s decision to determine the reference question on the basis of a “pith and substance” analysis without engaging with other established doctrines, or if it will recast her reasons to further clarify this area of the law.

Likewise, the Court of Appeal’s decision is interesting relative to BC’s challenge to Alberta’s Bill 12. BC can be expected to argue that Alberta’s broad economic justifications for Bill 12 amount to retaliating against BC’s opposition to TMX, comparable to Canada’s successful argument that BC’s broad environmental objectives amounted to targeting a federal project. Of course, BC may face challenges arguing that Alberta’s Prosperity Act legislation targets a federal matter, while simultaneously arguing that its proposed EMA amendments do not.

The authors wish to thank summer student Max Waterman for his help in preparing this legal update.