Here’s a look at how protectionist measures are pushing countries into walled markets that limit the flow of low-cost clean technologies:

Since 2020, countries around the world have implemented nearly 200 trade policies targeting clean energy, compared to only 40 in the five years before.

Close to 40% of those trade measures were protectionist, and 70% targeted three technologies: solar power, batteries and electric vehicles.

China dominates all three of those sectors, and almost half of its vehicle exports are now electric.

The United States has imposed a 100% tariff on those EVs and raised its tariff on Chinese solar to 50%.

Meanwhile, the World Trade Organization says that non-tariff restrictions are on the rise and they can be up to 10 times more restrictive than tariffs.

All these barriers are changing the flow of green goods: 31% of China’s cleantech exports now go to emerging markets, up from 23% in 2022.

To circumvent trade restrictions and tap new markets, Chinese firms have pledged more than US$210 billion for overseas green manufacturing since 2022.

From the spring 2026 edition of the magazine

Sources: Net Zero Policy Lab, International Energy Association, OECD, WTO, BloombergNEF

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About 67 critical-minerals projects – which represent about half of all active mining proposals in Canada – are proposed, planned or under construction, according to a federal government inventory. Combined, they’ll need $72.4 billion in investment by 2034.

But as the federal government seeks capital from its allies to develop its mineral riches, some experts are advocating for a more cautious tack to working with the United States amid President Donald Trump’s continued aggressive stance toward allies and repeated musings about annexing Canada.

“From a long-term perspective . . . the best approach is to work together in development of a North American critical-minerals strategy,” says Lawrence Herman, a Toronto-based international trade lawyer and member of the Expert Group on Canada–U.S. Relations. “The challenge for Canada is the aggression of the Trump administration and its desire to control, in different ways, what happens in Canada with regard to critical minerals.”

Western countries are trying to lessen their dependence on China, which currently controls about 90% of refined production of rare-earth elements and 70% of rare-earths mining output, along with about half of the world’s reserves. Rare earths have applications in consumer electronics, advanced weapons systems and electric vehicles. China also has strong control over lithium, graphite and other niche minerals such as germanium and gallium, which have defence applications.

But a wave of new export control measures has exposed the significant vulnerabilities in Western supply chains. Amid deteriorating trade relations with the United States early last year, China instituted a special licence to export 12 rare-earth minerals and derivative products like magnets. Likewise, any product with at least 0.1% of its content coming from Chinese rare-earth metals will be restricted as of November 2026.

I think there’s a strong recognition by the U.S. that they do still need Canada for their critical minerals and mining projects.

– Photinie Koutsavlis, vice president, Mining Association of Canada

China’s dominance has also made it difficult for some Canadian mining projects to get off the ground, says Photinie Koutsavlis, vice president of economic affairs and climate change at the Mining Association of Canada. China can “flood the market with product,” depressing prices and making mine expansion or construction uneconomic.

Canada is on a deal-making spree

The G7 (Group of Seven) Critical Minerals Production Alliance, launched by Canada last summer to drum up public funding for mining and processing projects from allied countries, as well as private capital, has announced 56 investments to date. Canada and the United States have also collaborated directly on critical-minerals investments through their joint task force, established during the first Trump administration.

The United States launched its own critical-minerals buyers club, called Project Vault. The US$12-billion critical-minerals stockpile will establish price floors for various minerals and would give allied countries access to the stores in the event of shortages. To date, Washington has struck deals with more than 50 countries. Foreign Affairs Minister Anita Anand attended an initial meeting, but Canada has so far been noncommittal about its participation.

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Shaz Merwat, director of energy policy at RBC Thought Leadership, sees Project Vault as a strong potential market for Canadian critical minerals and notes that strategic deals under that umbrella would guarantee that Canadian minerals flow into U.S. rules of origin for batteries and electric vehicles. But in a February research paper, Merwat acknowledged that deeper minerals-supply-chain enmeshment with the United States could mean that “Canadian minerals face U.S. export licensing and defence procurement priorities that serve American industrial policy first.”

