Russian state entities are threatening to use the 1989 Belgium-Luxembourg (BLEU)–USSR bilateral investment treaty (BIT) to sue Belgium over the European Union’s (EU's) plan to back a EUR 140 billion Ukraine support loan with immobilized Russian Central Bank assets held in Belgium. No case has been filed yet, but Belgian officials treat it as a credible risk and are currently not supporting the EU proposal.

Using the immobilized Russian assets “is the most effective way to sustain Ukraine's defense and its economy,” European Commission President Ursula von der Leyen recently told the European Parliament, stressing that this is about defending Europe’s freedom and democracy. The EU is not the only actor considering the immobilized assets: a recent U.S. plan proposed to use a large portion of these assets for Ukraine’s reconstruction, but with the United States taking 50% of the profits generated.

That Belgian decision-makers now refrain from backing the crucial Ukraine proposal for fear of arbitration based on investment treaties only adds to longstanding concerns about these instruments. Over the past decades, these treaties have increasingly been misused in ways their drafters never intended. From climate policy to public health, they now put collective security decisions at risk. Reform is more urgent than ever. 

Peace Talks, the EU’s Support to Ukraine, and the Threat From Outdated Treaties

While Ukrainian and U.S. negotiators continue discussions to bring Russia’s war in Ukraine to an end, Brussels is seeking to agree on its latest economic support package for Kyiv. A final decision is expected at the European Council meeting on December 18–19.

When European Commission President Ursula von der Leyen met Belgian Prime Minister Bart De Wever on November 14, part of their conversation focused precisely on the legal risks Belgium is facing under the BLEU–Russia BIT—if the EU presses ahead with the Ukraine loan. BITs are international agreements between two countries that set rules to protect and promote investments made by investors of one country in the territory of the other.

The immobilized Russian assets are concentrated at Euroclear in Brussels, an international central securities depository (immobilized assets refer to sovereign assets such as central bank reserves, whereas frozen assets refer to the property of sanctioned private individuals or companies).

Roughly EUR 185 billion in Russian Central Bank holdings are immobilized there, with about EUR 176 billion in cash. The EU renews the immobilization every 6 months, creating a rolling legal framework for custody and potential use. This concentration in a Belgian market infrastructure makes Belgium, as host of the institution, the target for any arbitration claim under a BIT.

De Wever has publicly described the risk of Russian state entities, or the Russian state, using the BLEU-Russia treaty to challenge the use of the immobilized Russian assets through investment arbitration as a “Sword of Damocles” hanging over his government.
 

This is one recent example of a fast-evolving problem posed by investment treaties between the EU, or its member states, and Russia. A growing number of private investors affected by the EU’s response to the war in Ukraine are already using these treaties to launch investor–state dispute settlement (ISDS) claims—a system that allows foreign investors to bring arbitration claims directly against host states.

In many BITs, including the one between BLEU and Russia, ISDS co-exists alongside state–state dispute settlement, which is used far more rarely. In this case, both the ISDS and state–state avenues seem to alarm the Belgian government.

That public and private Russian actors could use a Cold War-era treaty between the Soviet Union and Belgium to undermine Europe’s support for a state resisting the Kremlin’s aggression is a stark reminder that the investment law regime was not designed for today’s security realities. Far-reaching investment treaty reform is crucial to safeguard collective security measures moving forward.

For now, the international community’s failure to modernize or terminate outdated treaties could be exploited by Russia and Russian investors—with the political cost borne by Ukraine, which depends on urgent support to withstand the invasion.

Euroclear and the BLEU–Russia Treaty

Euroclear continues to receive income on the Russian state assets, including coupon payments and maturities, but cannot transfer funds to Russia due to the sanctions. The amounts involved are significant and have generated large windfall profits for Euroclear, part of which is already taxed in Belgium and other jurisdictions.

As mentioned, European leaders are now debating a plan to use the immobilized assets as collateral for a long-term support loan to Ukraine. Belgium is so far not supporting the loan, insisting on strong guarantees that any legal risks or financial liabilities arising from this structure, including under its BIT with Russia, will be shared across the Union.

The BLEU–Russia BIT contains typical so-called protection clauses for investors—fair and equitable treatment, protection against expropriation, and free transfer of payments. It includes investor–state arbitration, limited to disputes concerning the amount of compensation for expropriation, alongside state–state dispute settlement. Crucially, the treaty does not contain an explicit security exception allowing parties to justify measures adopted in response to armed conflict or threats to international peace and security. 

Public commentary by Russian counsel suggests how this treaty might be used in relation to Euroclear and the EU’s Ukraine scheme. It argues that the EU’s restrictions on Russian Central Bank assets amount to creeping expropriation of sovereign property and that immobilizing these assets is incompatible with sovereign immunity and the law of state responsibility. The commentary underlines that the BLEU–Russia BIT offers both investor–state and state–to-state arbitration options for challenging the EU’s scheme.

In relation to the investor–state avenue, the commentators suggest that not only private Russian investors but also the Russian Central Bank could launch an ISDS claim against Belgium, as the host of Euroclear and the immobilized Russian assets. There are many open questions about the legal merits of this narrative. Commentary often amounts to advocacy rather than legal analysis, and it relies on bold readings of investment treaty definitions and the relationship between immunity and jurisdiction.

However, this seems to be part of the “legal risk” Belgium’s government argues must be solved before it can agree to back the EU’s loan for Ukraine with the immobilized Russian sovereign assets.

A Surge in Sanctions-Related ISDS Claims

Belgium’s concerns arise against a surge of sanctions-related ISDS claims brought by private Russian entities. Since 2014, and especially since Russia’s full-scale invasion of Ukraine in 2022, private investors affected by the EU’s Russia sanctions have increasingly used ISDS in BITs and the Energy Charter Treaty (ECT) to challenge state measures.

There are already more than two dozen known cases or threats of ISDS claims linked to sanctions or related emergency measures, with claimed amounts rising to billions of USD. Each dispute signals to governments that decisive action against aggression may carry a hefty price tag while these outdated treaties are in place—a phenomenon called regulatory chill.

These disputes involving different Russian actors fall into two categories. The first concerns ISDS claims over frozen private financial assets brought by Russian or Belarusian entities challenging Western sanctions or asset freezes. Examples include notices of dispute by Russian business figures over frozen assets in Belgium and in other European jurisdictions, such as the United Kingdom, Luxembourg, and Lithuania, as well as threats of claims contesting their inclusion on EU or national sanctions lists of particular individuals or companies under EU restrictive measures or national regimes. These listing decisions are asset-related because they automatically freeze assets and block access to banking, settlement, and transfers.

