Alberta vs. Ottawa: an explainer on the politics and policy behind recent court challenges between the province and the federal government

Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I’m your host, Lisa Raitt. And in this podcast, I’m going to share insights on current hot topics in the areas of public policy, politics and business with some guests along the way. Welcome back to The Raitt Stuff. As many of you have noticed, there was a federal Economic Statement update that happened this past week in Ottawa, and there was a lot of discussion in that around the resource sector and the rules around carbon capture and storage and the rules around income tax credits for clean energy. I have a guest with me today who is actually has been on the ground when it comes to understanding these issues and not only on the ground, but also in positions of authority and negotiating with the federal government. And I thought we’d take an opportunity today to talk about some things that are very high level, but incredibly important to the progress of the Canadian economy. So with me today, I have the former Minister of Energy, former Minister of Environment and Protected Areas, former Minister of Justice and Solicitor General, all for the province of Alberta. My friend Sonya Savage, who now is a senior counsel at BLG and who, by the way, in all of that when she had some time, has a master’s in energy and environmental law. Sonya, really happy you agreed to come on the show today.

Sonya Savage: Well, thank you for having me. We’ve known each other for 15 years and our paths have continued to cross no matter what careers we’re in, as we’ve moved from one thing to another. Our paths have always crossed, and it’s always in environment and energy.

Lisa Raitt: It’s amazing, and I’m always grateful to be able to pick up the phone and call you and ask you, what’s going on here, Sonya, I don’t understand. And you’ve helped, even when I was Minister of Energy 15 years ago, and I was delighted to be a little part of helping you get through some files when you’re in Alberta as well. So it’s always been a reciprocal relationship.

Sonya Savage: Well, it has. And you helped so much when I was environment minister drafting Alberta’s Emission reduction and Energy Development plan, to have somebody I could pick up the phone to and say, does this work? How do the financial institutions consider and see this type of policy? So it’s been very helpful to have you where you’re at. And we’ve had a long history and a long friendship.

Lisa Raitt: We have and we’re both lawyers. I wanted to start there on the legal side of it. Alberta has had a number of challenges to federal regulation, some of which have gone to the Supreme Court. One of them had to do with the carbon tax. One of them had to do with the Impact Assessment Act, otherwise known as Bill C-69. Another one, you were an intervenor on a piece of legislation that hasn’t gone to the Supreme Court, but has gone to the federal court in Ontario with respect to a plastics ban. And I’m wondering if you can share with us what is the analysis of Alberta when they make a decision to challenge these legislations in courts of law?

Sonya Savage: I think with every one of the examples you mentioned and Alberta’s always looked at them fundamentally as an attempt by Ottawa to broaden its jurisdiction and its scope of powers into areas that constitutionally have always been provincial. And that just doesn’t work in a federation. We’ve always looked at those as a way and a mean for Ottawa to impose its preferred policies on the provinces and just consider that’s not the way the Constitution works. Every one of those examples, we’ve considered scope creep and a broadening of constitutional jurisdiction.

Lisa Raitt: And there’s a couple more that’s coming up that probably are getting the attention of the Alberta government. Can you give us an idea of the other things that you think that they would be looking at?

Sonya Savage: There’s the Clean Electricity Regulations and the oil and gas emissions cap, and the Clean Electricity Regulations are Ottawa’s preferred way of getting to net zero grid by 2035. Emissions cap on oil and gas, and I think one thing that’s different now than what we’ve had in previous years is Alberta actually has a plan to get to net zero. We share the same long term objectives. It’s just Alberta constitutionally in areas of electricity and oil and gas, has exclusive jurisdiction and wants to do it in a way that works locally and in a way that works under the Constitution. So I think those two things we need to particularly watch. Another item that doesn’t get as much attention in the media is methane emission targets, increasing the methane reduction targets to 75% over 45%.

Lisa Raitt: I want to go back to the individual court cases because I think they’re interesting, and they kind of give an insight as to where maybe the clean electricity or the methane emissions cases will end up going. But in the case of the carbon tax, which was a decision rendered in March of 2021, the federal liberals declared a complete victory because the Supreme Court did rule in favour, 6 to 3, in favour of the federal power, and they actually used something called the national concern doctrine. Can you give us a little bit of an idea what their reasoning was and why it was okay in that case, for the federal government to impose legislation that was clearly provincial in nature?

