Re: Exported Natural Gas Tax

Re: Exported Natural Gas Tax
Collection
Supreme Court Judgments
Date
1982-06-23
Report
[1982] 1 SCR 1004
Case number
16521
Judges
Laskin, Bora; Martland, Ronald; Ritchie, Roland Almon; Dickson, Robert George Brian; Beetz, Jean; Estey, Willard Zebedee; McIntyre, William Rogers; Chouinard, Julien; Lamer, Antonio
On appeal from
Alberta
Subjects
Constitutional law
Notes
SCC Case Information: 16521
Decision Content
Supreme Court of Canada
Re: Exported Natural Gas Tax, [1982] 1 S.C.R. 1004
Date: 1982-06-23
IN THE MATTER of The Constitutional Questions Act, being c. 63, R.S.A. 1970
AND IN THE MATTER of a Reference pursuant thereto by the Lieutenant Governor in Council to the Court of Appeal of Alberta for hearing and consideration of the questions set out in Order in Council No. 1079/80, concerning a tax proposed by the Parliament of Canada on exported natural gas
File No.: 16521.
1981: June 17, 18; 1982: June 22, 23.
Present: Laskin C.J. and Martland, Ritchie, Dickson, Beetz, Estey, McIntyre, Chouinard and Lamer JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ALBERTA
Constitutional law—Taxation—National Energy Policy—Provincially owned resource—Whether or not proposed federal tax on natural gas exported by Alberta within the legislative competence of Parliament—British North America Act, 1867, R.S.C. 1970, Appendix II, ss. 91(2), (3), 108, 109, 117, 125—British North America Act, 1930, R.S.C. 1970, Appendix II, s. 1—Alberta Act, 1905 (Can.), c. 3 (R.S.C. 1970, Appendix II), s. 20(1) —Excise Tax Act, R.S.C. 1970, c. E-13—Petroleum Administration Act, 1974-75-76 (Can.), c. 47—National Energy Board Act, R.S.C. 1970, c. N-6—National Energy Board Part VI Regulations, C.R.C. 1978, c. 1056.
This appeal relates to a levy which the Crown in right of Canada sought to impose upon certain natural gas owned, produced, and to be exported, by the Crown in right of Alberta. The question was whether such natural gas was shielded from the levy by s. 125 of the B.N.A. Act. The matter originated in a Reference to the Alberta Court of Appeal by the Lieutenant Governor of that Province. This appeal is from that Court’s judgment that the tax did not apply to the gas in question and that, to the extent that it purported to apply to that gas, the tax was ultra vires the Parliament of Canada.
Held (Laskin C.J. and McIntyre and Lamer JJ. dissenting): The appeal should be dismissed.
Per Martland, Ritchie, Dickson, Beetz, Estey and Chouinard JJ.: In this case extrinsic materials, specifically the National Energy Program 1980, and 1980
[Page 1005]
federal budget documents, are admissible to show the factual context and purpose of the Bill imposing the proposed tax. A tax on the transit of goods may be imposed for the purpose of raising revenue or for the purpose of regulating trade or both. Viewed in the context of the National Energy Program 1980, the 1980 federal budget and existing federal regulatory schemes that control the price and quantity of gas entering interprovincial and export markets, the proposed tax is clearly not a regulatory tool. Nor can it be characterized as an export tax; it applies to all gas, whether consumed outside or inside Alberta, and only incidentally reaches exports. Bill C-57 is not an exercise of Parliament’s trade and commerce jurisdiction under s. 91(2); it is in pith and substance taxation under s. 91(3). Parliament’s power to impose taxation under s. 91(3) is subordinate to s. 125, which provides that no lands or property of the federal or provincial Crown shall be subject to taxation. The purpose of this immunity is to prevent one level of government from appropriating to its own use the property of the other, or the fruits of that property. Section 25.13(1) of Bill C-57 is therefore ultra vires with respect to the interests of the Province of Alberta as the owner of the gas in question. While s. 125 restricts the federal taxing power, it does not limit the exercise of other heads of power found in s. 91. Thus, federal legislation in the form of taxation may yet be binding on a province if it is primarily enacted under a head of power other than s. 91(3).