The second category concerns ISDS claims targeting broader economic response measures that affect Russian corporate revenues or physical assets, including windfall taxes on energy producers or restrictions on certain export sectors (e.g., the oil refinery operator Klesch’s ISDS claims against Denmark, Germany, and the EU).

This context shapes Belgium’s assessment of legal risks, and possible financial liabilities, if it agrees to use the Russian Central Bank assets held at Euroclear to back the Ukraine loan. Belgian officials seem to be concerned about two types of claims that could potentially be initiated against them under the BIT: A claim brought by Russia’s Central Bank attempting to act as a private claimant in investor–state arbitration under the BIT, or Russia launching a state-to-state claim under the treaty.

Belgium also worries about the potentially high damages they could be ordered to pay if they were to lose such arbitration claims—creating financial liabilities that could far exceed the nominal value of the Russian Central Bank assets held at Euroclear.

These developments are reshaping the investment disputes landscape, injecting heightened political sensitivity and raising questions about how dispute settlement provisions in treaties interact with domestic emergency powers and general international law on state responsibility, immunity, and countermeasures.

The controversy extends beyond private investors to sovereign assets and the financial market infrastructures central to sanctions implementation. The combination of sovereign assets held at Euroclear and the potential legal effect of the BLEU–Russia BIT on Belgium, as Euroclear’s host, is now demanding EU leaders’ attention.  

Can Russian state entities benefit from treaty protections designed for private investors?

A central question of any Russian attempts to challenge the Euroclear-backed loan through investment treaties is whether a central bank, or other governmental entity, actually can qualify as an investor and bring claims under a BIT.

Practice under the International Centre for Settlement of Investment Disputes (ICSID) Convention, the set of rules most frequently used for treaty-based investment arbitration, has tended to exclude state entities from the category of investors—meaning they are barred from launching ISDS claims under those rules. Whether this interpretation extends beyond the ICSID Convention and to alternative investment arbitration rules—such as those under the United Nations Commission On International Trade Law, Stockholm Chamber of Commerce, International Chamber of Commerce—is less clear.

Outside of ICSID, many treaties define an investor simply as a natural or legal person constituted under the law of a contracting party. The broad definitions in the BLEU–Russia treaty invite arguments that certain state-controlled entities or vehicles could fall within the investor category.

Russian counsel appear willing to explore this grey area to challenge the EU’s scheme, treating Russian Central Bank assets as sovereign for immunity and countermeasure purposes. Yet, at the same time, they hint at ways in which these same assets could be seen as an investment protected under a treaty originally intended for private investments—which would give the Russian Central Bank access to ISDS under the BLEU–Russia BIT. It is not clear whether an arbitral tribunal would accept such a dual presentation and confirm that it has jurisdiction.

However, the mere availability of plausible legal arguments, even if they might ultimately fail, can generate perceived risk, shape states’ choices on national security sanctions, and influence the use of frozen or immobilized assets. 

What can be done?

Given that arbitration awards are typically final and binding, attention should shift to domestic courts, where parties will go to enforce awards. Governments should put into place legal avenues to block the enforcement of awards that contradict fundamental public policy or international sanctions regimes, such as the EU’s response to Russia’s invasion.

This could include building international coalitions that pledge not to enforce sanctions-related ISDS awards related to collective security responses.

The EU is already taking targeted measures at the enforcement stage. Its 18th Russia sanctions package, released in July this year, includes provisions seeking to block the recognition and enforcement in the EU of awards or judgments arising from Russia-related disputes that undermine the effectiveness of sanctions. It also allows member states ordered to pay damages in such disputes to seek recovery from Russian assets covered by the sanctions regime.

Switzerland has likewise amended its legislation to bar the recognition and enforcement of ISDS awards from sanctions-related disputes. This increases uncertainty about whether an award or judgment will translate into actual payment and may help in safeguarding EU policy insofar as the enforcement is contained in the EU. This approach could be extended beyond the EU to include other jurisdictions where ISDS awards are typically enforced.

While dealing with blocking the enforcement of sanctions-related awards is an effective way to addressing some of the unintended consequences of investment treaties, the core of the problem—the fact that investment treaties will continue to be misused to chill legitimate public policy and that enforcement remains largely available outside the EU—will not be resolved by dealing solely with enforcement.

To avoid this type of misuse of investment treaties, the EU and its member states, as well as other states seeking to maintain control over their national security and sanctions, should also critically assess their stock of investment treaties. They should accelerate their reform and the review of dispute settlement policies to help counter the blocking of legitimate measures and choices in times of war.  
 

Over successive presidencies, G20 leaders have reaffirmed their commitment to providing universal access to clean cooking as a core Sustainable Development Goal (SDG 7). LPG subsidies often fail to reach the poorest, have high and volatile budgetary impacts, exacerbate import dependency, and are not aligned with net-zero goals. Redirecting LPG subsidies to electric cooking and clean energy alternatives can accelerate the shift to clean cooking in ways that are more inclusive and sustainable. 

Closing the Clean Cooking Gap: The G20’s role 

In 2022, approximately 2.1 billion people worldwide lacked access to clean cooking fuels. At the current rate of progress, by 2030, 1.8 billion people in the world are projected to remain without access to clean energy for cooking, missing the SDG deadline for universal access to clean cooking. The consequences are borne by the world’s poorest, particularly women, who are exposed to harmful indoor air pollution and the burden of fuel collection.  

The G20's attention to clean cooking has grown dramatically in the last decade. Over successive presidencies, leaders have reaffirmed their commitment to providing universal clean cooking access under SDG7. The 2024 G20 Brazilian presidency put ministerial attention on clean cooking with a roadmap for clean cooking. Building on this, the South African G20 presidency elevated clean cooking to this year's G20’s Energy Transition Working Group. But exactly what have the G20 emerging market and developing economies (EMDEs) been doing to address clean cooking? To answer this question, we surveyed clean cooking programs across EMDE members of the G20. 

Mapping Clean Cooking Policies of G20 Governments

An extensive analysis of clean cooking policies in 43 G20 countries (including individual European Union member countries) revealed that there are five main categories: three kinds of subsidies, financing mechanisms, and infrastructure development (Table 1). The analysis drew on peer-reviewed literature, publicly available reports, policy documents, academic articles, and media publications to identify policies related to clean cooking. The findings suggest that governments collectively understand the need for multiple strategies to address clean cooking.