Sonya Savage: With the carbon tax, it wasn’t a complete victory for the federal government. What the Supreme Court said is Ottawa has the constitutional right to impose a minimum standard on carbon pricing that’s rooted in the Constitution under POG, Peace, Order and Good Government and the national concern test. That’s clear. They do have a right to set a price on carbon, and that’s working fairly well when it comes to industrial carbon pricing. Alberta has the TIER program, Technology Innovation Emissions Reduction program, which is a long standing regulation. It’s the third iteration of a regulation that’s been in place since 2007, and it’s industrial carbon pricing. Ottawa leaves it to Alberta to regulate. They set a minimum standard on carbon pricing. Alberta takes that and implements it in our economy in a way that works. So that actually is working in Alberta. But then they’re going further where they want to go back to the clean electricity regulations and the emissions cap. So but the carbon pricing case does give them a right to impose a minimum price on carbon.

Lisa Raitt: And when we say emissions cap, are you talking about the methane emissions targets or are you talking about the rumoured oil and gas emissions production cap.

Sonya Savage: The rumoured oil and gas emissions reduction cap.

Lisa Raitt: So the Federal government can set what the price of carbon is going to be. But right now, the way it works is that Alberta will set the targets for emissions, for the industries, and if the industry goes over a certain target, then they pay the amount that has been set by the federal government. Is that a fair way of explaining it?

Sonya Savage: The TIER program works in a very complicated way, as Alberta sets a benchmark emission caps for each sector, for each facility, and if they meet that benchmark, they’re compliant. If they exceed that benchmark, they either have to pay the carbon tax or buy offsets or credits to reach compliance. If they do better, they’re able to sell credits to others to purchase when it’s actually proven over many years to reduce emissions and to incent technology. And it’s made in Alberta plan, that is one of the earliest carbon pricing schemes globally, and it’s an established market. So that’s an example of what works. Ottawa has set minimum pricing standards. Alberta regulates. What they’re doing potentially with the oil and gas cap is just imposing a cap on oil and gas emissions, which I don’t think they have the right to do. For instance, if the only way they can meet that cap is to reduce production, that is a clear violation of the Constitution, because the provinces are given exclusive jurisdiction to manage the production and development of natural resources.

Lisa Raitt: And where is the federal government with respect to promulgating clean electricity regulations?

Sonya Savage: We’ll have some interesting days ahead as we see both Ottawa and Alberta heading over to COP-28 in Dubai. Ottawa wants to show some progress, or are they going to announce the clean electricity regs in the next step, I can see if Ottawa is going to continue to aggressively pursue the clean electricity regs. The CER, in spite of and after those two constitutional rulings, the Supreme Court and Bill C-69 and the Federal Court of Appeal in the plastics ban, Alberta is going to invoke the Sovereignty Act.

Lisa Raitt: And what does that mean, Sonya?

Sonya Savage: If Ottawa is intent on pursuing the clean electricity regs, in spite of what the Supreme Court said in the Bill C-69 reference, in spite of what the federal court said in the plastics ban, I think they need to take it to a constitutional reference themselves and test it constitutionally before they try to enact it. That’s how it should work. Is the federal government, given what they’re doing and what the court has already said, should take it to a reference before proceeding. I don’t think that’s what they’re going to do, though. I think they’ll just impose it and try to flip the onus to Alberta to challenge it constitutionally. That’s where I think the Sovereignty Act will come in, is Premier Smith will say that’s not the way it’s going to work in Alberta, but it’s not the way it should work, period. I think both parties, both the federal government and the provincial government should sit down and say, look, we both have the same long term goals. We want to be net zero by 2050. Ottawa wants to have a net zero grid by 2035. Alberta says it’s not possible Alberta has the constitutional authority to manage the grid to manage electricity. It would work a lot better to just sit down at a federal provincial table and figure it out and Ottawa saying, you know what? We want to aggressively get to net zero as fast as we can. How can we help Alberta get there? That’s the way it should work. As opposed to Ottawa imposing prescriptive regulations that are probably unconstitutional. Work with Alberta to find something that works.

Lisa Raitt: Let’s go back to, if we could, the Impact Assessment Act and that recent decision of the Supreme Court, which I think caught a lot of people off guard. I think folks had anticipated that this Supreme Court was going to, again, invoke the national concern doctrine under the peace order and good governance ability in the Constitution to say that this was something that was possible. And when I say this, it means having the federal government designate projects that are not normally federal in nature, that they are truly within the provincial sphere of power, become subject to the federal laws.

