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: That’s how much American investors think Canadian taxpayers should fork over to compensate them for their failed bid to develop a liquefied natural gas (LNG) facility in Québec.

That’s almost for this year.

Ruby River Capital LLC, the U.S.-based owner of GNL Québec Inc., filed a against Canada under the after its project failed to pass a federal environmental impact assessment.

The proposed LNG terminal had already been over concerns that it would increase greenhouse gas emissions and negatively impact First Nations and marine mammals.

Canada faces a no-win situation — a catch-22. If the government does not rapidly phase out fossil fuels, it will fail to meet its commitments under the to address the climate crisis. But when it takes steps to do so, foreign investors invoke like NAFTA and threaten to drain public coffers.

Paying the polluters

Unlike environmental treaties, trade and investment agreements have teeth. They are enforceable through a system known as (ISDS) that allows foreign investors to bypass local courts and bring claims for monetary compensation to a panel of three arbitrators. More than cases have been launched against governments around the world in the last 25 years.

Between 1996 and 2018, by American investors through the investment chapter in NAFTA. To date, Canada has lost or settled (with compensation) 10 claims. Canadian governments have paid out more than $263 million in damages and settlements.

When NAFTA was replaced in 2018 with the , it did not include an ISDS mechanism between Canada and the U.S. Chrystia Freeland, the then-deputy prime minister of Canada, noted at the time that the removal of ISDS

Ruby River was only able to launch its case because USMCA allowed firms that had made investments before NAFTA’s termination — on July 1, 2020, — to continue to bring ISDS claims for three years — until June 30, 2023.

Importantly, Ruby River on the Énergie Saguenay project proposal. However, the firm is permitted within the ISDS system to seek “lost future profits” based on speculation about the performance of notoriously volatile oil and gas markets.

Risks to climate policy

Québec is a member of the global and is the to ban all oil and gas production. The province is being over this ban by several fossil fuel firms — seeking more compensation than was — in Québec’s Superior Court.

Had these companies been foreign, and thereby qualified for the protection of an investment treaty, they likely would have chosen ISDS instead. This is because ISDS generally provides .

Other jurisdictions need to follow Québec’s lead. The global carbon budget has no room for new coal, oil or gas developments. Construction of new fossil fuel infrastructure also needs to be limited, as it would lock in continued extraction long into the future.

Despite clear messages to this effect from the and the , investors continue to propose new fossil fuel projects. They do so in full knowledge that governments need to act to curb emissions in line with their international commitments and that future climate policies may negatively impact their investments.

Allowing these companies to demand billions in compensation creates moral hazard and could dampen necessary policy action.

Governments are increasingly aware of this risk and many are taking action. The European Union is seeking to withdraw from the , the largest investment treaty in the world, because it “.”

The Biden administration is committed to not signing up to new agreements with ISDS and a are calling for the removal of the mechanism from existing deals. Other countries such as and have worked to exclude ISDS from some of their trade agreements.

Future threats

Canada will soon escape from the legacy of NAFTA. However, the government remains exposed to the threat of ISDS through other trade agreements such as the , as well as dozens of bilateral investment treaties.

When the , the risk of ISDS claims from fossil fuel firms will .

The idea that public finance, desperately needed for the energy transition and climate adaptation, will be redirected to compensate fossil fuel firms currently making is offensive.

In light of the increasing that documents how the industry has and helped to spread disinformation about climate science, it is that should be compensated by fossil fuel firms, not the other way around.

The Canadian government should adopt a consistent approach to ISDS. The exclusion of ISDS from USMCA should be emulated in any future agreements, and Canada should work with treaty partners to remove access to the system in all current ones.

, Canada Research Chair in Economy and Environment,

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