Estimates suggest that 50%–70% of public spending on clean cooking transitions in G20 countries is directed toward direct fiscal support, particularly consumption-side subsidies, which are often poorly targeted. The remainder is distributed between regulatory and price-based policies and infrastructure or market investment. 
 

We could not quantify the support provided by individual programs included in our inventory of policies due to inadequate data on the allocations or the timeframe over which the funding was provided. However, we know that in 2022, global LPG subsidies were USD 42 billion—and of this G20 countries provided USD 35 billion. This is likely to be a conservative estimate of clean cooking support. In addition, electricity subsidies (at least USD 282 billion) and natural gas subsidies (at least USD 293 billion) would also benefit clean cooking but the proportion is difficult to estimate given multiple end-uses for both forms of energy, especially in areas where area heating is needed.

Table 1. Summary of policies supporting clean cooking transitions in G20 Countries

LPG Subsidies—when too much is not enough

The survey shows that most G20 EMDE governments are pursuing an approach to clean cooking based on LPG subsidies. LPG consumption and subsidies have grown rapidly, partly due to government programs and partly due to escalating international prices that surged along with oil prices since 2021. Subsidized LPG has helped provide access to cleaner cooking options in G20-developing nations in Asia and Latin America, moving away from the harmful traditional fuels like firewood and charcoal. While LPG subsidies can be a legitimate last-mile push for universal clean cooking, even a well-designed LPG program can have major drawbacks.

First, LPG subsidies often do not benefit those most in need: namely, the poorest and those in remote rural areas where LPG is unaffordable or unavailable. A 2020 survey of LPG subsidies in the Indian state of Jharkhand found that the poorest 40% received less than one-third of the LPG subsidies. At the same time, LPG subsidies intended for the poor often benefit the well-off. In Indonesia, for example, around 10% of the country’s LPG subsidies go to the poorest decile, but the richest decile accesses a similar amount (~8%), despite those households not being eligible for the subsidy.

Second, LPG can result in a major fiscal burden that crowds out options that could more effectively reach the most vulnerable. Indonesia and India both implemented major initiatives to transition their populations from kerosene (which creates harmful indoor air pollution) to LPG. These programs relied heavily on direct subsidies (LPG fuel, stove distribution, cash transfers), which now form the core of their national clean cooking strategies. However, it was a case of out of the frying pan and into the fire—the LPG transition went well, but LPG subsidies became financially unsustainable. Subsidized LPG is popular, and politicians find it difficult to limit access to just the poor. 

Third, dependence on LPG can undermine energy security. When LPG is imported, volatile global prices and supply disruptions are a significant risk for energy affordability and availability. In some cases, price escalations have been so dramatic that governments cannot afford to maintain LPG subsidies, leading to sudden price surges that affect the poorest the most. 

Fourth, scaling up LPG is not consistent with countries’ transition to net-zero. A net-zero-aligned transition for clean cooking requires moving away from fossil fuels. To meet the 2030 clean cooking access milestones, G20 governments need to rapidly scale up a menu of options that should include bioLPG, solar, biogas, and investments in electricity networks—particularly infrastructure that supports electricity grids powered by renewable sources, in line with global targets for decarbonization.

According to the International Energy Agency, approximately USD 8 billion per year in equipment and infrastructure investment is required between now and 2030 to enable universal access, much lower than the USD 42 billion currently allocated to LPG subsidies globally. Within the G20, there is a wide difference in electricity-based cooking. Higher adoption of electricity cooking is seen in the G7 grouping—as countries within the EU and United States have adopted electric stoves as their most common type of stove used for cooking. Electricity has become the most common cooking fuel for EU households, meeting over half of the cooking needs in 15 EU countries. Around 68% of US households own electric cooking appliances. However, most Organisation for Economic Co-operation and Development countries have full electricity access, which makes the transition to electric cooking easier.

Regulations on energy efficiency have encouraged more innovations and the adoption of electric stoves. The EU has issued an Eco-design Directive that sets stringent performance standards for household appliances, accelerating the development of more efficient electric cooking technologies. Similarly, California's Building Energy Efficiency Standards encourage developers to integrate electric cooking appliances into new housing developments. 

Tariff subsidies prove to be efficient in promoting electric cookstove adoption. In Russia, the use of electric stoves is concentrated in urban multi-apartment buildings, with high adoption rates reported in West Siberia (68%), East Siberia (89%), and the Far East (78%). Households using electric stoves or living in rural areas receive a preferential tariff—70% of the official regional rate. At the municipal level, in 2025, the city of St. Petersburg's government approved RUB 42 million (~USD 0.8 million) to subsidize LPG for 48 apartment buildings (~2,000 flats), effectively reducing household LPG costs to ~51% of the regulated retail price.

Pathway to Universal Clean Cooking

Clean cooking finally sits high on the G20 agenda, and leaders now need to implement effective strategies that deliver universal clean cooking in a way that is financially efficient and aligned with net-zero pathways. G20 support remains tilted toward direct consumption subsidies (we estimate this to be 50%–70% of all support on clean cooking), with a large share on LPG. Better targeting of LPG subsidies can support clean cooking while liberating funds for other solutions that are more effective in reaching the poorest, do not lock in fossil dependence, and incentivize building modern, resilient, non-fossil cooking systems. In urban areas, providing one-off subsidies for induction stoves and electricity upgrades can reduce fuel subsidies over the long term, while supporting broader electrification goals. In rural areas where electricity access might be limited, governments need to rapidly scale electric cooking powered by distributed renewable energy, modern biomass, biogas, or bioethanol, accompanied by one-off subsidies for efficient appliances. 
 

What the G20 can do now:

• commit and put it in the calendar: The G20 can set time-bound milestones to phase out inefficient fossil fuel subsidies, with explicit targets for reducing LPG consumption subsidies and reallocating savings to supporting energy access for low-income households.
• publish national clean cooking roadmaps: G20 statements about the importance of universal access to clean cooking need to be backed by firm timelines for relevant governments to publish national clean cooking roadmaps. These roadmaps should prioritize non-fossil options—grid upgrades, appliance affordability, and local manufacturing—and hardwire targets into SDG 7 plans and NDCs.

