On October 13, 2023, the Supreme Court of Canada released its decision in re Impact Assessment Act, 2023 SCC 23, which considered whether the Impact Assessment Act (IAA) was constitutional or whether the legislation exceeded, or went beyond, the scope of the federal government's legislative authority. In a 5-2 majority decision, the Supreme Court of Canada held that with the exception of ss. 81-91 of the IAA dealing with projects on federal lands, the balance of the scheme was unconstitutional.

So What Does This Mean?

First and foremost, the decision makes it clear that the federal government must limit its decision-making factors regarding whether a project can proceed to areas within federal jurisdiction. What this means practically is that the federal government cannot rely on broad strokes policy considerations such as contributions to sustainability or the impact of a project on Canada's ability to meet its climate change goals as determining factors in the assessment and approval of a project where that project is located wholly within a province.

Second, the decision appears to reaffirm that the provinces have far more jurisdiction over resource projects that occur wholly within a particular province, and that the federal government must narrow its assessment and decision-making factors to adverse environmental effects within federal jurisdiction. Provincial governments have already signalled that the decision affirms provincial jurisdiction over resource projects and energy production facilities within each province.

Finally, the decision of the Supreme Court affirms that environmental management remains a pressing concern for both provinces and the federal government. While the federal government had attempted to rely on its broad powers under legal doctrines such as the "Peace, Order and Good Government" power, the Supreme Court held that the federal government is limited to regulating federal effects and continued to affirm that the federal government must not attempt to subvert the division of powers in the Canadian constitution.

A more detailed analysis of the decision follows below, including an overview of the IAA and specific considerations of the Supreme Court.

Overview of the IAA

The IAA, operationally, created four distinct decision-making processes which ranged from deciding whether a project met the definition of a "designated project" all the way through to whether a designated project would be in the public interest. A brief overview of the IAA is set out below:

Designation of physical activities as "designated projects"

Pursuant to the IAA, the federal government established a "project list" pursuant to s. 109(b), which is essentially a list of projects the federal government considers to have the greatest potential for adverse effects. In addition to this list, s. 9(1) of the IAA gave the Minister the discretion to designate a "physical activity" not prescribed in the regulations where the Minister was of the opinion that carrying out that physical activity may cause "adverse effects" within federal jurisdiction or adverse direct or incidental effects.

The Screening Decision – Is an Impact Assessment Necessary

Once identified as a "designated project", the IAA required a proponent to submit certain information that would enable the Impact Assessment Agency (Agency) to determine whether an impact assessment would be required. At this stage of the Impact Assessment process, the Agency would consider several factors set out in s. 16 of the IAA, which is a non-exhaustive list of six factors and "any other factor that the Agency considers relevant". Importantly, in determining whether an Impact Assessment was necessary, each of these factors must be taken into account.

Identifying Scope of the Impact Assessment and Factors to be Considered

If a project was designated under the IAA, and it was determined that an Impact Assessment was required, the Agency was required to consider the factors set out in s. 22 of the IAA, which is an alphabet's worth of factors, all of which are mandatory considerations of Impact Assessment.

The Public Interest Decision and Resulting Regulation and Oversight

Ultimately, the Impact Assessment process resolves with a decision as to whether a designated project is in the public interest and the accompanying regulation and oversight of such projects. Ultimately, the public interest decision must consider five factors, including the extent of a project's contribution to sustainability, the significance of adverse effects in federal jurisdiction and adverse direct and incidental effects, implementation of mitigation measures, impact of the designated project on any Indigenous group and the rights of Indigenous peoples enshrined in the Constitution Act, 1982, and the extent to which the effects of the designated project hinder or contribute to the federal government's ability to meets its environmental obligations and its commitments in respect of climate change.

The Decision of the Supreme Court of Canada

The Supreme Court of Canada held that the "designated projects" scheme is unconstitutional for two reasons. First, in substance, the scheme was not directed at regulating effects within federal jurisdiction because these effects do not drive the scheme's decision-making functions, and second, because the term "effects within federal jurisdiction" was not aligned with federal legislative jurisdiction as established by s. 91 and 92 of the Constitution Act, 1982.

Mandatory Factors in the Agency's Decision

The Court spent a significant portion of its decision focusing on the mandatory factors to be considered during an impact assessment and the impact of these factors on decision-makers under the IAA and, ultimately, whether projects would be approved or prohibited from proceeding. The Court identified constitutional issues at the Screening Stage and Public Interest Decision Stage of the Impact Assessment process.

The Screening Stage

The Court took a close look at s. 16(2) of the IAA, which required that at the screening stage of the Impact Assessment process, the Agency must consider an extremely broad range of factors, of which the Court concluded that only two factors related to adverse effects within federal jurisdiction. The Court expressed concern that the required factors would not serve to properly perform the funnelling function necessary to maintain the IAA's focus on federal impacts.