Herman raises the same concern about equity stakes the U.S. government took in October in two Canadian junior mining companies, Trilogy Metals and Lithium Americas. While both companies have their projects outside Canada, the deals could expose Canada to U.S. government action “that may not always be consistent with Canadian interests,” he says.

Despite tariffs and trade tensions, Koutsavlis says the United States remains an ally and Canada’s biggest trade partner. The mining sector also falls within the Canada-United States-Mexico Agreement (CUSMA), and its products haven’t been hit with any tariffs. “I think there’s a strong recognition by the U.S. that they do still need Canada for their critical minerals and mining projects,” she says.

Shoring up supplies

Canada has announced it will create its own critical-minerals stockpile for defence purposes. Elizabeth Steyn, associate dean of graduate and professional programs in the University of Calgary’s Faculty of Law, says the government could sign long-term contracts with miners to create its own public stockpile, or pay companies to keep a large stock of their commodities on site. But she says it should focus primarily on stockpiling minerals that it’s vulnerable to losing access to, including those that Canada doesn’t produce.

Federal Conservative leader Pierre Poilievre, in a February speech to the Economic Club of Canada, suggested that Canada could use a domestic stockpile of critical minerals as leverage in trade negotiations with the United States; in exchange for access to the stockpile, the United States would need to lift tariffs on Canadian goods.

Having a guaranteed government buyer would also help to de-risk projects for miners and their investors, Koutsavlis says, but stockpiling alone is not a sufficient strategy. She says the government needs to fund infrastructure to remote projects and provide more support for processing and refining. Many critical minerals are not produced at the mine but recovered as co-products through smelting and refining. But Canada’s processing capacity has declined in the past decade. Koutsavlis says a host of factors have played a role: mines with attached processing facilities reached their end of life, and declining mining output generally reduced feedstock that stand-alone smelters and refiners had access to, forcing them to seek out supply elsewhere. With China able to offer processing on the cheap, Western processors have resorted to paying for feedstock to keep their facilities operating.

Merwat says he sees the potential for Canada to create integrated “mineral corridors,” where multiple mines in a region could feed into one processing facility – such as in Sudbury’s nickel belt or the lithium deposits around Thunder Bay, Ontario – and offer economies of scale.

But that should be accompanied by price floors, similar to what the United States offers, and limits on importing feedstock from China, which would help improve the economics for Western “pure-play” refiners that are otherwise at a competitive disadvantage because, unlike larger mining and energy companies, they aren’t diversified. Otherwise, Merwat says, with public market players largely unwilling to get involved in these more risky projects, Western supply chains will remain vulnerable.

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“With this new partnership, we will not stop until the goals of Atmanirbhar Bharat and Canada Strong are reached,” Carney said, citing the Hindi term for “self-reliant India.”

The agreement will see Saskatoon-based Camemco deliver nearly 22 million pounds of uranium fuel between 2027 and 2035, CBC reports. India currently has 25 nuclear reactors in operation, eight under construction, and plans to boost its nuclear capacity from 8.7 to 100 gigawatts by 2047, the national broadcaster adds.

A wide-ranging joint statement issued by Carney’s office also puts liquefied natural gas (LNG), liquefied petroleum gas (LPG), crude oil and refined petroleum products at the centre of the expanded trade relationship.

Carney “framed this new course as not just a return to how things were but rather an ambitious revisioning of what the two Commonwealth countries can do together in an uncertain era marked by instability,” CBC writes. Just prior to his meeting with Modi, Carney said he hoped to secure a wider free trade agreement with India by the end of the year, possibly in time for a signing at this year’s G20 summit at a Trump property in Miami. The two leaders affirmed that timing after their one-on-one.

“With India positioned to be the largest contributor to incremental global energy demand growth over the next two decades, beyond its current position as the world’s third-largest oil consumer and fourth-largest LNG importer, both sides acknowledged the significant potential to further expand bilateral energy trade,” the joint statement declares. “This includes increased oil and LNG imports by India from Canada, as well as the supply of refined petroleum products from India to Canada. In this context, Canada reaffirmed its plans to expand heavy oil export infrastructure and supplies of LNG to the Indo-Pacific market through Canada’s stated goal of producing 50 million tonnes of LNG per year by 2030 and up to 100 million tonnes by 2040.”