By following these steps, the G20 can move clean cooking from a flawed subsidized fossil detour to a just, resilient, net-zero-aligned destination.

A vibrant green economy would be the bedrock of a strong, healthy, and sustainable future. Innovative technologies have grown in leaps and bounds in recent decades, promising to transform polluting sectors and create new possibilities for clean energy production. So why does the dream of establishing this vibrant green industry—one that balances economic, social and environmental priorities—remain so elusive for so many countries? 

As countries strive to make good on national commitments to mitigate greenhouse gas emissions, the economic opportunities in this new sector have attracted new innovators and piqued the interest of traditional energy producers. But success has not been easy. From solar panel manufacturers to electric vehicle makers to green steel producers, economic challenges have plagued many fledgeling companies trying to gain a foothold in the green economy. In response to this, supportive governments often turn to a wide range of instruments to reinforce priority sectors that are essential for the net-zero transition. These supports might help, but they are rarely a perfect solution as they can adversely affect competition, job creation, and innovation both domestically and among trading partners.  

This is why leading academics and thinkers are now coming together to ask crucial questions, identify roadblocks, and advance policy solutions. In May 2025, thought leaders convened in Geneva for the first of a series of roundtables aimed at laying the groundwork for future work in this area. Participants explored crucial issues such as policy design and impact, tensions between social and environmental priorities, trade dimensions, and challenges faced by developing countries. 

Designing “good” green industrial policy  

While countries are looking to advance green sectors and technologies, the question of how to support them to achieve optimal outcomes is complex. Without clear objectives and safeguards, environmental policy initiatives could jeopardize development objectives or cause unintended trade distortions. But with thoughtful planning, smart policies can drive inclusive growth and innovation.

“You have to be clear about the objectives,” said Takaaki Sashida of the Permanent Mission of Japan to the International Organizations in Geneva. “You can have multiple objectives, but unless you know what it is your policy is aiming for, it's hard to make it a success.”  

Concerns that markets alone will be unable to deliver a successful green transition are prompting a global shift in how governments approach industrial policy. Since the global pandemic, national priorities have changed dramatically. National security and geopolitical concerns are now taking centre stage, while traditional goals like economic competitiveness have become less influential on policy decisions.

As governments rethink their policy priorities, some experts are calling for a return to fundamentals. In a recent interview, Nat Tharnpanich, Thailand’s Minister Counsellor to the World Trade Organization (WTO), stressed the importance of building green industrial policy on sound principles. “The principle of three Ts—transparent, targeted, and transitory—should guide how we design green industrial policy.”

Building on the foundation of clear, principled policy design, some policy experts also argue that green industrial policy instruments must also embrace a wider range of tools to address the complexity of the challenges involved. Rather than relying solely on subsidies or regulations, policy makers should carefully consider what combination of measures will actually motivate the private sector while considering the unique needs of each country.

“Green industrial policy has to be tailored,” said Clara Brandi of the German Development Institute. “It's about bringing together climate action with local development needs…access to energy, job creation. But we also need global cooperation. We need access to affordable finance, technology transfer and fair trade rules.”

Cross-border impacts and global trade rules 

Developing new trade policies to address environmental challenges can be problematic as the ostensible goals could be used to disguise more strategic economic objectives. While many green industrial policies are designed with national interests in mind, their effects often spill across borders. From export bans on critical minerals to local content requirements in subsidy programs, the risks of trade distortions are growing.

Green industrial policies can also have cross-border environmental effects. For example, tightening regulations in one country can lead to carbon leakage (and subsequent border carbon adjustments) and rising demand for critical minerals to support clean technologies can accelerate environmentally damaging extraction in other countries.

These cross-border concerns have brought trade negotiators out from the shadows. “Trade diplomats are back at it again,” said IISD’s Ieva Baršauskaitė. “They’re trying to resolve challenges related to the way industrial policies in one country impact its neighbours or countries across the globe.”

As these challenges mount, some countries are calling for greater flexibility in trade rules to accommodate the reality of green industrial policy on the ground. For example, Indonesia’s efforts to capture more value from its mineral resources have been constrained by rigid approaches to trade. “You have to change the trade policy to support your green industrial policy,” says Poppy Winanti, Professor at Universitas Gadjah Mada in Indonesia. 

But efforts to adapt inflexible trade rules can have institutional limits—especially at the multilateral level. Because environmental policy is not directly shaped by the WTO, global coordination and cooperation are crucial to ensuring concerns in multiple fora are adequately addressed and compatible with one another. While it remains too early to predict which topics will emerge as dominant themes for the 14th WTO ministerial conference in March 2026, some WTO members have already suggested industrial policy as an issue of interest.

Developing country implications and considerations

Because developing countries look to industrial development as a crucial sector for economic growth, they are particularly sensitive to the implications of green industrial policies in other countries. As governments pursue ambitious green industrial policies, how can they ensure their efforts do not undermine the efforts of poverty reduction, job creation, competitiveness and economic resilience in countries that are already economically disadvantaged? “Green industrial policy is timely—and controversial—because it touches both climate and development,” Winanti observed. 

This concern over green industrial policy initiatives compromising development efforts among trading partners—especially developing countries—was raised by several experts who met earlier this year Geneva. Charged with unpacking the wide range of issues related to green industrial policy, the global experts often underscored the assertion that environmental, social, and economic goals are deeply interconnected and cannot be addressed in isolation. 

“Policymakers should think about how these green industrial policies relate to development,” said Sofia Boza, Chile’s ambassador to the WTO. “How can we improve lives through these new technologies in the sense of not only of improving how we manage natural resources, but also how these new value chains are good for development, are good for creating more employment, and are good as well for the development of certain regions?” 

The LDC challenge

Moreover, not all developing countries are equipped with the same resources to enact national green industrial policies. While some governments can afford to reshape their industrial strategies and negotiate trade flexibilities, least developed countries (LDCs) are working with far fewer resources. 

The LDCs were hit particularly hard by the global pandemic and the accelerating impacts of climate change have only deepened their existing economic challenges. Many also simply to not have the financial resources or institutional capacity needed to coordinate effectively and pursue industrial policy on their own. 

“Finance and coordination are major challenges,” emphasized Ratnakar Adhikari, Executive Director of the Enhanced Integrated Framework for Trade-Related Assistance for the Least Developed Countries. “The LDC's don't have the fiscal space and the luxury to implement industrial policy because it requires a lot of resources.”

