Canada’s guidance on federal Impact Assessment Act after Supreme Court of Canada rules on its constitutionality: Where do we go from here?

The Decision

On October 13, 2023, the Supreme Court of Canada released its decision in Reference re Impact Assessment Act¹ (IAA Reference Decision), which sets out the scheme for federal environmental assessments in Canada. The decision held that the scheme of the IAA²  related to designating projects for review was unconstitutional, whereas the scheme related to federal lands or matters outside of Canada was constitutional. The decision raises important questions on what the impact will be to a number of proposed projects and to the federal government’s ability to regulate certain environmental matters it assumed it had the authority to regulate.

How we got here

The federal and provincial governments derive their legislative-making authority from Canada’s Constitution. Because environmental protection cuts across many different areas of this authority, in Canada both provinces and the federal government have the authority to, and do in fact, regulate certain aspects of the environment.

In regulating the environment, there is a federal environmental assessment process (for proposed federal projects) and provincial processes (for proposed provincial projects). There is also a joint review process where the federal and provincial processes occur jointly (or on a substituted basis) for projects that have both federal and provincial aspects, which are usually inevitable and common in Canada. These processes are intended to be a planning tool used to identify potential impacts on people and the environment before projects proceed, and require mitigation measures as part of project approvals to avoid or reduce adverse impacts.

In 2019, as part of a campaign promise, the current government replaced the federal environmental assessment process (CEAA 2012) with the IAA. The Alberta government, however, viewed the IAA as encroaching on multiple areas of exclusive provincial authority, and asked the Alberta Court of Appeal in a “reference case” whether the IAA and associated regulation were beyond the federal government's authority. The Alberta Court of Appeal answered that question in the affirmative, and this decision resolves the appeal thereof.

What the court said

The court examined the two schemes of the IAA: the first purporting to regulate environmental matters on federal lands or outside of Canada and the second to deal with “designated projects” as so designated by the Environment Minister having regard to factors listed in the IAA. The court held the first scheme was constitutional, but the second was not.

The IAA purports to apply to “designated projects” (i.e. physical activities) carried out in Canada or on federal lands that are either:

• Designated by regulation under paragraph 109(b), and known as the “Projects List,” which includes projects the government views as having the greatest potential to have an adverse impact on the environment; or
• Designated by order by the minister under subsection 9(1), where the minister believes the physical activity may cause adverse effects within federal jurisdiction.

The IAA has three distinct phases:

1. The “planning phase,” where the project proponent submits a project description and required information to be used by the Agency to determine whether the project requires an impact assessment.
2. The “impact assessment phase,” where the proponent provides required information and reports for the preparation of an assessment report setting out the effects likely to be caused by the project.
3. The “decision-making phase,” where the minister or Governor in Council determines whether the adverse effects within federal jurisdiction are in the public interest and, if so, establishes conditions in relation to those effects.

The court found that the designated project scheme is so broad as to allow the federal IAA process to have decision-making authority beyond its constitutional authority.

The scheme treats all designated projects in the same way, regardless of whether Parliament is vested with broad jurisdiction over the activity itself or narrower jurisdiction over the activity’s impacts on federal heads of power. And any of the physical activities to which the scheme applies are primarily regulated through the provincial legislature’s powers over local works and undertakings or natural resources. Parliament can enact impact assessment legislation to regulate these projects from a federal perspective, so long as the regulation of federal aspects represents the dominant characteristic of the law.³

At the screening stage, the Agency was required to determine whether an impact assessment was required having regard to factors set out in section 16(2). The issue is that a number of those factors were not driven by federal effects, which exceeded the federal government’s jurisdiction. “As a result, an impact assessment of a designated project could be required for reasons other than, or not sufficiently tied to, the project’s possible impacts on areas of federal jurisdiction.”⁴

In relation to the decision-making phase, the minister is required to use the initial assessment report to determine whether to designate the project under sections 60 and 63 of the IAA. Once designated, the project can only proceed if it is determined to be in the public interest and with any imposed conditions. Section 63 requires considerations such as the project’s contribution to sustainability, “incidental effects,” mitigation measures, impacts on Indigenous groups and the ability to meet environmental and climate change commitments.

The court found that these factors represent a constitutional overreach where the minister can make decisions on whether a project can proceed without limiting its decision-making authority to matters within federal jurisdiction. “The decision-making process transforms what is prima facie a determination of whether adverse federal effects are in the public interest into a determination of whether the project as a whole is in the public interest.”⁵

The federal government’s interim response

The federal government has responded by introducing “Interim Guidance on the Impact Assessment Act”⁶ (Interim Guidance). Its key contents are as follows:

• The Interim Guidance will remain in place until the IAA is revised.
• No timing for an update to the Act was announced, but the government is looking for the “shortest path” to bring the Act into compliance.
• The government is reviewing all projects currently in the planning and impact statement phases to ensure there is clear federal jurisdiction.
• The government is pausing the discretionary process to designate projects under the IAA until the amending legislation is introduced. However, for pending designations, if the minister believes the project would warrant designation under the IAA, it will advise the proponent of this opinion.
• In the government’s opinion, the three regional assessments underway may proceed as they “do not involve decision making.”

Initial statements anticipating quick “surgical” amendments appear to have been replaced with the expectation of a longer process, and some consultation.

Ontario’s response

Ontario’s Attorney General announced on October 24, 2023, that it is taking immediate legal action against the IAA in light of the IAA Decision. Ontario is taking the position that clarity is required on applying the IAA in order to allow projects to be approved in a timely fashion. Of course, the problem with this approach is that resolution of any such legal challenge will likely take years and inevitably occur after the government of Canada has introduced its amendments to the Act, further complicating, not clarifying, the approval process.

Alberta’s response

Alberta has criticized the Interim Guidance on the basis that it achieves the exact opposite of what the federal government intended, namely clarity, and has only caused confusion. Alberta’s Environment Minister, Ms. Rebecca Shultz, stated the following on the same day the Interim Guidance was announced:⁷

The interim guidance shows that Ottawa still does not get it… This interim guidance does not help reduce confusion… it only adds to it.

Conclusion

Canada, along with the rest of the world, is in the midst of an energy transition where reducing emissions, boosting energy security and improving energy affordability are all critical and pressing objectives. Achieving these objectives requires the approval, and environmental assessment, of all forms of energy projects, from carbon capture and storage to renewable generation to other clean energy projects.

As stated by the International Energy Agency,⁸ “For all countries, speeding up permitting, extending and modernizing electricity grids, addressing supply chain bottlenecks, and securely integrating variable renewables will be critical.” This is particularly the case in that Canada is competing for capital with the rest of the world in terms of attracting the capital that will build these projects.

As we compete for that capital, it is critical that we bring certainty to regulatory approval processes in Canada at the earliest opportunity. But the IAA Decision, the Interim Guidance and the responses to date from Alberta and Ontario, all point to the inevitable conclusion that Canada has not achieved that certainty. Regulatory predictability for major project approvals requires consultation with a sense of urgency between the federal government and provincial governments, Indigenous communities, and other major stakeholders about how to implement the clear guidance laid out by the Supreme Court of Canada.