Per Laskin C.J. and McIntyre and Lamer JJ., dissenting: The critical question in this case was how far it was constitutionally proper to limit the exercise of federal power in light of the protection given provincial Crown property by s. 125. The unqualified paramountcy plainly established in s. 91 is not subject to s. 125. Nevertheless, s. 125 can be rationalized with exercises of federal legislative power under s. 91; it permits the Crown provincial to act as proprietor beyond the province—absent federal legislation—whereas as legislator its exclusive jurisdiction is restricted to the province. Here, the province even acting only as proprietor was required to obtain an export licence pursuant to applicable federal legislation. The tax, part of that regulatory scheme, was a transaction tax arising on the movement of property across an international border and was not simply a superadded measure unconnected to the control
[Page 1006]
of exports so far as to be a tax on the resource itself. Collecting the tax from the person, here the Crown provincial, did not affect that character that removed the tax from the cocoon of s. 125. It was not necessary to invoke the power to legislate for the “peace, order and good government” of Canada to support the validity of the legislation.
[Attorney-General for Quebec v. Nipissing Central Railway Company et al., [1926] A.C. 715; Reference re Waters and Waterpowers, [1929] S.C.R. 200; Attorney General for British Columbia v. Attorney General for Canada (the Johnny Walker case) (1922), 64 S.C.R. 377, affirmed [1924] A.C. 222, considered; Re Residential Tenancies Act, 1979, [1981] 1 S.C.R. 714; St. Catherine’s Milling and Lumber Company v. The Queen (1888), 14 App. Cas. 46; Reference respecting the Agricultural Products Marketing Act, R.S.C. 1970, c. A-7 et al., [1978] 2 S.C.R. 1198; Attorney-General for Canada v. Attorney-General for Ontario, [1937] A.C. 355; Hodge v. The Queen (1883), 9 App. Cas. 117; O’Grady v. Sparling, [1960] S.C.R. 804; Mann v. The Queen, [1966] S.C.R. 238; Bennett & White (Calgary) Ld. v. Municipal District of Sugar City No. 5, [1951] A.C. 786; Attorney-General for Saskatchewan v. Canadian Pacific Railway Company et al., [1953] A.C. 594; New York v. United States (1945), 326 U.S. 572, referred to]
APPEAL from a judgment of the Alberta Court of Appeal, [1981] 2 W.W.R. 408, 122 D.L.R. (3d) 48, 28 A.R. 11, finding the federal “Natural Gas and Gas Liquids Tax” to be ultra vires the Parliament of Canada in so far as it purported to apply to the gas in question. Appeal dismissed, Laskin C.J. and McIntyre and Lamer JJ. dissenting.
J.J. Robinette, Q.C., W.E. Code, Q.C., and T.B. Smith, Q.C., for the appellant.
William Henkel, Q.C., J.C. Major, Q.C., and R.W. Paisley, Q.C., for the respondent.
Jean-K. Samson and Odette Laverdière, for the intervener the Attorney General of Quebec.
[Page 1007]
K.M. Lysyk, Q.C., and E.R.A. Edwards, for the intervener the Attorney General of British Columbia.
D.D. Blevins and T.G. Hague, for the intervener the Attorney General of Manitoba.
D.D.M. Goldie, Q.C., George Taylor, Q.C., and John D. Whyte, for the intervener the Attorney General of Saskatchewan.
James A. Nesbitt, Q.C., for the intervener the Attorney-General of Newfoundland.
J.M. Robertson, Q.C., and D.G. Samuelson, for the intervener Independent Petroleum Association of Canada.
Per LASKIN C.J. AND MCINTYRE AND LAMER JJ. (dissenting)—We have had the advantage of reading reasons for judgment in this appeal which would affirm the opinion of the Alberta Court of Appeal, given on a reference, that the proposed federal legislation, the subject of the reference, is ultra vires in so far as it would levy a tax upon the export of natural gas owned and produced by the Crown in right of Alberta. This is a rare case in which, in our opinion, form would triumph over substance in a constitutional matter if the confirmation of the decision of the Alberta Court of Appeal is allowed to stand. The decision below is, in a sense, an application of colourability in reverse; the substance has been found to be colourable while the form has been given independent force in a declaration of invalidity.