Nevertheless, many developing countries see green industrial policy as a pathway to economic diversification, value addition, and technological advancement. But turning potential into reality requires a strong framework that can offer financing, coordination, institutional capacity, and other supports. Without careful consideration and global cooperation, new green industrial policies have the potential to widen global inequality rather than close it. 

Looking ahead

The potential of smart green industrial policy is clear but few success stories exist, many recommendations remain untested, and crucial questions require answers. How can climate, development, and trade priorities be balanced in practice? What kinds of policies will allow developing countries to seize opportunities rather than fall further behind? And what role should global rules and cooperation play in shaping a fairer transition?

IISD’s work in this area is striving to help answer these complex questions through innovative research and dialogue with global experts. Join our trade-focused mailing list to be alerted whenever new events are planned or communications products related to new green industrial policy developments are published. 

Green Industrial Policy Roundtable Series

• Round table 1 | Setting the Stage
• Round table 2 | Deep Dives into Sectoral Industrial Policies and Development
• Round table 3 | Industrial Policies and the Global Trade Framework

Carbon Markets Are Here to Stay—Institutions underpinning them must be sound

The Intergovernmental Panel on Climate Change projects that limiting global warming to 1.5°C will require large-scale carbon dioxide removal in addition to emissions reductions. Many governments have developed carbon market policies and actively seek investments in carbon removal projects, especially as other forms of climate finance remain elusive. 

At the 29th United Nations Climate Change Conference (COP 29), one major outcome was agreement on Article 6 of the Paris Agreement, which regulates carbon credit trading between parties. These and other developments suggest that carbon markets are here to stay, despite concerns about their effectiveness in tackling global emissions, and their impact is also likely to expand. 

Indeed, carbon markets are driving a proliferation of land-based projects and investments aimed at capturing, removing, and storing carbon emissions, including through tree planting and forest protection. Such projects now span 24 million hectares, about the size of Uganda. Notably, over 90% of these projects were registered after 2017, underscoring the rapid expansion of land-based carbon initiatives. For reference, the land area that is covered by carbon offset projects already stands at 80% of the land area of agricultural land acquisitions between 2000 and 2020. 

Concerningly, many of these investments in land-based carbon sequestration are being made in places where land tenure security is weak and where the communal rights of those managing forests and ecosystems are neither acknowledged nor protected. In such contexts, irresponsible investments in carbon credits can lead to people losing their land and livelihoods. 

In response to such risks and the advocacy by communities, some governments are improving their legal and policy frameworks on international carbon markets and non-market approaches. Verra, the world’s largest carbon standard, is revising its rules (Version 5). Justice networks, including Namati and the Grassroots Justice Network, have submitted recommendations calling for stronger safeguards, clear recognition of land and carbon rights, and greater transparency and benefit sharing. The risks and shortcomings of current carbon market practices are clear. 

It is, therefore, critical to engage with the design of carbon markets at national and global levels and the implementation of projects that generate carbon credits to ensure that they meet the necessary conditions for responsible investments.

Land Rights and Climate Action Are Mutually Reinforcing

While agreement on Article 6 of the Paris Agreement is recent, the struggle to secure land rights for Indigenous Peoples, local communities, and women is not. It builds on decades of global agreements, progressive national policies, and established tools and frameworks. Research shows that communities can be effective stewards of land and natural resources when supported by an enabling environment. Securing their land rights is therefore not only a human rights obligation—it is the foundation for sustainable land management practices. In the absence of secure land rights, net-zero policies risk failing to achieve their objectives.

The Human Rights Basis for Just and Equitable Carbon Markets

A persistent challenge remains: carbon market-related projects and investments are proliferating faster than efforts to equip affected communities to engage with them effectively. It is crucial to systematically support community-based and civil society organizations so they can empower communities to act as agents in carbon markets. However, in many contexts, this support is lacking, and often, no grievance or accountability mechanisms exist. Shrinking democratic space further restricts communities’ ability to engage in advocacy. For carbon markets to operate with integrity, actors must proactively help create an environment in which these organizations can operate safely.

This cannot depend on goodwill alone. Companies have a responsibility to respect human rights, a responsibility that exists independently of a state’s capacity or willingness to uphold its obligations. This is especially important in rural areas, where states often lack the ability to ensure good governance.

Moreover, parties to the United Nations Framework Convention on Climate Change (UNFCCC) have already adopted binding human rights agreements, such as the rights to food and housing. Their carbon market policies must reflect these obligations.

Robust Land Laws and Policies Are Critical

Across Africa, several governments have enacted progressive land laws that recognize and protect customary and collective land rights. Legal recognition of women’s land rights is also advancing. Many countries already have frameworks in place that cover key elements of responsible carbon market development, such as ensuring that Indigenous Peoples and local communities have the right of Free, Prior, and Informed Consent. These laws and policies now need to be systematically linked with emerging national carbon market policies.

Comprehensive, robust, well-enforced laws remain the best way to ensure that investments related to carbon markets respect the rights of legitimate tenure holders, ensure local community involvement in decision making, promote local food security, and contribute positively to building climate resilience. Adequate enforcement mechanisms are also needed to ensure these laws are followed.

Making Use of Available Guidance to Promote Responsible Carbon Investments

Guidance exists to support governments in Africa and elsewhere to improve their legal and policy frameworks governing carbon market-related investments, including by introducing safeguards to prevent forced displacement, land dispossession, and loss of access to food and other resources, and mandating equitable benefit-sharing arrangements. For example, Namati and the Grassroots Justice Network have developed a policy toolkit to support the development of robust laws and policies that advance carbon justice.

Governments and investors can also draw on a wealth of guidance and tools to promote responsible land-based investments, including for investments in carbon sequestration. In this regard, the African Land Policy Centre developed the Guiding Principles on Large-Scale Land-Based Investments in Africa, while the International Institute for Sustainable Development has produced practical guidance on the use of memorandums of understanding and model contracts as legal instruments that can help mitigate risks associated with land-based investments, including in contexts where national legislation is not yet sufficiently robust. Model contracts can be a useful tool for highlighting risks associated with investment projects, and for ensuring that carbon investments are made responsibly and inclusively, on fair and equitable terms, and include safeguards to protect the rights and livelihoods of local communities. Implementing this guidance remains an ongoing challenge, but securing land rights for just and equitable carbon markets does not need to start from scratch.

