An international court has dismissed a case filed by Koch Industries challenging the Doug Ford government’s 2018 cancellation of cap-and-trade. 

The decision means Canada is off the hook for more than US$30 million the company claimed it lost when the carbon pricing program was scrapped.

Since February 2020, the multinational giant has been challenging the termination of the $3 billion program before an arbitration tribunal at the International Centre for Settlement of Investment Disputes, a World Bank body that handles global trade issues. 

The cap-and-trade cross-border program — launched by Quebec and California — sets limits on industrial greenhouse gas pollution. Companies that exceed this cap are required to purchase emissions allowances, or credits, from others that emit below their limit. 

Ontario joined this market under the previous provincial Liberal government in 2016, but announced it would pull out after Ford’s Progressive Conservatives defeated former premier Kathleen Wynne’s Liberals in the June 2018 election.

During and after the campaign, Ford would repeatedly describe the program as “a Liberal cap-and-trade carbon tax,” vowing to eliminate it. According to legal documents previously reviewed by The Narwhal, Koch Industries bought these emissions credits in May 2018, as Ford was campaigning to scrap the program. 

Koch claimed it lost more than US$30 million and issued its legal challenge to recover that money under the conditions of the North American Free Trade Agreement, which was in place when the cancellation happened. Due to the nature of the agreement, Canada was forced into the international tribunal rather than the province.

Koch argued the cancellation “wiped out” its business in Ontario, and “arbitrarily and illegally stripped” the company of “millions of dollars in inventory without any compensation.” Koch Industries said this decision amounted to “guerrilla policy by a populist government, pure and simple, regardless of legalities or solemn commitments.” 

The case would take four years to resolve, with the World Bank tribunal finally issuing its decision on March 13. While the details have not yet been made public, the federal government confirmed the case has been dismissed. 

“The Government of Canada welcomes the tribunal’s decision to dismiss this case on jurisdictional grounds,” Jean-Pierre J. Godbout, a spokesperson for Global Affairs Canada, said in an email to The Narwhal. 

Godbout added that the government supports such investor-state dispute processes because they guarantee a “predictable, rules-based investment climate” through “impartial and objective means.”

Throughout the deliberations, Canada defended the Ford government’s decision to cancel the program — despite publicly fighting the province on carbon pricing. The federal government argued Ontario cancelled the program “in good faith and for legitimate policy reasons,” and that Koch Industries was fully aware of the shift in policy. 

Canada also argued an emissions credit cannot be considered a true investment: “Koch Supply & Trading bore a commercial risk: it bought emission allowances at auction, betting that it could resell them at a higher price in another jurisdiction.”

“We don’t know for sure but if the case was tossed out on jurisdiction then it’s likely that the tribunal agreed with Canada that Koch’s purchase of emissions credits in Ontario does not qualify as an investment,” Stuart Trew, director of the Canadian Centre for Policy Alternatives’ trade and investment research project, told The Narwhal. 

“I am relieved,” he added, “because it clearly isn’t an investment if a company buys emissions credits in one place in order to pollute somewhere else.” 

The multinational giant’s legal action is one of two lawsuits businesses have launched for losses suffered from the Ford government’s cancellation of cap-and-trade. Koch Industries has a long history of fighting environmental policy and initiatives in court, including other carbon pricing programs. 

Godbout told The Narwhal the final decision “will be made publicly available as soon as confidential information has been redacted.”

The office of Ontario’s attorney general did not respond to a request for comment. Koch Industries also did not respond to a request for comment.