The Ontario government is launching a constitutional challenge to Canada’s carbon pricing plan.

The challenge, announced by provincial environment minister Rod Phillips and attorney general Caroline Mulroney at a Queen’s Park news conference on Thursday morning, will be heard in the Ontario Court of Appeal.

"The understanding of how a carbon tax works requires the tax be charged at a level that's gonna be just devastating to this economy," Phillips said. "During the provincial election people were very clear; they don't want more taxes and they don't believe that kind of onerous tax is going to be effective in dealing with environmental issues."

The news comes in the same week that Ottawa quietly softened its carbon pricing plan for industry emitters. The new guidelines, which the government drafted to address concerns of competitiveness from industry, will increase the benchmark at which industrial emitters begin paying for their carbon emissions.

Companies will now begin paying when they exceed 80 per cent of an industry’s average emissions, and 90 per cent for cement, iron and steel, lime and nitrogen fertilizer producers. Previously the benchmark was 70 per cent.

The effect will dramatically reduce taxes for companies that are more efficient than their industry average. The worst industry emitters will also see their taxes reduced, but not by as much.

Ontario has already registered as an intervenor in the Saskatchewan government’s constitutional reference case over the carbon pricing plan, which was launched in late April.

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During the election campaign, Premier Doug Ford promised to dismantle Ontario’s cap-and-trade system and fight the federal government’s carbon tax, which would be imposed on the province if it did not have its own plan in place.

The government cancelled cap-and-trade earlier this month, and introduced legislation to wind down the program.

The constitutional challenge is likely a fight that Ontario will lose. In an independent legal opinion for the government of Manitoba – where Premier Brian Pallister has also mulled suing Ottawa – Winnipeg lawyer Brian Schwartz wrote that the Supreme Court of Canada would be more likely to uphold carbon pricing based on Canada’s broad taxation powers.

Mulroney said the government will use in-house lawyers to pursue the province’s challenge, and has reserved $30 million for its cost. “I’m very confident it will cost less than that,” she said. She did not address whether that cost would cover the potential for the lawsuit to stretch out over years.  

She said Ontario is willing to invoke Section 33 of Canada’s Charter of Rights and Freedoms, which is commonly known as the notwithstanding clause. The clause allows Parliament or the provinces to override certain portions of the Charter, but it does not apply to arguments over divisions of power between provincial and federal governments.