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Keystone XL legal risks highlight dangers of putting investors before climate change

The chickens have come home to roost for Alberta Premier Jason Kenney. Kenney bet —the highly controversial Keystone XL pipeline.

U.S. President Joe Biden, to the surprise of no one but Kenney, followed through on an election promise and on the first day of his administration. Now the premier is scrambling for a way to recoup some of Alberta's losses, .

The former North American Free Trade Agreement (NAFTA) contained a chapter on investment that allowed foreign investors to sue governments in international arbitration. The owner of Keystone XL—TC Energy (previously TransCanada)— in 2016 after President Barack Obama canceled the project.

At the time, some legal experts thought the company had a . We will never know, because the when President Donald Trump indicated he was willing to let the project proceed.

This time may be different if TC Energy chooses to proceed with a claim. NAFTA has been replaced by a new agreement—the U.S.-Mexico-Canada Agreement (USMCA). Unlike NAFTA, (or American investors to sue the Canadian government).

Legacy claims for investments that had occurred prior to the USMCA coming into force are permitted until 2023. But TC Energy's because the permit issued by the Trump administration explicitly stated that it could be rescinded, essentially at the president's whim.

Nevertheless, many investors have proceeded with claims on the basis of much weaker cases. Investors bet on positive outcomes in arbitration, as much as they bet on governments not taking action to halt catastrophic climate change. This is because the anticipated rewards, in both instances, are high.

Risky business

One example of an incredibly dubious investor claim is the one launched by in 2018. Ironically, this case concerns action that the previous Alberta government took to address climate change.

Alberta's , which left Westmoreland—an American coal mining firm—without a future market for its coal. that Alberta's failure to provide Westmoreland with "transition payments," like those that power companies received, is a breach of NAFTA.

The case is ongoing and outcomes of arbitration are very difficult to predict. But it demonstrates a concerning trend, as do .

of the damage their industry causes for decades, yet they have . They have taken bets on risky investments in the hopes that governments would continue to dither as the planet burns. Now that climate action is starting to ramp up, they want to be "compensated" for their losses.

A global problem

Climate activists may be tempted to dismiss the threat that investment treaties pose to action on climate change. After all, the Canadian and U.S. governments have the resources to rigorously defend themselves in arbitration and they often win. Indeed, the U.S. has never lost a case. Furthermore, governments already subsidize the industry to the tune of , so is a few more billion in "compensation" really going to make much of a difference?

The problem is that climate change is a global issue and so too is the . Many of the fossil fuel reserves that need to and assets that need to be in order for us to remain below 1.5C of warming are .

For example, a large number of planned and newly operating are in countries like Indonesia and Vietnam. A found that many of these plants are protected by investment treaties. These countries have fewer resources for fighting claims and a much poorer record of success in arbitration.

A real concern is that even the threat of a big investor claim one of these governments from taking action to phase out coal.

A global solution

We need climate action to happen everywhere, not just in the countries where governments can afford to fight legal challenges. This is one of the reasons why many are calling for radical reform or complete abolition of international investment treaties.

In Europe, campaigners are making headway on efforts . Countries like are pushing for investment treaties to be aligned with the Paris Agreement and the UN's Sustainable Development Goals. Researchers have also suggested that the problems with investment treaties could be addressed with a .

In the meantime, the Canadian public should make it clear to TC Energy and Jason Kenney that they should drop any plans to pursue a legal challenge, and own up to the fact that they alone are responsible for their own poor investment decisions.