Treaties that protect international investments are often used to counter abusive nationalizations. They could also hinder the energy transition by forcing governments to compensate hydrocarbon companies that have to cease their activities. The debate on compensation for Quebec firms will set a precedent in this area.
Posted at 6:00 a.m.
340 billion
The verdict of the International Energy Agency (IEA) is clear: if humanity wants there to be no more greenhouse gas emissions in 2050, we must stop all investment in the sector. fossil fuels now. So, stop the 1941 hydrocarbon projects in development in 62 countries. The problem is that 225 of these projects are protected by 81 investment protection treaties. “If we rely on past compensation under these treaties, they could reach 340 billion for these 225 projects,” explains Kyla Tienhaara, environmental lawyer from Queen’s University, Ontario, who published this analysis in May in the journal Science. At an OECD conference on the subject, experts explained that the decisions of arbitrators under these investment protection treaties do not consider the public good, only the protection of property rights.
PHOTO FROM QUEEN’S UNIVERSITY WEBSITE
Kyla Tienhaara
Quebec case law
The ongoing debate on compensation for gas and oil companies in Quebec, after the Legault government’s decision to ban all production, will set “jurisprudence”, believes Mario Lévesque, president of Utica Resources, which notably developed the well. of Galt oil in Gaspésie. The government is proposing to fund well closure costs and reimburse exploration costs incurred since 2015, at an estimated cost of $100 million. The industry demands five times more. “If we don’t have adequate compensation, that greatly weakens property rights in Canada,” said Mr. Lévesque. Environmental groups, Québec solidaire and the Parti Québécois demanded that no compensation be paid, to avoid setting a precedent, and the Liberal Party of Québec, that payments be as low as possible.
PHOTO FROM MARIO LÉVESQUE’S LINKEDIN PAGE
Mario Levesque
Expropriations
Howard Mann, a Canadian expert in arbitrations under investment protection treaties, believes that reasonable environmental regulations should not generate compensation. “Did we compensate the refineries when we banned leaded gasoline, or the manufacturers of refrigerators when we passed the laws to protect the ozone layer? asks M.e Mann, who notably represented the position of the International Institute for Sustainable Development (IISD) in arbitrations. ” Nope. Hydrocarbon companies have known for 30 years that we will eventually fight against climate change. It’s part of the business risk. But governments must be consistent in their climate regulations. “They can’t authorize projects somewhere and ban them elsewhere. Could countries that lower gasoline taxes to counter runaway inflation be accused of inconsistency? “No, I don’t think so, because it’s an unprecedented crisis. But it may be a good idea to send a check without lowering gasoline taxes, as has been done in Quebec. If a climate law is found to be unreasonable or inconsistent, investment protection treaties will apply.
Anticosti
The case of Anticosti, where oil development was banned in 2017, is interesting. Of the $61.9 million in compensation to four companies, about one-third corresponded to exploration expenses, and two-thirds to future revenues, according to a participant in these negotiations who cannot be named because he signed a privacy. “The real value of these future revenues was 7 to 8 billion for Anticosti,” estimates Mr. Lévesque, of Utica, who was not one of the firms compensated in this case.
Lake Saint-Pierre
A Quebec environmental decision is subject to arbitration under an investment protection treaty. This is the American firm Lone Point, which had a gas and oil exploration contract under Lake Saint-Pierre. Lone Point had to interrupt its plans when the government, in 2013, banned all exploration upstream of Anticosti. Arbitration is done under a clause in NAFTA. The treaty that replaced NAFTA no longer has this investment protection clause, but the arbitrations previously called for are protected. According to Mr. Lévesque, the arbitration was delayed by the death of a judge. The sum claimed by Lone Point is 120 million.