The statement calls for broader cooperation “across clean energy and climate-related value chains, including renewable energy, hydrogen and its derivatives, biofuels, sustainable aviation fuel, battery storage, and electricity systems modernization, recognizing the central role of these sectors in advancing shared climate objectives and energy transition goals.” It says the two leaders also “underscored solutions for carbon capture, utilisation and storage (CCUS) as a key area of cooperation, offering a significant opportunity for the sustainable production of energy and critical minerals.”

And it celebrates a “comprehensive institutional framework to advance bilateral collaboration across solar, wind, bioenergy, small hydro, energy storage, and capacity-building” while recognizing India’s “leadership and capacity in large-scale solar and grid-level energy storage technologies along with scalable models in rooftop solar and other forms of distributed renewable energy solutions.”

CBC has a list of smaller deals that were announced or re-announced this week, including a 1.2-million-tonne coal export contract for British Columbia–based Elk Valley Resources, valued in the hundreds of millions of dollars. Canada will also join the 112-member International Solar Alliance, first conceived by India in 2015 and launched by India and France in 2017.

News coverage of the announcement has focused extensively on the warming of relations after the former Justin Trudeau government concluded and the Modi government denied that India had conducted foreign interference in Canada. “Touting an approach he calls ‘values-based realism,’” The Globe and Mail writes, Carney “has largely sidestepped questions over meddling by New Delhi in Canada, including the allegations it was behind the 2023 murder of a Canadian Sikh activist. Last year, a public inquiry report flagged India as the ‘second most active country engaging in electoral foreign interference in Canada’ after China.”

“But, with Carney at the helm, the relationship has become friendlier with much more diplomatic dialogue – with even more to come after the prime minister invited Modi to visit Canada sometime soon,” CBC reports.

Uranium sale has ‘implications’

Just ahead of Carney’s visit, India’s high commissioner to Canada, Dinesh Patnaik, said the country would be open to buying Canadian nuclear technology or taking an ownership stake in the country’s uranium mines. “We are willing to take whatever,” he told CBC. “Nuclear is a huge field in which we want to work together.”

The Canadian Press says Saskatchewan is the only province that exports uranium. And in New Delhi Monday, Premier Scott Moe declared it a “great day” for his province. “Saskatchewan’s always a big winner when it comes to export deals,” he said. “Saskatchewan will certainly benefit from the agreement signed today, but all Canadians benefit as well. I think that’s important for us to remember.”

In a Globe and Mail opinion piece in December, Gordon Edwards, president of the Canadian Coalition for Nuclear Responsibility, and Erika Simpson, president of the Canadian Peace Research Association, raised the prospect that the uranium deal – then valued at $3.94 billion – would make it easier for India to divert some of its existing nuclear fuel stockpile for military use.

“India is not a routine customer,” they wrote. “It is a nuclear-armed state that has never signed the Nuclear Non-Proliferation Treaty (NPT), the agreement meant to anchor global efforts against the spread of nuclear weapons. In selling it uranium, Canada appears willing to extend to India the kinds of benefits normally reserved for states that accept international inspections on all nuclear facilities and abide by NPT treaty obligations.”

With “one of the world’s largest stockpiles of civilian plutonium, separated from spent reactor fuel,” India could already produce as many as 2,686 nuclear weapons if it chose to redesignate the material for military use, Edwards and Simpson say. “Doing so would require only a political decision. The risk is not hypothetical. It sits just outside the boundaries of our public policy discussion.”

Mitchell Beer is publisher of The Energy Mix, a non-profit community news site and e-digest on climate change, energy and the shift off carbon. This article first appeared on The Energy Mix. It has been edited to conform with Corporate Knights style. Read the original article here.