Sonya Savage: It was a monumental decision. I think it’s one of the most important decisions in constitutional history in the country, and I think it stopped Ottawa in its track of continuous scope expansion into areas of provincial jurisdiction. We saw it in the carbon tax, and we were seeing it in the next steps in CER and the emissions cap, but the court stopped them and said, you’re going to have to use a different approach. It doesn’t mean that Ottawa can’t move forward with an ambitious climate agenda, and they have a 2050 target. They’re just going to have to look at it with a different approach. They’re going to have to be more collaborative. They’re going to have to recognize that there’s two jurisdictions in the area, and they’re going to have to collaborate with the provinces to get there. They’re going to have to find ways that aren’t prescriptive regulatory means to stop projects or regulate projects. They’re going to have to look more into ways and means, like how the United States works, incent projects. That’s the carrot versus the stick. I don’t think they have a stick anymore. That stick is pretty flimsy. They don’t have the regulatory powers. And that’s what the Supreme Court said in paragraph 174 says the federal government does not have the authority to regulate greenhouse gas emissions on projects within provincial jurisdiction. And they said that within the context of the you know, as you mentioned, the national concern and the peace order and good government test, the federal government was then trying to hinge their hopes on the criminal law power under Canadian Environmental Protection Act for further things they want to do. But I think the reference in the plastics case takes that away from them, too.

Lisa Raitt: And in the plastics case, it was federal court, and now it’s going to have to go to the Federal Court of Appeal, I assume, and then from there it will end up at the Supreme Court.

Sonya Savage: Yes, it’ll end up at the Supreme Court somewhere.

Lisa Raitt: And Alberta and Saskatchewan did intervene in the plastics case, even though it was brought by individual companies.

Sonya Savage: They did. And I think in Alberta’s case, Alberta brought in a plastic circular economy to manage the plastic waste. And again, it’s Ottawa bringing in prescriptive regulations in an area that the province was already regulating and managing. And it’s just a broad encroachment of power into provincial jurisdictions. And they were stopped.

Lisa Raitt: I’m going to circle back for my last question, Sonya, to something that you said earlier, how important it is for coordination and some working together by the federal and the provincial government. And for me, one of the biggest areas that we can move forward together on is in reducing emissions in the oilsands through the pathways project, specifically with carbon capture and storage. And we’ve heard about this since 2021, that the federal government is going to do ITCs or income tax credits, that they believe in carbon capture and storage pathways formed, and they believe in carbon capture and storage. But it feels some days, like light years away from seeing these projects come to fruition. What’s the stumbling block here for folks out there wondering why we’re not proceeding?

Sonya Savage: It’s even more than just decarbonizing the oilsands. From Alberta’s perspective, it’s we need carbon capture, utilization and storage for hydrogen or natural gas, electricity generation, for petrochemicals, for cement, for fertilizer, for biodiesel, sustainable aviation fuel. It’s all these new industries that Alberta is trying to attract that require carbon capture, utilization and storage. So it’s holding the whole thing up. And meanwhile the United States is eating our lunch. Even Europe is catching up to Alberta and is soon going to be passing us. I just read this morning there’s 119 CCS projects across Europe. In the United States, there’s something like 191, and they’re all in different phases. It doesn’t mean they’re all moving forward, but they’re catching up and they’re probably. In some cases ahead of Canada, who was leading the pack by a long shot only a year ago. And that’s because we haven’t got the incentives right, but governments need to come together and get the right policies, the right incentives and the right regulations and regulatory framework, and that’s being held up. It’s slowing down. I think it’s moving. It’s coming together. And I think you have an alignment of purpose and an alignment of vision, both the federal and provincial government. They see that there’s no path to net zero without CCS. There’s no possible way to get there in Alberta or Canada or anywhere without it. They recognize that it’s not commercially viable on its own. You have to have government incentives in the right policy package. They get that. It’s just getting together and moving forward.

Lisa Raitt: And the difficulty with our position that we’re falling behind competitively is that we’re going to hit a pinch point, because there’s only so many units of CCUS available out there. And if the supply chain roots itself to other places, we’re going to find ourselves waiting for years and years and years and years to even have the chance of being able to get CCUS attachments or units up and running.