The issues in this case turn on the relative scope of federal power in relation to the regulation of trade and commerce under s. 91(2) of the British North America Act, and federal power in relation to the raising of money by any mode or system of taxation under s. 91(3), juxtaposed against the protection given to the Crown in right of a province, under s. 125, against taxation of lands or property belonging to a province. Two points must initially be made. First, and this must not be forgotten, the federal powers above-mentioned operate and may be invoked notwithstanding anything in the British North America Act and,
[Page 1008]
hence, notwithstanding s. 125 or any other provincial protection or provincial legislative authority. Second, this is not a case where provincial authority or provincial action under its competent legislation is posed against unexercised federal power. Parliament has (for the purposes of this case) legislated affirmatively, and we are consequently concerned with the substance of what it has (figuratively) enacted.
Moreover, there is no principle of provincial Crown immunity from federal legislative authority, whether regulatory authority or tax authority, once a provincial Crown purports to enter the export field and engage in international transactions. That is this case. Indeed, the national government would become hostage to Crowns in right of the province if the latter could transcend general federal control of international trade simply by asserting that it was bringing Crown properties into the international market.
There is an intimation in the reasons that we have read that the proposed tax which is challenged is one in respect of provincially-owned natural gas which is thereafter exported. That, however, is not what the Ways and Means Motion or the implementing Bill C-57 says. We confine ourselves to that aspect of the Motion and of the Bill that relates to taxation upon the exportation of provincially-owned natural gas. It is only in respect of the export of such gas from Canada that the levy is challenged. Of course, in assessing the merit of the challenge it is only sensible to examine the entire program which is envisaged in the proposed legislation, and we shall come to that examination shortly.
There are some preliminary observations that must be made. It is, in our opinion, unreal to contend that the federal taxing power envisages only what might be called pure taxation. The definition of the power as directed to the raising of
[Page 1009]
money by any mode or system of taxation (the underlining is ours) is enough to dispel such a notion. Of course, taxing measures may be designed to raise revenue without any other considerations, but many taxing measures have economic objectives, sometimes plainly stated, sometimes implicit. Moreover, when such measures are enacted in conjunction with measures under the trade and commerce power, as, for example, in customs legislation, they can hardly be considered as merely revenue-raising. This is certainly the case when export and import controls are put in place either alone under a licensing system or in conjunction with taxation so as to promote economic objectives which are open to Parliament.
We need hardly add that we know of no constitutional principle which precludes either Parliament or a provincial legislature from basing legislation on an invocation of two or more assigned legislative powers. To strip challenged legislation of a basic support and then, on that footing, to find vulnerability in what is left is not an acceptable judicial approach to a policy as carefully structured as the comprehensive one which is before us.
Contrary to the view taken by the Alberta Court of Appeal, we find it impossible to characterize the proposed legislation in this case as imposing taxation unconnected with any regulatory scheme or regime. The conclusion reached by that Court was that the federal measure cannot constitutionally apply to a provincial Crown-owned resource, even upon its exportation, or, if it purports so to apply, it is an unconstitutional exaction. Moreover, we are unable to agree, and this for the reasons which follow, that the tax is imposed on Crown‑owned property in the sense of s. 125. Once the property, here (to use the terms of the challenged legislation) marketable pipeline gas, is exported from Canada so as to attract the tax, we are no longer concerned with property in situ, or even with property of the province enjoyed therein, whether
[Page 1010]
by the Crown owner or by transferees, but rather with an international commercial transaction which is based upon an acknowledged requirement of federal approval for the intended exportation of the particular substance.