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Currently, much of the nation is rightly animated by the urgent need to diversify trade away from the United States. Our once-stable ally has quickly imposed an erratic barrage of self-owning tariffs and threatened our national sovereignty.

In practical terms, that means Canadian businesses will need to be competitive in markets that are rapidly moving toward clean energy. Think of the European Union and the United Kingdom: both jurisdictions continue to see rising adoption of renewables and electric vehicles. And both are set to impose carbon tariffs on imports that don’t already price carbon to specified levels. In China, another critical market, roughly half of all new car sales are already electric – and rising fast. Renewable installations are off the charts. And the country is expanding coverage of its massive national carbon market.

In fact, the transition to clean energy is happening at a blistering pace in many countries beyond these select few. To paraphrase economist Nicholas Stern, investment in climate action is the economic growth story of this century. The cost of solar power and batteries has fallen off a cliff in the last decade, down 80%. Offshore and onshore wind costs are down by 73% and 57%, respectively. Lithium-ion battery costs have fallen 90% since 2010.

Whatever the strategy includes, the focus on strong climate policy as an enabler of our nation’s economic success is the right one.

– Rick Smith, president, Canadian Climate Institute

These rock-bottom prices have powered a technological revolution that is quickly remaking global energy markets. Renewables generated more electricity than coal for the first time ever in the first half of this year. The amount of installed renewable power is expected to more than double in five short years, according to the latest from the International Energy Agency. Globally, more than one in four vehicles are set to be electric this year.

Though Trump gets most of the news headlines, there remains significant decarbonization progress within the United States. California, for instance, through a combination of policy and targeted investment, has increased its utility battery storage by 3,000% since 2020, with much more on the horizon.

Building Canada’s low-carbon economy

All of these data points reinforce the point that decarbonization is fast becoming the key driver of economic progress globally. That has important implications for Canada and the forthcoming climate competitiveness strategy. Strong climate policy that drives investment into low-carbon technologies that cut emissions will be crucial for the economic health of the country.

So, what should that strategy look like? There are a number of policies the federal government can implement right away to catalyze low-carbon growth.

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At the top of the list should be strengthening industrial carbon pricing across the country. Doing so will increase certainty for businesses and attract investment. It has the potential to break down interprovincial trade barriers and support export diversification.

Building bigger, cleaner, smarter electricity grids is another no-brainer that should also be on the list. And the same goes for cutting more methane emissions from the oil and gas sector and the creation of a sustainable investment taxonomy.

Plus, there are important policies the government should stand its ground on. The most obvious is the federal electric vehicle mandate.

Whatever the strategy includes, the focus on strong climate policy as an enabler of our nation’s economic success is the right one. A lot of the necessary pieces are already in play: now they need to be connected and strengthened.

Rick Smith is president of the Canadian Climate Institute, the co-author of two bestselling books on the effects of pollution on human health, and the executive producer of Plastic People, a 2024 documentary chronicling the damage done by microplastics in the human body.

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The country feeds nearly 20% of the global population, but must do so with less than 9% of its arable land and only 6% of its water resources, according to Reuters. Rising temperatures, erratic rainfall and more frequent droughts and floods are battering Chinese agriculture, jeopardizing decades of food self-sufficiency policy. Wheat, rice and maize – the cornerstones of the country’s food system – are increasingly exposed to climate shocks.

“Climate change poses a severe threat to China’s food security,” former agriculture minister Tang Renjian said in early 2024, noting that extreme weather events have already reduced yields in several major grain-producing provinces. In the same year, the Ministry of Agriculture warned that “unusual changes in temperature and rainfall can slow down the growth of food crops, resulting in a drop in the average yield of grains.”

China’s agricultural sector is uniquely sensitive to climate change. The northern plains, home to a majority of China’s wheat production, are becoming hotter and drier. The southern provinces, which grow much of the country’s rice, are increasingly prone to flooding. According to the China Meteorological Administration, average national temperatures have risen faster than the global average, climbing more than 1.6°C since the 1950s.

The country has managed to preserve about 95% self-sufficiency in wheat for nearly two decades. But climate stress is forcing new strategies to the fore, both in agricultural practices and in international trade.