Further, the Court took issue with the fact that s. 16(2) of the IAA failed to provide any direction as to which factors would be of greatest importance in arriving at a decision as to whether an assessment would be necessary, with the result being that the "main thrust" behind a decision to require an assessment may not be based on or related to adverse effects of a designated project that would fall within federal jurisdiction.

The Public Interest Decision

The Court closely scrutinized the mandatory factors set out in s. 63 of the IAA, which would inform a public interest decision regarding a designated project, and found these considerations overly broad. For example, the Court explicitly addressed that the "extent to which [a] designated project contributes to sustainability" was overly broad and encompassed all environmental, social and economic effects, not only those that the federal government has jurisdiction to regulate.

The Court stated that its issue with the factors set out in s. 63 of the IAA was not the factors themselves, but how those factors would inform and drive decision-making, with the result being that the IAA makes no distinction between the assessment of activities that fall under federal jurisdiction and the assessment of impacts of activities that are primarily regulated by the provinces.

Ultimately, the Court found that the overly broad range of mandatory factors would transform the public interest decision from a determination of whether adverse federal effects were in the public interest into a determination of whether the designated project was in the public interest.

Defining "Effects Within Federal Jurisdiction"

The Court was also critical of the defined term "effects within federal jurisdiction", the impact of these effects on the decision-making processes established under the IAA, and whether the defined term "effects within federal jurisdiction". The Court was careful to state that certain effects defined as being "within federal jurisdiction" were not determinative of whether these effects were within the limits of federal jurisdiction. The Court also identified that "effects within federal jurisdiction" was an overly broad term that would ultimately dilute the focus of decision-making processes and inform prohibitions under the IAA that would extend beyond the range of conduct validly regulated by Parliament.

Environmental Regulations in Canada

Importantly, while the designated projects provisions of the IAA has been found to be unconstitutional, the Supreme Court expressly stated that this decision does not remove the ability of the federal government to legislate matters of the environment. In fact, the Court highlighted that neither provincial governments, nor the federal government have exclusive jurisdiction over the whole of the environment or over all environmental assessment. Much of the decision either implicitly or directly hints that a meaningful environmental assessment and regulatory framework will be built off of co-operation between both provincial governments and federal governments to ensure that the environmental concerns present today are met while ensuring that both provinces and the federal governments retain the jurisdiction afforded to each in the Constitution Act, 1867.

Implications of the Supreme Court's Decision

Early indications from the federal government are that it intends to refine the provisions of the IAA and comments from the Federal Environment Minister and Federal Natural Resources Minister indicate that the federal government will seek to address the concerns of the Court in a "surgical" manner rather than through significant, substantive reform with a view towards retaining the Impact Assessment process into the future.

Provincial governments have interpreted the Court's decision differently, with both Alberta and Saskatchewan's governments suggesting that the decision places exclusive jurisdiction for energy production and electrical facilities as well as oil and gas production exclusively under the jurisdiction of provinces.

What is clear from the Supreme Court's decision is that the federal government must limit which factors govern its decision-making where a project is located wholly within a province. More specifically, whether to require an environmental assessment and, even more importantly, whether such a project may proceed must be driven by only factors that fall within the basket of federal jurisdiction.

Second, the Supreme Court took aim at definitions which it considered to be overbroad, highlighting that defined terms pertaining to "effects within federal jurisdiction" encompassed definitions of terms such as "environment" and "interprovincial effects", and that these defined terms were so astonishingly broad that they amounted to the federal government attempting to perform an end run around the Supreme Court's current national concern jurisprudence. Much of this same discourse was modelled throughout the Supreme Court's discussion of the s. 22 and s. 63 factors, including a project's contribution to sustainability and the ability of Canada to meet its climate change goals.

Ultimately, the Court has sent a strong message that the federal government's jurisdiction is far more limited than as set out in the Impact Assessment Act, and that decision-making on environmental assessment generally and which projects are permitted to proceed must be limited to areas of federal jurisdiction and not consumed within the broader catch-all language of policy considerations.

The long-range policy and legislative impacts of the decision are uncertain at this time. Still, the Supreme Court has sent a clear message that environmental assessment regimes in Canada must comply with the constitutionally established jurisdiction of both provinces and the federal government. Undoubtedly, this will introduce a significant impact on the environmental assessment and decision-making processes on intra-provincial projects, with the expectation of the Court being a focused, specific regulatory mechanism that does not exceed the jurisdiction afforded to the federal government with respect to the environment.

Our firm regularly advises clients in all sectors impacted by the IAA and has a team of experienced and dedicated professionals available to provide strategic advice and consideration to stakeholders ranging from proponents to Indigenous communities to institutional stakeholders on the shifting environmental assessment framework in light of the Supreme Court's decision.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.