The Proposed Federal Legislation: Purpose and Character
Bill C-57, in its relevant provisions, would add Part IV.1 to the Excise Tax Act, headed “Natural Gas and Gas Liquids Tax”. The added part begins with an interpretation or definition s. 25.1, and the following definitions and substantive provisions are germane:
25.1 (1) In this Part,
“broker” means a person, other than a gas producer or a distributor, who carries on the business of selling marketable pipeline gas;
“consumer” means a person who uses marketable pipeline gas
(a) as a fuel or an energy source,
(b) in the manufacture of products of trade and commerce, or
(c) for any other purpose, other than resale;
“distributor” means a person who, in any year, carries on the business of selling marketable pipeline gas to consumers in Canada and whose volume of such sales in any period of three consecutive months in the immediately preceding year is at least fifty per cent of his total sales of marketable pipeline gas, other than sales to provincial oil or gas marketing agencies, in that period and includes any person or class of persons designated by regulations made pursuant to paragraph 25.19(a);
…
“gas producer” means a person who has the right to take or remove gas from a natural reservoir in Canada and includes an operator;
…
“licensee” means a gas producer, broker or distributor to whom a licence has been issued under section 25.16 and includes any gas producer, broker or distributor who is required by that section to apply for a licence;
[Page 1011]
“marketable pipeline gas” means gas, other than
(a) natural gas liquids, and
(b) gas injected into a natural reservoir for any purpose, other than storage;
(2) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is exported from Canada for use outside Canada pursuant to a licence issued under Part VI of the National Energy Board Act or pursuant to any other authority under that Act, the exporter of that gas is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time he exports it.
(3) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is received for export by a person on behalf of a distributor, broker or gas producer and is in exchange for natural gas of foreign origin delivered in Canada, that distributor, broker or gas producer is, for the purposes of this Part, deemed to be the distributor of that marketable pipeline gas and to have received it at the time it is received for export by that person.
(4) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is received. by a person, other than a distributor, at the direction of or on behalf of a distributor, that distributor is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time it is received by that person and that person is deemed not to have received that gas.
…
(6) Where any marketable pipeline gas in respect of which no tax has been paid under this Part is consumed by a gas producer or broker, he is, for the purposes of this Part, deemed to be the distributor of that gas and to have received that gas at the time he appropriated it for his own consumption.
…
25.11 The purpose of this Part is to provide legislative authority for the imposition of a natural gas and gas liquids tax as an essential and integral element of the national oil and gas policy as expounded in the National Energy Program.
[Page 1012]
25.12 This Part binds Her Majesty in right of Canada or a province and every person acting for or on behalf of Her Majesty in right of Canada or a province.
25.13 (1) There shall be imposed, levied and collected on the receipt of marketable pipeline gas by a distributor in Canada a tax at the rate specified in subsection (5).
(2) There shall be imposed, levied and collected on the receipt of marketable pipeline gas by a consumer in Canada from a gas producer or a broker, or from any person acting for or on behalf of a gas producer or a broker, a tax at the rate specified in subsection (5).
…
(5) Tax shall be imposed under this section at the rate of
(a) twenty-eight cents per gigajoule, in the case of marketable pipeline gas received after October 31, 1980 and before July 1, 1981;
(b) forty-two cents per gigajoule, in the case of marketable pipeline gas received after June 30, 1981 and before January 1, 1982;
(c) fifty-six cents per gigajoule, in the case of marketable pipeline gas received after December 31, 1981 and before January 1, 1983; and
(d) seventy cents per gigajoule, in the case of marketable pipeline gas received after December 31, 1982.
(6) The tax imposed under this section is payable by the distributor or the consumer, as the case may be, at the time he receives the marketable pipeline gas.
…
25.15 Whenever marketable pipeline gas or natural gas liquids are received under such circumstances or conditions as render it difficult to determine the time of receipt or quantity of such gas or liquids because of inadequate procedures or measuring devices, the Minister may determine the time of receipt or quantity for the purpose of determining the tax payable under this Part.
25.16 (1) Subject to this section, every gas producer, broker and distributor shall, in such form as may be prescribed by the Minister, apply to the Minister for a licence for the purposes of this Part.
[Page 1013]
(2) The Minister may issue a licence to any person applying therefor under subsection (1), but may direct that any class of gas producer, broker or distributor be exempt from the requirement to obtain a licence under this section, and any person so exempted is not required to apply for a licence.