To address growing risks, the Chinese government has embedded climate adaptation directly into its agricultural-reform agenda. The country’s 14th Five-Year Plan (2021 to 2025) prioritizes investments in water-saving irrigation, climate-resilient seeds, precision farming technologies and early-warning systems for extreme weather.

In addition to bolstering domestic yields, China is hedging its food security by deepening trade relations along its Belt and Road Initiative (BRI) network, especially with countries in the Global South, to secure grain from a broader base of suppliers.

China seeks to limit agricultural imports

Wheat has historical and cultural roots that run deep in China, and the stakes for maintaining supply stability are high. The country consumes more than 130 million tonnes of wheat annually, largely to produce staples like noodles, dumplings and steamed buns. While the bulk of demand is met by domestic harvests, higher-end processed foods increasingly rely on imported wheat with specific quality characteristics – particularly from countries like Canada, France, Australia and the United States.

But as Trump’s universal tariffs strategy demonstrates, trade relations are anything but predictable.

In 2019, Canada was China’s leading supplier of imported wheat. By mid-2020, that changed dramatically. The diplomatic row over the arrest of Huawei CFO Meng Wanzhou led to a sharp drop in Canadian wheat purchases, down from more than 50% of imports in 2019 to just 15% by mid-2020. The influential online Chinese media portal Sohu blamed “wrong decisions” made by Canada for the souring of trade ties.

Australia, once a beneficiary of Canada’s fall from favour, has seen its own wheat exports face heightened inspections in China. While this hasn’t triggered a formal ban, it’s a sign that bilateral tensions can quickly spill into food trade.

These shifting trade patterns highlight a deeper strategic calculus. China wants to limit its dependence on Western suppliers for food staples, just as it has for semiconductors and energy. Expanding partnerships with emerging economies such as Kazakhstan, Pakistan and Brazil are a cornerstone of this plan.

Challenges for China’s agricultural productivity

Meanwhile, internal agricultural productivity is under stress. In a 2022 report, the Chinese Academy of Agricultural Sciences estimated that climate-related yield reductions could amount to 5% to 10% by 2030 under current warming trends. One study estimated that China’s key cereal crops could lose around 2.6% yield per degree Celsius of warming, with more vulnerable regions facing up to 12.7% loss per degree across wheat, rice and maize. Another study with different crop modelling – in this case without carbon dioxide fertilization – projected up to 37% yield decline within decades if warming continues unchecked.

For a country where 1.4 billion people depend on food-system stability, even small disruptions can cascade.

China isn’t short on ambition to use technology to solve big problems. It leads the world in the development of hybrid rice varieties and is rapidly digitizing its farm sector with satellite monitoring, AI-driven pest prediction and big-data analytics for yield forecasting. Other innovations come from its “Smart Agriculture” program, which integrates advanced tools such as sensors, drones and blockchain technology into the food supply chain.

Historical memory still shapes China’s focus on food security, especially the famine of 1958 to 1962 that led to the deaths of an estimated 15 to 55 million people – one of the deadliest disasters of the 20th century. While today’s threats are different, the possibility of disruption carries echoes of the past. The Chinese government’s commitment to self-reliance now finds new motivation in the science of climate change.

Gordon Feller is a writer based in San Francisco.

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The free flow of energy between the two countries benefits suppliers and consumers alike as the arrangement takes advantage of differing demand levels among jurisdictions so that rates remain consistent. But this relationship is changing rapidly as President Donald Trump unleashes a barrage of trade threats and tariffs.

Suddenly, the direction in which Canada’s electricity moves is top of mind. For the first time in recent memory, provincial governments are expressing a shared interest in dismantling interprovincial trade barriers, including those that apply to energy.

Several sub-national governments have already announced plans to allow for unimpeded movement of goods and services between provincial jurisdictions, and some premiers have raised the prospect of increasing interprovincial trade in energy – a proposal that had been put forward in years past but had yet to gain traction until very recently.

