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The Supreme Court of Canada ruled 6-3 in favour of a federal carbon tax on Thursday, ending a two-year battle waged by several provinces against Ottawa’s price on carbon. Here’s what you need to know.  

The decision: Six out of nine Supreme Court judges deemed the law constitutional. The ruling notes that global warming poses an “existential threat to human life in Canada and around the world,” and that it’s a matter of national concern under the “peace, order and good government” clause of the Constitution.

The background: The case hinged on the constitutionality of Ottawa’s Greenhouse Gas Pollution Pricing Act. The levy currently charges $30 per tonne of greenhouse-gas emissions produced. The government passed the law in 2018 to help achieve its Paris Agreement commitments. It’s designed as a backstop that applies to provinces whose own carbon-pricing mechanisms don’t meet the federal government’s minimum conditions. Alberta, Ontario and Saskatchewan—which, along with Manitoba, became subject to the federal carbon tax—brought the case to their provincial appeal courts, arguing the law infringed on provincial taxation laws and their control over natural-resources production. While top courts in Ontario and Saskatchewan both sided with Ottawa, Alberta’s Supreme Court ruled against the federal law, calling it a “constitutional Trojan horse” that would give Ottawa too much power over the provinces. 

What it means for the innovation economy: The direct benefit of a national standard on carbon pricing is its potential to reduce greenhouse-gas emissions by disincentivizing the use of fossil fuels. Phasing out those high-carbon resources could increase demand for cleaner energy sources. Several models have found that carbon pricing does in fact drive innovation in the renewable-energy sector. That could create more opportunities for Canada’s growing cleantech industry. 

What stakeholders are saying: The ruling triggered expected backlash from conservative politicians, including Saskatchewan Premier Scott Moe and federal Conservative Party leader Erin O’Toole, who vowed to repeal the carbon tax. Aaron Henry, senior director of natural resources and sustainable growth at the Canadian Chamber of Commerce, said the decision “provides important clarity that businesses require to make the investments necessary to reduce their exposure to the tax.” But he called for collaboration between industry and government—as well as sustainable finance and public policy support—to make sure “businesses are able to successfully navigate a carbon price with confidence.”

Henry noted that small businesses in particular could face challenges complying with the tax, which is set to increase substantially over the next decade. In a statement, the Canadian Federation of Independent Business called the tax “deeply unfair to small businesses,” claiming they contribute almost 50 per cent of carbon-tax revenues, but receive just seven per cent back from grants and rebates. 

In an interview with The Logic, Andrée-Lise Méthot, founder and managing partner of cleantech fund Cycle Capital, applauded the ruling, calling it “an occasion to do the right thing for our economy and to be a more predominant player in the market and the world in terms of cleantech.” Méthot added the caveat, however, that she hopes the government will allow alternative ways of incentivising carbon reduction, like Quebec’s cap and trade system, and floated the possibility of remittance schemes for cleantech firms. “My experience in the market is [that] you can have the stick, but you need to have the carrot, too,” she said.