(3) An exemption granted by the Minister under subsection (2) may be withdrawn by the Minister at any time.
(4) The Minister may cancel a licence issued under this section if, in his opinion, it is no longer required for the purposes of this Part.
A key provision of the new part added to the Excise Tax Act and appearing immediately after the definition provisions is s. 25.11, already quoted. We repeat the stated purpose in s. 25.11 which is to provide legislative authority for a natural gas and gas liquids tax “as an essential and integral element of the national oil and gas policy as expounded in the National Energy Program”. This is a referential provision, comprehensive despite its terseness, which must be brought into account in assessing the thrust of Bill C-57 in adding Part IV.1 to the Excise Tax Act.
Account must also be taken of the National Energy Board Act under which the Crown in right of Alberta was licensed (according to the assumed facts in the order of reference) to export natural gas from Canada for use outside of Canada.
We turn, first, to some of the considerations applicable to this case as reflected in the National Energy Program. It is necessary to dispel at the outset an erroneous appreciation by the Alberta Court of Appeal of a paragraph on p. 34 of The National Energy Program 1980, a lengthy document issued by the Department of Energy, Mines and Resources. The Court said, in the course of its reasons:
[Page 1014]
In passing, we observe in the National Energy Program… the express declaration that the tax was not imposed as an export tax.
This, obviously, has reference to the following statement on the aforementioned p. 34:
The Government of Canada is, therefore, not proceeding with a natural gas export tax.
The Alberta Court of Appeal ignored completely the telling word “therefore” in the quoted sentence, a word which takes one back to the discussion which resulted in the sentence. What the discussion, on pp. 32 to 34 of The National Energy Program 1980, reveals is that the Government was considering the imposition of a federal tax on natural gas exports which would be paid by the recipient of the exported gas, becoming part of the price and collectible, presumably, by the exporter as agent for the Government of Canada. This is evident from the following passages on p. 34 of The National Energy Program 1980:
The governments of Alberta and British Columbia have strongly opposed a natural gas export tax. They have argued that such a tax is an intrusion on their resource ownership rights. They also argue that taxes on gas exports are discriminatory.
The Government of Canada rejects these arguments. There is no doubt of the federal government’s constitutional right to impose export taxes on any commodity. To deny this is to attempt to extend provincial powers well beyond their present constitutional limits. The federal government imposed an export tax on electricity for 38 years, from 1925 to 1963. Similarly, the federal government established a tax on oil exports in 1973. It continues to impose this tax.
A tax on natural gas exports is not discriminatory. These exports have earned enormous economic rents as their price has soared due to OPEC’s price increases. Taxation based on the ability to pay is in accord with long-established principles.
However, in deference to the opposing provinces this federal proposal was dropped. In its place, however, a different taxing scheme was introduced
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which was reflected in the Ways and Means Motion and in Bill C-57. It was described as follows on p. 35 of The National Energy Program 1980:
All natural gas sales will be subject to the tax, including those to the export market. There is no reason to exclude exports from a tax payable on all gas produced and consumed in Canada. That portion of gas which enters the export market will be exempt from the tax until February 1, 1981, because of the agreement with the United States government requiring Canada to give 90 days’ notice of price changes.
It is impossible, in our opinion, to contend in the light of this assertion and in the light of the proposed legislation, that a tax on exports, payable by the producer-distributor, was not imposed. It is equally impossible to contend that qua this feature, export was not the triggering mechanism. The Alberta Court of Appeal has plainly misconstrued the federal position under the proposed legislation.
Certainly, The National Energy Program 1980 is a self-serving document and, for constitutional purposes, must be approached cautiously to see in what respects, if any, its assertions are reflected in the proposed legislation or in allied or associated legislation. Its mention in the proposed legislation is without the detail which it itself reveals about national energy policy. Nonetheless, it may be looked at to see what are its elements and how the anticipated revenues from the taxes under the proposed legislation (including the export tax) relate to the policies already in place and to others envisaged by the Program.