B.C. Energy Minister Adrian Dix told The Globe and Mail that since the White House first declared its intention to impose steep tariffs on Canadian goods, he has been in discussions with Alberta’s Brian Jean, minister of energy and minerals, to figure out how regulatory red tape between the two provinces’ energy sectors can be reduced.

On the east coast, Newfoundland and Labrador announced a historic agreement with Quebec to generate more hydropower at the Churchill Falls power plant in Labrador and install more transmission lines to transport the additional power load.

For many business leaders, reducing internal obstacles will be key to surviving the economic fallout of U.S. tariffs on Canadian goods.

Canada’s trade agreement with itself

The Canadian Free Trade Agreement (CFTA), signed by the federal, provincial and territorial governments in 2017, is intended to either eliminate or reduce trade barriers within Canada. But governments are allowed to name exceptions.

Ottawa has said that it will reduce its 39 federal exceptions to 19 in addition to the 17 federal exceptions the government removed last June. Provincial governments, in turn, have vowed to do more to liberalize domestic trade.

Nova Scotia Premier Tim Houston declared that his government will introduce legislation that would ease trade and labour mobility with other provinces, so long as they do the same.

Ontario Premier Doug Ford promised to look at similar legislation. Ford also pledged to remove all of Ontario’s exceptions in the CFTA.

Even a partial removal of interprovincial barriers could deliver considerable savings to Canadians. An RBC report released in February references an International Monetary Fund study that found that the cost of non-geographic interprovincial trade barriers was roughly equivalent to an average tariff of 21%.

Interprovincial grids make electricity cheaper and cleaner

The Pembina Institute, a clean energy think tank, released a report in 2021 on how Canada’s surging energy needs coupled with its decarbonization targets makes the case for constructing electricity interconnections and allowing provincial neighbours to buy and sell clean energy from one another. The report states that interprovincial grids are essential to maximize clean electricity resources, allowing renewable energy to be generated in one jurisdiction and distributed to another.

The cheapest option is to use the infrastructure we have in better ways.

– Kate Harland, research lead, Canadian Climate Institute

According to the Canadian Climate Institute, to achieve net-zero carbon emissions Canadian electricity demand will grow to be 1.6 to 2.1 times larger by 2050 relative to 2022. And to meet that demand, Canada’s electricity generation capacity will need to be 2.2 to 3.4 times bigger than it is today.

Not only would a nationwide grid network deliver more energy; it would also make energy cheaper. A North American Renewable Integration Study released in 2021 concluded that a continent-wide transmission grid, along with storage and flexible operation of different generation technologies, in particular hydropower, could deliver system-wide net benefits of $12.6 to $38 billion.

Ultimately, however, it falls to provinces and territories to determine whether and how much they want to integrate their energy systems. Under a functioning U.S.–Canada free trade arrangement, the path of least resistance has been to buy and sell energy with our U.S. trading partner, and provincial governments have been in no rush to change that arrangement.

Additionally, governments balked at the price tag of big infrastructure projects. On that point, Kate Harland, research lead with the Canadian Climate Institute, says that before making major capital investments in new transmission lines, provincial governments should take a close look at the infrastructure that’s in place now.

“The cheapest option,” Harland argues, “is to use the infrastructure we have in better ways. There are interprovincial connections in place now, but they aren’t used to capacity due to regulatory and political challenges. So step one would be to use what we have. Until recently, north–south trade was so beneficial there was little incentive to break down barriers to east–west trade. This has changed.”

Atlantic Canada leads on interprovincial clean energy

The benefits – as well as the difficulties – of interprovincial trade in energy can be seen in Atlantic Canada. The Muskrat Falls project, an energy trade arrangement through which hydropower generated in Newfoundland and Labrador is sent to Nova Scotia, has helped Nova Scotia Power increase the proportion of clean energy in its grid supply from 9% in 2010 to 35% today.