Taking This Discussion to the Second Africa Climate Summit and Africa Climate Week 2025

Within climate policy circles, the impact of carbon markets and net-zero strategies on land and land rights is still a relatively new area of discussion. Furthermore, discussions on climate policy and land governance often occur in separate forums, creating a risk of disconnection. It is vital to bring these discussions together.

The moment is right to advance human rights-based guidance and safeguards for just and equitable carbon markets.

 

We believe the moment is right to advance human rights-based guidance and safeguards for just and equitable carbon markets. The UNFCCC workshop Unlocking Finance: Accelerating NDC Implementation through Carbon Markets in Africa offers one crucial opportunity. At the 2nd African Climate Summit, the New Partnership for Africa's Development will launch consultations on the African Integrity & Equity Principles for Carbon Markets. These are just two examples: more will follow in the run-up to COP 30 in Belém.

Let us jointly shape these discussions to create carbon markets that advance both climate and land justice.

This article was inspired by the webinar on Securing Land Rights and Social Equity in the Pursuit of Net Zero, jointly hosted by the International Institute for Sustainable Development, the Robert Bosch Foundation, and TMG Think Tank for Sustainability ahead of the 2nd African Climate Summit and Africa Climate Week 2025.

Both the webinar and this article benefited from the insights of the following distinguished speakers: Providence Mavubi (Director, Industry and Agriculture Development, Common Market for Eastern and Southern Africa), Andrew Y. Y. Zelemen (Head of Secretariat, National Union of Community Forestry Development Committees, Liberia), Dr. Joan Kagwanja (Chief, African Land Policy Centre, United Nations Economic Commission for Africa), Benard Opaa (Deputy Director, Natural Resources and Environment, Kenya National Land Commission), Anne Njoroge (Senior Climate, Land, and Environmental Justice Officer, Namati), and Nyaguthii Maina (Associate and International Law Advisor, International Institute for Sustainable Development). We sincerely thank them for their excellent contributions.

This deep dive summarizes the discussion that took place in the context of the event “Decarbonizing the energy sector: From NDC targets to net-zero implementation pathways” at the 2025 Global NDC Conference. The event was led by the United Nations Development Programme (UNDP), and co-organized with the International Energy Agency (IEA), and the International Institute for Sustainable Development.

Why Are NDCs Critical to The Clean Energy Transition?

The clean energy transition is accelerating, with renewables accounting for more than 90% of new global power installations in 2024. Yet the world is dangerously off track in meeting climate goals. Investment in clean technologies is rising, but it’s overwhelmingly concentrated in just a few countries and regions (e.g., China, United States, and the European Union), leaving much of the Global South behind. 

At the event “Decarbonizing the Energy Sector: From NDC targets to net-zero implementation pathways” at the 2025 Global NDC Conference, three messages became clear: 

1. decarbonizing the energy sector is not just part of the puzzle, it is the starting point for delivering on short- and long-term climate targets given the central role of the energy sector in global greenhouse gas emissions;
2. transitioning away from fossil fuels and scaling up clean energy is more than a climate imperative, it's central to sustainable development, energy security, and social equity;
3. NDCs are key to aligning national energy strategies with climate ambitions, and to turning them into investment-ready, implementable plans that also support robust energy plans. 

As countries set their climate ambitions in new NDCs, there is an opportunity to define more specific and quantitative energy targets and actions. This will lay the foundation for robust implementation of energy sector actions. 

What Needs to Happen According to the Global Stocktake

The first Global Stocktake (GST) makes it clear that we are not moving fast enough and stresses that energy sector action is critical (paragraph 28). To align with the Paris Agreement, countries need to:

• triple renewable energy capacity by 2030,
• double the annual rate of energy efficiency improvements by 2030,
• transition away from fossil fuels in a just, orderly, and equitable manner,
• accelerate the deployment of other low-emissions technologies,
• reform fossil fuel subsidies.

Beyond ambition gaps, the GST also calls out the massive shortfall in implementation of country commitments, especially in linking NDCs with long-term planning (e.g. net-zero targets and long-term development strategies), development needs, and investment flows.

The new cycle of NDCs in 2025 provides a critical opportunity to enhance existing climate and energy targets. Strengthening these targets is essential to close ambition and implementation gaps, bringing the world closer to a 1.5°C-aligned energy system that also advances progress on the Sustainable Development Goals (SDGs). 

Research led by the UNDP shows that the global goals to triple renewable energy capacity and double the rate of energy efficiency improvement can drive transformative development outcomes by 2060. 

For example, 193 million fewer people would live in extreme poverty, 142 million fewer would suffer from malnutrition, and 550 million more would gain access to safe water and sanitation compared to a business-as-usual pathway.

 

According to the IEA analysis From Taking Stock to Taking Action, the GST energy targets could, on their own, get the world two-thirds of the way to a Paris-aligned energy system by 2030. If fully implemented, the GST energy goals could deliver ambitious new NDCs, reducing global energy-related emissions by over 60% by 2035.

What’s Stopping Implementation?

As of August 2025, 31 countries have submitted their new (third-generation) NDCs, many mentioning renewable energy and efficiency. 10 out of 16 NDCs submitted by fossil fuel producing countries refer to fossil fuel production, however most (7 out of the 10) focus on reducing domestic emissions not phasing out production itself (i.e. continuing to produce fuel whether for domestic use or exports).

Relatedly, the Climate Change Expert Group made an initial review of 29 NDCs submitted between June 2024 and February 2025 showing that countries are clearly responding to the GST outcomes on energy. However, there is room for using a more comprehensive set of quantitative indicators to respond to all calls in the GST. Renewable energy and energy efficiency are an important focus, but action across all areas of the energy system is necessary to limit global warming, such reducing methane emissions and phasing out fossil fuel subsidies. Indicators can help countries track progress against the GST goals and help maintain attention on challenging but necessary reforms. 