Sonya Savage: Exactly. In Alberta, there’s 25 CCUS hubs that were awarded in 2022. So clustering hubs where there’s industrial activity and a sequestration site nearby. And that’s from one corner of the province to the other, every possible industry of the province looking at ways to decarbonize, they’re going to be competing with capital and labour supply chain right across the world. And we’re seeing technology and capital just being vacuumed into the United States, technology that was developed in Alberta. We’re seeing it going over to Europe because we’re not moving quickly. Now, I know there’s a lot of good work. I know Alberta recognizes that there needs to be an incentive from Alberta to sweeten the pot. I think you’ve heard a lot of talk on that. There’s no secret that the Premier’s been talking publicly about sweetening the pot within Alberta incentive. We saw some good stuff come out of the fall economic update in Ottawa on CCUS that it’s moving forward. We saw some money from Ottawa put into the contracts for difference, carbon contracts for difference under the Canada Growth Fund, $7 billion. That’s a drop in the bucket compared to what’s going to be needed. But it’s a start. But we need to get moving on these projects or we’re one we’re not going to meet our emissions reduction targets. And two, we’re going to lose out on opportunities to build entire new industries and things like hydrogen, sustainable aviation fuel, as well as be able to have the lowest carbon footprint in production in our oil and gas products.

Lisa Raitt: And one other thing that was announced in the fall economic update was indigenous loan guarantees, which, when you’re a minister in Alberta, had a hand in implementing a pretty popular and I would say successful project in terms of the AIOCC.

Sonya Savage: Yes. It’s good to see that the federal government is following that model somewhat. We need to see that their loans program suits what indigenous groups want to build and what projects they want to be involved in. It can’t discriminate and leave out natural gas projects, oil and gas projects that indigenous groups want to invest in. But it is a good step forward. In Alberta, we see all of the effort to get to energy transition. All of these projects I mentioned being involved with indigenous partnerships, equity owners as part of the solution. So we see a vision that involves indigenous people being owners, owners, equity partners and decision makers. And that’s good to see that Ottawa shares that same vision. There’s not a lot of difference between the provincial views and the federal views.

Lisa Raitt: Excellent. Well, Sonya, I’ve taken more time than I normally do, but these are really important issues that are facing our country, and I so appreciate you taking the time to speak with me today. Once again, ladies and gentlemen, Sonya Savage, former Minister of Energy, former Minister of Environment and Protected Areas, former Minister of Justice and Solicitor General in the Province of Alberta and now a senior counsel with BLG. Thanks, Sonya.

Sonya Savage: Thank you.

Lisa Raitt: Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss, drop me a line at [email protected]. Your interactions actually will make this better. I’m your host, Lisa Raitt, and this has been The Raitt Stuff.

Disclaimer: The materials disclosed on this podcast are for informational purposes only and subject to our Code of Conduct as well as IIROC rules. The information and data contained herein has been obtained or derived from sources believed to be reliable, without independent verification by CIBC Capital Markets and, to the extent that such information and data is based on sources outside CIBC Capital Markets, we do not represent or warrant that any such information or data is accurate, adequate or complete. Notwithstanding anything to the contrary herein, CIBC World Markets Inc. (and/or any affiliate thereof) shall not assume any responsibility or liability of any nature in connection with any of the contents of this communication. This communication is tailored for a particular audience and accordingly, this message is intended for such specific audience only. Any dissemination, re-distribution or other use of this message or the market commentary contained herein by any recipient is unauthorized. This communication should not be construed as a research report. The services, securities and investments discussed in this report may not be available to, nor suitable for, all investors. Nothing in this communication constitutes a recommendation, offer or solicitation to buy or sell any specific investments discussed herein. Speakers on this podcast do not have any actual, implied or apparent authority to act on behalf of any issuer mentioned in this podcast. The commentary and opinions expressed herein are solely those of the individual speaker(s), except where the author expressly states them to be the opinions of CIBC World Markets Inc. The speaker(s) may provide short-term trading views or ideas on issuers, securities, commodities, currencies or other financial instruments but investors should not expect continuing analysis, views or discussion relating to those instruments discussed herein. Any information provided herein is not intended to represent an adequate basis for investors to make an informed investment decision and is subject to change without notice. CIBC Capital Markets is a trademark brand name under which Canadian Imperial Bank of Commerce (“CIBC”), its subsidiaries and affiliates provide products and services to our customers around the world. For more information about these legal entities, as well as the products and services offered by CIBC Capital Markets, please visit www.cibccm.com.