Nevertheless, warns Brendan Haley, senior director of policy strategy with Efficiency Canada, the Muskrat Falls project can be seen as a cautionary tale. Haley points out that in Newfoundland and Labrador, the cost of the Muskrat Falls project nearly doubled from the initial 2012 forecast of about $7 billion to more than $13 billion by 2021. Fear at the time that electricity rates would also double resulted in two bailouts from the federal government totalling $5.2 billion in 2021. The federal support was part of the province’s rate-mitigation plan limiting annual electricity rate increases to 2.5% until 2030.

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As Nova Scotia Power waited for clean electricity to start flowing its way during the long project delays, the province spent $1.6 billion in replacement fuel costs. “Be wary of technological optimism,” says Haley, who argues that a better approach is to combine microgrid technology and efficiencies with macrogrid build-outs within and between provinces.

Haley notes that making sure buildings are well insulated and instituting demand-side management strategies that reward customers for using electricity during off-peak hours, such as charging an electric car overnight, are the sorts of inexpensive solutions that can be deployed almost immediately. Establishing robust microgrids does not diminish the importance of and need for more infrastructure, he adds, nor does it contradict the upside of more interprovincial trade.

While the Muskrat Falls project suffered from cost overruns, multiple delays and, at times, vigorous opposition among local Indigenous communities, the Atlantic provinces continue to push ahead with interprovincial clean energy projects. New Brunswick and Nova Scotia are set to begin construction of the first phase of a large joint project they say will help them keep their commitment to phase out coal by 2030.

Sometimes referred to as the Atlantic Loop, the project includes building an interprovincial electricity transmission line that will span 160 kilometres. Construction is expected to start in both provinces in 2026. In 2023, the estimated cost was tagged at $1.4 billion.

“There is no question that as demand rises, we will need more interconnections in the future,” Harland says. But it should be done judiciously, she adds, understanding how to minimize new builds, maximize existing lines, smooth out energy demand peaks and enforce energy efficiencies.

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That’s almost a fifth of the province’s total budget for this year.

Ruby River Capital LLC, the U.S.-based owner of GNL Québec Inc., filed a claim against Canada under the North American Free Trade Agreement (NAFTA) after its Énergie Saguenay project failed to pass a federal environmental impact assessment.

The proposed LNG terminal had already been rejected by the Québec government 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 Paris Agreement to address the climate crisis. But when it takes steps to do so, foreign investors invoke international trade and investment agreements like NAFTA and threaten to drain public coffers.

Unlike environmental treaties, trade and investment agreements have teeth. They are enforceable through a system known as Investor-State Dispute Settlement (ISDS) that allows foreign investors to bypass local courts and bring claims for monetary compensation to a panel of three arbitrators. More than 1,200 ISDS cases have been launched against governments around the world in the last 25 years.

Between 1996 and 2018, Canada was sued more than 40 times 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 U.S.-Mexico-Canada Agreement (USMCA), 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 “strengthened our government’s right to regulate in the public interest, to protect public health and the environment.”

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 spent only about CDN$165 million 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.

Other jurisdictions need to follow Québec’s lead. The global carbon budget has no room for new coal, oil or gas developments.

 

Québec is a member of the global Beyond Oil and Gas Alliance and is the first jurisdiction in the world to ban all oil and gas production. The province is being sued over this ban by several fossil fuel firms — seeking more compensation than was offered — 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 broader scope for claims — and larger awards — than domestic courts.

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 Intergovernmental Panel on Climate Change and the International Energy Agency, 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 Energy Charter Treaty, the largest investment treaty in the world, because it “is not aligned with the Paris Agreement, the EU Climate Law or the objectives of the European Green Deal.”

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

It is communities impacted by climate change that should be compensated by fossil fuel firms, not the other way around.

 

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 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as well as dozens of bilateral investment treaties.

When the U.K. officially joins the CPTPP, the risk of ISDS claims from fossil fuel firms will increase dramatically.

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

In light of the increasing body of evidence that documents how the industry has actively obstructed climate action and helped to spread disinformation about climate science, it is communities impacted by climate change 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.

Kyla Tienhaara is the Canada Research Chair in Economy and Environment at Queen’s University.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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