Federal Impact Assessment in Flux: The implications of the Supreme Court's decision in the Reference re Impact Assessment Act

On October 13, 2023, Canada's Supreme Court found core components of the federal Impact Assessment Act ("IAA") to be unconstitutional.[1] This is the first time a majority of the Supreme Court has declared any federal environmental legislation unconstitutional in four decades.

Although the final impacts of this decision are far from settled, there are some clear implications for proponents of major energy, infrastructure and mining projects in Canada going into 2024.

Overview of the IAA and Regulations

The federal IAA was enacted on June 21, 2019, replacing the Canadian Environmental Assessment Act of 2012.[2] The principal scheme of the IAA is its provisions for assessing the impacts of "designated projects" carried out in Canada. These are typically major energy, infrastructure and mining projects. The IAA reforms sought to move beyond environmental assessment to impact assessment: assessing all positive and negative impacts of designated projects – environmental, social, economic, cultural and heritage. The IAA also introduced a broader public interest test than prior federal environmental assessment legislation.

The IAA process for assessing designated projects – either listed in the Regulations as likely to have impacts within federal jurisdiction or designated by the federal Minister of the Environment – has three key phases:

1. Planning phase: During this phase, the designated project is reviewed to determine if it should undergo impact assessment. This is referred to as the "screening decision."
2. Impact assessment phase: The second phase involves the delineation of the scope of the impact assessment and the factors to be considered and results in an environmental assessment report.
3. Decision-making phase: In the final phase, the decision maker must determine whether the adverse effects within federal jurisdiction and the adverse direct or incidental effects are in the public interest. This is called the "public interest decision." If the decision maker concludes the effects in question are in the public interest, the Minister must establish appropriate conditions for those effects.

Judicial history

The government of Alberta first submitted this reference case to the Alberta Court of Appeal, asking whether the IAA and the Physical Activities Regulations, SOR/2019-285 are unconstitutional, in whole or in part.

In its opinion on May 10th, 2022, four judges of the Alberta Court of Appeal found the IAA and its Regulations to be unconstitutional. In dissent, one judge found the Act constitutional. The majority decision of the Alberta Court of Appeal was particularly concerned about the federal government's overreach onto provincial areas of jurisdiction, holding:

"Were the courts to uphold the validity of the IAA, all provincial industries, almost every aspect of a province's economy that the federal government chooses to sweep within the IAA, along with a province's development of its natural resources, would be subject to federal regulation, including an effective federal veto."[3]

The opinion of the Supreme Court

The majority of the Court agreed with the Alberta Court of Appeal and found the IAA to be unconstitutional, in part, for two overarching reasons:

1. The Act is not in pith and substance directed at regulating "effects within federal jurisdiction" as defined in the IAA because these effects do not drive the scheme's decision-making functions.
2. The defined term "effects within federal jurisdiction" does not align with federal legislative jurisdiction.[4]

The majority of the Supreme Court found the "screening decision" (i.e. whether an impact assessment is required for a particular project) and the ultimate "public interest decision" (i.e. whether a project is in the public interest) to be unconstitutional. 

The Court found the "screening decision" unconstitutional because it considers a broad range of factors, only two of which are related to federal jurisdiction, potentially requiring impact assessments for reasons unrelated to federal effects. Similarly, the Court found the that the  "public interest decision" was unconstitutional because of its failure to focus on effects within federal jurisdiction through its novel "public interest" test that blurred the distinction between the public interest and the project's overall desirability.

Sections 81 to 91 of the IAA, which deal with projects carried out or financed by federal authorities on federal lands or outside Canada, were found to be constitutional.

The dissent

In a dissent, two Supreme Court judges found the IAA and its Regulations constitutional in their entirety.[5]

The dissent found that the subject matter of the IAA was appropriately anchored in several federal heads of legislative power under the Constitution Act, 1867, and that any particular instances of government action that may exceed statutory authority, federal jurisdiction, or both, could be challenged on judicial review.[6]

Next steps & implications for project developers in Canada

As mentioned above, the provisions relating to projects carried out or financed by federal authorities on federal lands or outside of Canada were found to be constitutional.

As for the impact assessment scheme in the IAA – the principal scheme of this Act – the legal nature of this case as a reference case meant that the Supreme Court decision was advisory only: the Court did not strike down the IAA and its Regulations. The entirety of the IAA remains in legal effect. The Supreme Court also found there was still a federal role for environmental assessment. It is just that this particular Act went too far and trenched upon provincial powers.

In response to this decision, the federal Government has stated it will not repeal the legislation, but will follow the Supreme Court's opinion in making future amendments to the IAA.[7]

On October 26, 2023, the federal Government released interim guidance on the IAA, stating that it would continue to assess all projects currently under assessment, but the Minister's discretionary authority to designate projects would be paused and would only resume once amended legislation is in force. [8]

On February 1, 2024, Natural Resources Minister Jonathan Wilkinson announced the federal government plans to introduce legislation in spring 2024 to amend the IAA.[9] He stated the amendments will go beyond addressing the constitutional issues identified by the Supreme Court, and will include speeding up the process, reducing duplication and improving coordination with the provinces.

The Ministerial Working Group on Regulatory Efficiency for Clean Growth Projects[10] has further confirmed the government is launching a public permitting dashboard to increase transparency and accountability on the progress of major projects, beginning with major projects subject to a federal impact assessment (building on the existing Canadian Impact Assessment Registry).[11]

As always, we will keep you posted as developments arise.