Canada’s efforts to combat climate change scored a major victory after the country’s top court ruled that Prime Minister Justin Trudeau’s national carbon tax is constitutional.

“Parliament has jurisdiction to enact this law as a matter of national concern,” the Supreme Court of Canada said in its ruling Thursday, which was supported by six of nine judges. “This matter is critical to our response to an existential threat to human life in Canada and around the world.”

The decision means the country’s most ambitious environmental policy to date, which would see the baseline price on carbon rise to $170 (US$135) per metric ton by 2030, will stand.

Justin Trudeau announces a carbon-tax increase at an Ottawa news conference in November 2020.

The ruling is key to Canada’s goal of reaching net-zero emissions by 2050. It’s also a victory for Trudeau, who came to power in 2015 pledging to tackle climate change, but has faced strong opposition from the fossil-fuel sector and oil-rich western provinces like Alberta.

“There should be no question as to whether climate change is real, or whether climate action is the right thing to do for the planet, for jobs and as human beings,” Environment Minister Jonathan Wilkinson said in an emailed statement. “The question is whether this decision will put an end to the efforts of Conservative politicians fighting climate action in court, and whether they will join Canadians in fighting climate change.”

While a blow for the country’s oil sector, the decision removes uncertainty on Canada’s emissions policy.

“Markets like certainty, and Canadian equities would benefit from clarity around domestic carbon policy,” Canadian Imperial Bank of Commerce analysts led by Shaz Merwat said in a report to investors ahead of the decision. Upholding the tax could help investors adjust to the economic transition, they said. “This would be a significant step in attracting and directing capital towards this challenge.”

Biden Factor

Canada produces more greenhouse gas per capita than almost all the world’s top emitters. Geography works against it: distances are vast, temperatures extreme and the population relatively small. Although it’s helped by an abundance of clean hydroelectric power, it’s hurt by an historic dependence on extractive natural resources. Factor in emissions generated outside Canada when the fuel exported from its oil sands is actually burned, and its carbon footprint gets larger still.

Until recently, provincial resistance to the carbon tax was, to some extent, bolstered by climate-backtracking in the U.S. under former President Donald Trump, which in turn fed fears energy investment would flow south. The election of President Joe Biden has shifted that dynamic.

“We now have a president who is much more aligned with not only my own values as prime minister but also the values of Canadians,” Trudeau said at a Jan. 22 news conference after Biden’s decision to cancel the Keystone XL pipeline. Since then, the two leaders have begun working to deepen cooperation around climate.

In 2016, Trudeau announced Canada’s plan to slash emissions would be centered on a national, but flexible, price for carbon. Provinces would be allowed to choose whether to adopt cap-and-trade systems, carbon taxation, or a mix of both. By the summer of 2018, though, some provinces were pushing back. In October of that year, Trudeau said he would impose a carbon tax on four provinces that had balked at implementing their own: Ontario, Alberta, Saskatchewan and New Brunswick, leading to provincial appeals and ultimately to this week’s Supreme Court ruling.

The Greenhouse Gas Pollution Pricing Act is composed of two parts: a surcharge on various types of fuel and combustible waste and a carbon pricing system for industrial emitters. The latter is based on targets set relative to the sector’s current average: companies that produce more than the target either pay a tax or can buy credits from those who do better. A key selling point of the act was that much of the revenue would flow to individual Canadians in the form of a rebate, more than compensating them for the higher-cost of fuel.

The initial $20 per metric tonne charge was equivalent to 4.42 cents per liter of gasoline, with the aim of boosting that to $50 by 2022. In December 2020, a month after the U.S. election, Trudeau said Canada would more than triple that target price by 2030, bringing the government more in line with the incoming administration. Both Biden and Trudeau have pledged to get their countries to net-zero emissions by 2050.

“Global climate change is real, and it is clear that human activities are the primary cause,” the court said in its ruling. “The effects of climate change have been and will be particularly severe and devastating in Canada.”