Some details of the National Energy Program must be given for proper perspective on the policies it embodies. In introducing the National Energy Program, the responsible Minister listed what he called the three precepts of federal action, as follows:
It must establish the basis for Canadians to seize control of their own energy future through security of supply and ultimate independence from the world oil market.
[Page 1016]
It must offer to Canadians, all Canadians, the real opportunity to participate in the energy industry in general and the petroleum industry in particular, and to share in the benefits of industry expansion.
It must establish a petroleum pricing and revenue-sharing regime that recognizes the requirement of fairness to all Canadians no matter where they live.
The following considerations are recited in the Program document (the numbering and the underlining is ours):
[1.] Canada produces more than enough energy to displace all of our oil imports, and still have substantial quantities of energy available for export if desired. We have significant excess capacity in the natural gas and electricity production system, and considerable potential in coal and renewable energy. With determined efforts to restrain energy demands, giving us time to develop new energy sources, our self-sufficiency capacity could last for the foreseeable future. Recent large additions to the domestic supply of natural gas now provide a further basis for a concerted effort to substitute domestic fuels for foreign energy. The dramatic rise in oil prices since the mid-1970s, and the potential costs of reliance on insecure supplies of imported oil, establish a powerful economic and political rationale to reduce oil’s share of our energy market. The way is now clear to reduce oil imports through use of more plentiful domestic energy, which is reasonably priced, readily transportable, and environmentally acceptable.
…
[2.] Energy has always been a special case. No Canadian can escape the impact of changes in its availability or price. Its influence on other activity—other products, other services—is pervasive. Reliance upon it is enormous. None of us can eliminate this reliance. Governments in Canada and elsewhere have long recognized and responded to this uniqueness. In Canada, for example, trade in the major forms of energy has been closely regulated by federal agencies for many years. Special procedures governing energy exports have been in place for some time, reflecting a national consensus that Canadian needs are
[Page 1017]
to be served first, and that only surplus energy may be exported. At the international level, creation of institutions such as the International Energy Agency reflects a view that energy’s role in today’s world is extraordinarily important.
And now a new reason for special treatment has emerged. Due to external events, which bear no relationship to the Canadian energy situation, Canadian consumers are asked to pay ever-rising prices for both imported and domestic energy. A large proportion—approaching one-half—of the revenue from these higher domestic prices accrues to the governments of the petroleum-producing provinces; most of it to Alberta. The resulting inter-regional transfers of wealth are now so large, and growing so rapidly, that they have become a national issue.
…
[3.] The producing provinces are entitled to substantial revenues by virtue of their ownership of resources. The revenues accruing from the sale of oil and gas, and the economic benefits of the resource boom now under way, have created an unprecedented, and welcome, prosperity in the three westernmost provinces. This prosperity has no discernible end; indeed, the energy surge is bringing about a major, enduring westward shift of wealth, activity and population.
…
At the same time, there must be recognition of a national claim—a claim by all Canadians—to a share in these revenues and benefits. The petroleum industry’s growth over the years, and its buoyant outlook, owes much to national policies, including those that provided assured markets for western Canadian oil and gas, and those which gave, and still give, extraordinarily generous incentives under the federal Income Tax Act. The citizens of Canada, and their national government, have played a major role in fostering the development of the oil and gas industry, and deserve to share in its benefits.
[Page 1018]
[4.] Nor is the issue primarily one of the sharing of revenues between government and industry. While there is some scope to obtain increased revenues from the oil and gas companies, the solution cannot be found exclusively in this direction. To rely entirely on new taxes upon the industry would be unfair. It would also be ill-advised, for it would put in jeopardy our energy supply objectives. Finally, it would miss the basic point: what is the appropriate distribution of oil and gas revenues among governments?
What share of revenues reflects the needs and responsibilities of the two levels of government? At present, provincial governments receive more than three-quarters of the oil and gas production revenues accruing to governments. Alberta, with 10 per cent of Canada’s population, receives over 80 per cent of the petroleum revenues gained by provinces.
