The Supreme Court of Canada will hand down a decision on Oct. 13 that could sharply curtail federal authority over the permitting of new mines, legal analysts and observers told S&P Global Commodity Insights.

The court's ruling on expansive federal permitting laws launched in 2019 will shape how Canada regulates resource projects over issues such as climate change and First Nations rights.

In 2022, the Canadian government asked the Supreme Court to step in after the Alberta Court of Appeal, the highest court in the province, found the Impact Assessment Act (IAA) unconstitutional in a 4-1 majority opinion, a victory for the oil-rich province of Alberta, which brought the case. The Court of Appeal said the law overstepped provincial powers to regulate projects, using triggers so broad that it would give the federal government nearly unlimited reach.

"The big issue here is at what point is it appropriate for the federal government to essentially declare that certain projects cannot proceed without the federal government's blessing," said Martin Ignasiak, a Calgary-based regulatory lawyer and partner at Bennett Jones LLP.

The Supreme Court held hearings in March and announced that it would outline its opinion, or opinions, in case of a split decision, on Oct. 13.

"It's quite a big deal," said Bridget Gilbride, a partner at law firm Fasken Martineau DuMoulin LLP, who focuses on environmental and Indigenous law. "This is really important legislation for Canada."

Jurisdiction battle

Constitutional jurisdiction over mineral resources in Canada falls on the provinces, and most resource projects need to go through provincial impact or environmental assessments before approval.

However, the federal government has its own well-established role of regulating waterways, fish habitats and inter-provincial matters. Many resource projects require cooperation between federal and provincial governments to protect these resources, and such interplay creates friction.

The federal government under Prime Minister Justin Trudeau sees its jurisdiction extending to climate change impacts and First Nations rights, where it has defined powers. But the Alberta court had taken issue with the federal government's broad assertion of authority, and the former decided the IAA was unconstitutional in 2022.

"Legitimate concerns about the environment and climate change shared by all Canadians and provincial governments as well as the federal government do not justify overriding our existing form of federalism and the division of powers," the Alberta court said in its majority decision.

The IAA heavily targets mining as well as oil and gas projects. Of the 44 infrastructure and resource projects that the federal government is reviewing under the law, 16 fall in the mining industry and six in oil and gas, according to data on the Impact Assessment Agency of Canada's website.

Permitting typically starts when a mining project enters late-stage development. S&P Global Market Intelligence data shows that of the 68 late-stage active mining projects in Canada, nearly one-third are gold projects. This may not come as a surprise, as the country contributed 6.9% of global gold output in 2022.

Sections in dispute

The Supreme Court decided in 2021 that the federal government had the power to impose a carbon tax on provinces in an effort to wean off climate-warming fossil fuels and make oil and coal projects less attractive, which signaled backing for strong federal authority.

However, legal experts questioned whether federal reviews targeting carbon would make as much sense to some of the court's justices when greenhouse gas emissions may be less relevant to the permitting process.

"Whether climate change is sufficient to allow the federal government to review any project that may have some implications for greenhouse gases is an entirely different question than whether or not they have the jurisdiction to implement a carbon tax," Fasken's Gilbride said.

The Impact Assessment Agency's lengthy and specific project list may also draw scrutiny. The list defines the types of projects the federal government will assess along with criteria for review such as mining tonnage. As a triggering mechanism, the court could see these project lists as overly broad, lacking a firm basis in federal powers, some experts said.

"If there's a surprise, it might be that the court indicates the project list needs to be rethought or rolled back in some way," said Kevin Hanna, director of the Centre for Environmental Assessment Research at the University of British Columbia.

Possible outcomes

The Supreme Court could shift the course of the federal permitting regime: If the court agrees that the law is unconstitutional, Parliament would have to make revisions, experts said. The federal government would still have a role, but it would be constrained.

And should the Supreme Court decide the IAA is fully constitutional, legal experts said the federal government would gain a firmer legal basis for regulating resources in more expansive ways, which could frustrate resource extracting provinces.

"Obviously, it has the potential to change things quite dramatically," said Jamie Kneen, co-manager of MiningWatch Canada, a group advocating for tighter regulation of resource projects. Kneen's group was an intervenor in the Supreme Court case. An unconstitutional finding would "send the government back to the drawing board," Kneen said.

None of the five policy and legal experts Commodity Insights spoke with said they expected the Supreme Court to find the IAA wholly unconstitutional. Rather, several outlined scenarios where a majority or a unanimous opinion of the court finds the IAA constitutional but takes issue with specific parts of the law and associated regulations.

"I think the benefit of the court's decision, even if it upheld the legislation, [is that] it would circumscribe ... how the federal government is supposed to implement it to stay within its driving lane," said Bernard Roth, an energy regulation lawyer and partner at law firm Dentons.

The Supreme Court will not take decisions that scrap legislation lightly, Roth said. And on bigger questions of federal jurisdiction, the court may defer a decision until or unless it has to address them over a more specific challenge to the federal government's use of powers. This might happen if the federal government stopped an individual project specifically because of its impact on First Nations rights or climate change, Roth said.

In response to emailed questions, a spokesperson for Environment and Climate Change Canada, a government agency that oversees impact assessments, said the IAA reformed a flawed regulatory process inherited from the Conservative government.

"This act put in place better rules for major projects that restore trust, protect the environment, advance reconciliation, and ensure good projects can move forward in a timely way so we can grow our economy and create good jobs," the spokesperson said. "We are confident the Impact Assessment Act is constitutional."

The Mining Association of Canada, an industry trade group, declined to comment on the pending opinion.

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