Despite progress, participants agreed that important challenges continue to stand in the way of turning energy-related NDC targets into real-world change. These include:

1. Investment gaps: Emerging and developing economies (excluding China) receive only 20% of global annual investment in the power sector, and only 7% of international public finance for global renewable energy investment. High capital costs, limited financial pipelines, and perceived risk make it difficult to scale up renewable energy uptake. Vehicles to access finance that does not add to sovereign debt are therefore key for moving from ambition to implementation. A strong commitment to renewable energy in the new NDCs can be the starting point for attracting non-debt inducing public finance and leveraging more private investment.
2. Fragmented governance: In some countries subnational governments have different agendas than the national government, complicating national NDC implementation. Coordination of policy implementation at different governance levels (but also across sectors and ministries) is key—but often lacking. The NDC update process, if done well, is an opportunity to increase this coordination, and can facilitate a more holistic approach to implementation.
3. Public resistance: Planning and implementation is of fossil fuel phase down and clean energy scale ups needs to be done respecting the principles of a just transition, including redistributive and procedural justice, or local communities may oppose projects, slowing implementation. Just transition principles are therefore necessary to accelerate clean energy deployment. Including just transition elements in the new NDC shows a political commitment by governments to ensure that the energy transition will be people-centered.
4. Political economy of fossil fuels: Countries with state-owned fossil fuel companies or fossil-export economies have a harder time transitioning away from fossil fuels, since the dependency extends beyond energy, to the economic and political spheres, resulting in more internal resistance to phase-outs. New NDCs are an opportunity to kick-off or continue a societal discussion about how to progress towards an orderly, just, but ambitious transition away from fossil fuel dependency, and how the coal, oil, and gas sector must contribute to reducing emissions (e.g. methane emissions control, investing in clean energy, and decarbonization opportunities for the whole economy, etc.) and could improve transparency and ambition through several indicators and targets (e.g. for their national oil companies or fossil-fuel dependent regions).
5. Capacity constraints: Climate impacts threaten existing and planned infrastructure, especially in vulnerable areas, making it crucial to have data-driven energy planning. Some countries including small island developing states (SIDS) and lower-income countries often lack the technical capacity to conduct comprehensive energy modelling and measurement, reporting, and verification (MRV) of energy and climate data. Capacity constraints can further impact the level of progress on implementation. Therefore, capacity building, technology transfer, and finance will be needed to support vulnerable countries in their efforts to accelerate their energy transition, while creating resilient energy systems that can resist (or even mitigate) the increasing climate change impacts that they face.

How Can NDCs Be Made More Actionable on Clean Energy?

Turning NDCs into real-world energy transition pathways requires more than ambition: it demands specificity, integration, and implementation frameworks that work on the ground. In our discussion, participants repeatedly emphasized that targets alone are not enough. 

For NDCs to drive meaningful change in the energy sector, they must become operational drivers for action.

 

First, NDCs should be aligned with countries' energy, industrial, and development strategies. This includes assessing current energy use, identifying emissions drivers, and filling critical data gaps. Embedding energy targets in long-term low emission development strategies (LT-LEDS), and national investment plans ensures coherence across timeframes and sectors.

Second, energy-related NDC targets need to be more granular and measurable. This means disaggregating national goals to sectoral, subnational, and even municipal levels. Clear indicators for renewable deployment, energy efficiency gains, fossil fuel reductions, economic diversification including in state-owned enterprises, reducing fossil fuel fiscal dependence, and energy access can help track progress and guide finance. 

Third, participants stressed the importance of engaging subnational governments and local communities. Many implementation barriers arise at local levels—especially for land use, permitting, and public acceptance of infrastructure projects. Involving these actors and encouraging alignment of sub-national policies with NDCs will improve the prospects for reform by the governments (provincial and local) and institutions (state-owned enterprises and regulatory authorities) with the power to implement the stated goals.  

Finally, mobilizing finance is essential. Shifting financial flows, both direct and indirect (e.g. fossil fuel subsidies) from fossil fuels to renewable energy can provide a large source of funding for the energy transition whilst reducing harm. Furthermore, de-risking investment through concessional finance, guarantees, and project development support—particularly in developing countries—can unlock the scale of resources needed. Building robust pipelines of bankable clean energy projects will help bridge the implementation gap and make NDCs a true engine of decarbonization.

The Economics of Energy Efficiency in Buildings

Buildings account for 18% of Canada's GHG emissions, making it the third-largest emitting sector after the oil and gas and transportation sectors. The majority of energy use in residential buildings goes toward space heating (63%), with lights and appliances (19%), water heating (15%), and cooling (3%) representing the remainder of energy use.

The emissions profile from the buildings sector varies across provinces due to differences in the energy sources used for heating and the share of electricity that is produced from low- or non-emitting sources.  

• In Manitoba, 55% of buildings rely on natural gas for heating compared to 45% that use electricity.
• In Ontario, natural gas is the primary heating source for 75% of buildings.
• In British Columbia, natural gas represents about 60% of household energy consumption, while electricity covers about 40%.
• In the Atlantic provinces and Quebec, heating oil is more commonly used in the Atlantic provinces and Quebec, with about 25% of households in Atlantic Canada relying on it for heating, compared to just 6% in the rest of the country.

British Columbia, Manitoba, Newfoundland and Labrador, and Quebec all benefit from grids based on hydroelectricity that reduce the electricity-related emissions in buildings. Conversely, Saskatchewan and Alberta, which rely more heavily on fossil fuels for electricity generation, have higher emissions from their buildings.

Clean and Efficient Homes for Canadians

The approach to retrofitting buildings depends on the type of building. The vast majority (approximately 11 million) of buildings in Canada are residential, with single-family detached homes making up the largest share (see figure below). In contrast, there are approximately 556,000 commercial and institutional buildings across Canada.

Virtually all homes in Canada will require some form of building retrofit to achieve net-zero targets, with older homes typically representing a much larger decarbonization challenge compared with newer ones. Deep energy retrofits (DERs), which involve comprehensive upgrades such as improved insulation, advanced air sealing, and upgraded heating systems (e.g., HVAC systems or heat pumps), offer a significant reduction in energy consumption. Unlike standard energy-efficiency measures, which focus on specific components like windows or doors, DERs aim to overhaul the entire building envelope for maximum energy efficiency. The federal government defines a DER as achieving a minimum of a 50% reduction in energy consumption relative to previous standards.
 

Homeowners now have options to expand their use of renewable energy, including installing solar panels on homes and increasing access to clean electricity from the grid. Reducing overall energy demand also decreases the electricity needs of homes, making rooftop solar a more viable and effective solution. 

Advances in heat pump technology, including both ground-source and air-source systems, provide an opportunity to substantially increase efficiency and switch from fossil fuels to electric heating. 

Ground-source heat pumps, while requiring more upfront infrastructure, are highly efficient even in extreme cold, making them well-suited to the harsh winters of the Prairie provinces. Additionally, emerging technologies like smart thermostats and energy recovery ventilators further optimize energy use, making buildings more resilient to climate change while contributing to emission reduction goals. 