Under existing arrangements, the Government of Alberta is enjoying rapid increases in its oil and gas revenues. Its revenues have grown faster than its expenditures, even though those expenditures have risen faster than those in any other province. Alberta has been able, moreover, to reduce substantially its tax rates for non-resource corporations, and its citizens enjoy the lowest tax burden, and the highest disposable incomes, in Canada. With rising oil and gas prices, the revenues accruing to the province are sufficient to allow the Government of Alberta to have growing budgetary surpluses for the foreseeable future.
Under any plausible price and revenue-sharing system, the financial position of the Alberta government will improve substantially, in both absolute and per capita terms. Canadians must decide, however, whether the current arrangements, which concentrate the financial benefits of higher oil prices in one provincial government, and give little benefit to the national government, are appropriate.
The Government of Canada believes that the present system is inappropriate and unfair. It believes that more appropriate arrangements must be made, so that the national government, which is accountable to all Canadians, gains
[Page 1019]
access to the funds it needs to support its response to national needs.
…
[5.] One of the objectives of the Energy Strategy for Canada, published by the Government of Canada in 1976, was to increase substantially Canadian ownership of the petroleum sector. While there has been some reduction in the level of foreign ownership of the industry, the objectives have not been met. Perhaps due to a pre‑occupation with oil security objectives since the mid-1970s, the set of energy policy instruments has not been sufficiently conducive to increased Canadian ownership of the sector.
In general, price and tax policies have provided the industry with the cash flow necessary to finance its expenditures. This means that the oil consumer and the Canadian taxpayer have financed virtually all of the substantial expansion of this industry.
…
[6.] The significant fact today remains that the foreign companies control most of Canada’s oil and gas industry, and of its revenues. Foreign-controlled firms control the future through their control of the land in which exploration takes place. The frontier land permits are largely held by foreign-controlled companies. Of the 290 million acres held under permit on frontier lands, 110 million acres are held by Canadian-controlled companies. Of the Canadian-held permits, Petro-Canada clearly accounts for the largest portion, about 60 per cent. It is one of the few Canadian companies capable of handling the costs and risks of frontier exploration. Dome Petroleum Limited, another Canadian‑controlled company, holds a further 15 per cent. Other Canadian companies hold only very small interests in these important new resource areas. Similarly, the existing oil sands plants are dominated by foreign-controlled firms. Canadian-controlled firms represent only 34 per cent of the equity in Syncrude.
If this pattern were left undisturbed, foreign-controlled companies would account for a large part of the future energy supplies in Canada. The
[Page 1020]
reinvestment of the cash flow earned by the foreign companies on their current production will help increase the size and influence of these companies.
…
[7.] Canada is not so rich in energy that it can afford to squander its energy endowment, or put off hard decisions. To do so would be a disservice to ourselves, to future generations of Canadians, and to a world that expects us to play a role that reflects our strength. Nor, however, is Canada so imperiled by the energy situation that must rush blindly into energy decisions to the exclusion of other pressing national concerns.
The Government of Canada believes that energy should not be a problem. On the contrary, it can be a major factor in the solution to our broader challenges, if Canada has a program to provide Canadians with energy security, the opportunity to participate in energy development, and fairness in the manner in which the benefits of the nation’s rich resources are shared. The National Energy Program is designed to achieve these goals.
…
[8.] Despite our strengths, the nature of our energy use and trade leaves Canada unwisely and unnecessarily vulnerable to the vagaries of the world oil market. An immediate start must be made on measures to achieve sustained energy security.
The current fiscal system concentrates petroleum wealth within Canada to a highly undesirable extent, and leaves the federal government seriously short of the revenue it requires to manage the Canadian economy, reduce regional disparities, and develop an effective national energy policy. Also, while there is an important and entrepreneurial Canadian presence in the oil and gas sector, the involvement of Canadians through private and public sector corporations is still unacceptably low. The challenge is to effect the changes required to alleviate these problems.
