Supreme Court Finds Federal Impact Assessment Act Oversteps Constitutional Bounds

In a landmark decision with profound implications for Canada's natural resource sector and federal-provincial relations, the Supreme Court of Canada has found the federal Impact Assessment Act largely unconstitutional. The 5-2 advisory opinion, released Friday, concluded that the legislative scheme is overly broad and infringes on powers exclusively assigned to the provinces under the Constitution.

The ruling is a significant victory for Alberta, which led the constitutional challenge, supported by Saskatchewan and Ontario, among others. These provinces argued that the Act, colloquially known as Bill C-69, represented a federal power grab that could stifle economic development by creating regulatory uncertainty and allowing Ottawa to block major projects like pipelines and mines for reasons beyond federal jurisdiction.

Background of the 'No More Pipelines' Law

The Impact Assessment Act (IAA) was enacted by the federal Liberal government in 2019, replacing the Canadian Environmental Assessment Act of 2012. The stated goal was to create a more comprehensive and predictable review process for major projects. The IAA broadened the scope of assessments beyond purely environmental effects to include considerations of health, social and economic impacts, as well as effects on Indigenous peoples, climate change commitments, and gender-based analysis.

From its inception, the legislation was contentious. Critics, particularly in the energy-producing provinces, dubbed it the "No More Pipelines" bill. They contended that its vague criteria and broad scope gave the federal cabinet excessive discretionary power to reject projects that were primarily within provincial jurisdiction. The government of Alberta launched a reference case to its Court of Appeal, which in 2022 found the Act unconstitutional, calling it a "Trojan horse." The federal government subsequently appealed that decision to the Supreme Court of Canada.

The Court's Reasoning: A Matter of Jurisdiction

Writing for the majority, Chief Justice Richard Wagner focused on the constitutional division of powers. The Constitution Act, 1867, assigns control over most natural resources and local works to the provinces. The federal government's authority extends to specific areas such as fisheries, navigable waters, and Indigenous lands.

The Supreme Court found that the IAA's framework was flawed because it did not focus on regulating effects within these areas of federal jurisdiction. Instead, the Act's primary focus—its "pith and substance"—was to assess and regulate the overall wisdom of a project through a broad "public interest" test. This, the majority argued, effectively gave the federal government a veto over projects that were constitutionally the responsibility of the provinces.

"Environmental protection remains one of today’s most pressing challenges, and Parliament has the power to enact a scheme of environmental assessment to meet this challenge, but it must act within the enduring division of powers framework laid out in the Constitution," Chief Justice Wagner wrote. The court clarified that the federal government can and should assess the environmental impacts of projects on areas within its authority, but it cannot use that power to make wholesale decisions about the viability of projects that fall under provincial control.

Dissent and Reactions

The dissenting justices, Andromache Karakatsanis and Mahmud Jamal, argued that the Act was a valid exercise of federal power. They contended that the cumulative environmental effects of major projects are a matter of national concern and that the IAA was a legitimate tool for Parliament to address these complex, inter-jurisdictional issues.

Reaction to the ruling was swift and divided. Alberta Premier Danielle Smith hailed it as an "overwhelming victory for Alberta and for Canada," stating that it affirmed provincial rights and would bring clarity to the resource sector. Business groups, including the Canadian Association of Petroleum Producers and the Mining Association of Canada, welcomed the decision, expressing hope that it would lead to a more efficient and predictable regulatory system that encourages investment.

Conversely, environmental organizations and some Indigenous leaders expressed deep disappointment. They fear the ruling will weaken environmental protections and undermine efforts to combat climate change. They argue that a strong federal oversight role is necessary to ensure that the national interest is protected when large-scale projects with interprovincial and international consequences are considered.

What Happens Next?

As an advisory opinion, the ruling does not formally strike down the law. However, it provides a clear constitutional roadmap that the federal government is expected to follow. Prime Minister Justin Trudeau and Environment Minister Steven Guilbeault stated that the government accepts the court's opinion and will move quickly to amend the legislation to make it constitutionally compliant. The government's challenge will be to redesign the law to focus specifically on effects within federal jurisdiction while still maintaining a rigorous assessment process.

This regulatory recalibration occurs within a complex global economic environment. Certainty in project approvals is critical for attracting the massive capital investment needed for energy transition projects and the development of critical minerals. This is especially true as Canada navigates its role in global supply chains, a context highlighted by recent international discussions where the G7, including Canada, warned China over its trade practices. A clear and constitutional regulatory framework is essential for Canada to capitalize on these opportunities.

For now, dozens of projects currently in the assessment pipeline, from mines to renewable energy facilities, face a period of uncertainty. The Supreme Court's decision has not ended the debate over environmental assessment in Canada but has instead reset the terms, reinforcing the foundational principle of Canadian federalism: that both levels of government must operate within their respective constitutional spheres.