[9.] The National Energy Program is the federal government’s response to these energy challenges. It is an energy package that includes pricing regimes, fiscal measures, expenditure programs,
[Page 1021]
and direct federal action to achieve the goals of energy security, opportunity, and fairness. The specific elements of the National Energy Program, which are detailed in the following pages, will re-structure Canada’s energy system to balance domestic oil supplies with domestic demand by 1990, achieve an equitable sharing of energy benefits and burdens among Canadians, lead to a high level of Canadian ownership and control of the energy sector, expand the role of the public sector in oil and gas, and ensure greater industrial benefits from energy development.
What we have reproduced from the National Energy Program is, we think, enough to show that, in relation to the proposed legislation under challenge here, there is a blend of tax and regulatory policies aimed at realizing the three precepts stated by the responsible Minister, with emphasis on promoting the Canadianization of energy resources, the encouragement of energy conservation and the support of an allocation scheme under which tax money collected for natural gas and as well for oil as they go out will be used to help pay for oil as it comes in through importation.
The wisdom or likely success of the policies envisaged by the National Energy Program are not matters for assessment by this Court. The Court’s role is the determination of validity when, as here, a constitutional challenge is raised to legislation. A court must be careful not to confuse validity with wisdom or efficacy and it is also expected to defer to the legislative, indeed to the political judgment which the legislation expresses, save as it clearly sees constitutional infirmity in what is proposed or enacted.
The National Energy Board Act, R.S.C. 1970, c. N-6, as amended, as a related statute, may even more confidently be regarded as giving character to the proposed legislation herein by reason of the acknowledgement of required subservience to the licensing provisions of that Act. Section 81 of the Act, found in Part VI, provides that “Except as provided in the regulations, no person shall export
[Page 1022]
any gas… or import any gas except under the authority of and in accordance with a licence issued under this Part”. Conditions to be met for a licence to export or import gas are set out in succeeding provisions which it is unnecessary to examine in any detail.
We need only say here that the export licence cannot be seen as a mere yielding to a regulatory authority and, thereafter, as standing apart from the tax, leaving it as an independent and unconnected levy on gas produced in and by Alberta. This is to ignore the setting in which the levy is imposed, a matter which we have already canvassed.
The Reference to the Alberta Court of Appeal
What is before this Court, by way of an appeal as of right, is the opinion of the Alberta Court of Appeal on a reference to it under an Alberta Order in Council of November 12, 1980 setting out two questions for hearing and consideration. The questions were to be answered on the basis of certain facts set out in the Order in Council. When the reference was directed, only the Ways and Means Motion was current but it is not disputed that Bill C-57 does not alter the relevant terms of the Ways and Means Motion.
The two questions asked on the reference (and we should add that there was no substantial change in them under the order in this Court directing notice to be given to the Attorneys‑General of the provinces) were as follows:
3. The questions to be heard and considered by the Court of Appeal are as follows:
(a) If the tax on exported natural gas imposed under the said legislation is intra vires the Parliament of Canada, is the said natural gas that is exported from Canada for use outside Canada liable to taxation under the tax on exported natural gas having regard to the British North America Acts, 1867 to 1975, and in particular sections 117, 125 or 126 of those Acts or any combination of those sections?
(b) Is the tax on exported natural gas imposed under the said legislation, with respect to the said natural gas that is exported from Canada for use outside Canada, ultra vires the Parliament of Canada either
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in whole or in part, and, if so, in what particular or particulars and to what extent?
The facts recited in the Order in Council as underpinning the reference declare the ownership of the Crown in right of Alberta of Crown lands, mines and minerals (including natural gas). Mention is then made of a well being drilled on certain Crown land, with a resulting production of natural gas in commercial quantities and belonging solely to the Province of Alberta. The Order in Council then continues as follows:
1…
(f) the Province of Alberta has entered into agreements with commercial corporations to have the said natural gas gathered, compressed and processed (such processing does not cause a change in the nature and quality of the said natural gas, but involves only the removal of certain impurities) and then to have it transported by a natural gas pipeline for export sale by the Province of Alberta to a purchaser in the United States of America that is a corporation carrying on business only in the United States of America and not in Canada;
(g) the said natural gas pipeline
(i) is wholly situated within the Province of Alberta and extends from a commencement point in the South-Eastern part of the Province of Alberta for approximately 20 miles to the international border between Canada and the