Measures like installing a heat pump—even without upgrading the building envelope—can still be considered a DER if they reduce the building's energy use by at least 50%. This illustrates how efficiency upgrades and fuel-switching may not be independent of each other. Some upgrades reduce overall energy use and eliminate fossil fuel use. Reducing the building's heating and cooling load before installing a heat pump would minimize energy use and operating costs for homeowners. However, the decision to upgrade the building envelope would depend on other factors, such as the age of the building and the owner’s ability to pay the upfront costs. 

Achieving net-zero emissions in Canada's building sector requires finding a cost-effective balance between energy retrofits, fuel-switching, and expanding clean electricity generation. Electrifying the building energy system without accompanying efficiency upgrades may place a strain on the grid. For example, reducing natural gas space-heating usage by half in Manitoba would require at least double the province's current electricity generation. Similarly, making extensive efficiency upgrades to every building is challenging due to the high costs.

Also important to consider is the impact of embodied carbon, which includes emissions from the extraction, production, and installation of building materials. The federal government has developed a standard for embodied carbon in construction materials which could be expanded to include additional high-impact materials. 

In March 2025, the federal Liberal government announced a new policy to support the construction of prefabricated housing to address Canada's housing crisis. The policy does not specify what energy-efficiency standards these prefabricated homes must meet, meaning they will likely be built to the energy-efficiency requirements set out in provincial building codes. This could result in uneven energy performance standards across the country. While the federal government has already committed to high-efficiency requirements for its own buildings under the Greening Government Strategy, it remains unclear whether prefabricated homes built under this new initiative would qualify as federal buildings.

Economic Opportunities

Investment in Canada's building energy efficiency is not just a climate imperative but also represents a significant economic opportunity. Investing in green buildings would serve as a powerful economic driver by creating jobs, increasing demand for goods and services, reducing household energy costs, and boosting GDP. Some research suggests that the green building industry could contribute as much as CAD 150 billion to Canada's economy by 2030. While energy-efficiency upgrades offer long-term cost savings and environmental benefits, the high upfront costs remain a barrier to adoption. Targeted government funding for low-income households and incentives for landlords are essential to ensuring that these benefits are widely accessible. 

Prioritizing energy efficiency can be understood as an investment with positive spillover effects, rather than a cost, as it reduces overall energy use and provides many years of energy savings. Government support for upfront efficiency investments can secure longer-term energy affordability for homeowners while providing clear market signals to make energy efficiency feasible and attractive for builders. 

An estimated CAD 10 billion–CAD 15 billion in annual funding is required each year until 2040 to decarbonize buildings, which is expected to yield significant economic benefits, including lower energy bills for Canadians. Estimates suggest that energy retrofitting can lead to CAD 10.8 billion in annual energy bill savings. At the same time, building retrofits are projected to create thousands of jobs, supporting workforce development and providing long-term employment opportunities across Canada’s low-carbon economy.

Day-to-Day Benefits for Canadians

High-efficiency energy systems in buildings lead to lower utility bills, directly impacting affordability and reducing rates of energy poverty. Research suggests that upfront investments in energy efficiency often pay for themselves over time by reducing long-term utility costs and the total cost of building ownership. Because up to 90% of a building's lifetime costs come after construction, investing in energy-efficiency design upfront is one of the most effective ways to reduce operating expenses and overall ownership costs. Targeted programs can support low-income households with upfront capital costs, ensuring that benefits flow to all Canadians, not just those who can afford energy retrofits. 

Highly efficient homes can help reduce the overall cost of building and maintaining electricity grids by lowering energy demand. A highly efficient building envelope is one of the most effective ways to reduce energy demand, lower peak energy loads, and enhance climate resilience. Peak demand can also be reduced by lowering overall energy use and using smart appliances and thermostats that can be set to cycle off during peak electricity demand periods. Rooftop solar panels can also reduce the demand for electricity from the grid and support overall grid resilience. This decreased strain on the grid can minimize the need for costly infrastructure expansions. For example, the Government of Ontario has estimated that achieving net-zero emissions could cost CAD 400 billion, a figure that could be significantly reduced if overall energy demand from buildings were lower.

Gas stoves emit pollutants such as nitrogen dioxide, benzene, and carbon monoxide, which can exacerbate respiratory conditions like asthma and increase the risk of cardiovascular diseases. A recent report indicates that gas stove emissions contribute to approximately 40,000 premature deaths annually in Europe due to heart and lung diseases. While not as significant a health risk as gas stoves, gas furnaces can still contribute to indoor air pollution by emitting gases like nitrogen dioxide and other combustion byproducts, which have been linked to respiratory issues. Poor ventilation or aging equipment can exacerbate these effects, potentially increasing the risk of asthma and other respiratory conditions. Electric heating systems can eliminate indoor combustion and improve air quality.

Investing in net-zero buildings in Canada presents an opportunity to address a range of social issues, including inequality and housing disparities. This is especially relevant considering the current housing and affordability crises. By prioritizing low-carbon housing—particularly in the not-for-profit, public housing, and cooperative sectors—governments can reduce long-term energy costs for residents while ensuring access to climate-resilient housing. 

Achieving the size and scale of building energy-efficiency upgrades across Canada to meet our climate targets will require ambitious levels of public investment from all levels of government, which will foster growth in the Canadian building industry and create significant employment opportunities. However, the scale of the challenge means that these investments cannot be accomplished within the current market structures and policy frameworks.

Achieving Widespread Building Decarbonization Measures in Canada

The following measures can be taken to achieve widespread building decarbonization measures in Canada:

Adapt International Best Practices to the Canadian Context

Nearly all of Canada's homes require some form of energy-efficiency retrofit for net-zero, as current energy-efficiency rates in Canada's building stock are too low. The most successful model for achieving widespread building retrofits is the Energiesprong model pioneered in the Netherlands, which focuses on maximizing the efficiency of DERs through prefabrication and off-site assembly (Energiesprong Global Alliance, n.d.). Due to more diversity in housing stock and higher numbers of single-family dwellings, some modifications are required for Energiesprong to achieve success in the Canadian context. A limited number of Energiesprong trials have been launched in Canada, for example, the Presland PEER pilot by Ottawa Community Housing and the Sundance Cooperative in Edmonton. Governments can support DERs by providing resources to duplicate and scale up these initiatives. 

Commit to Reaching the Highest Tier of National Building Code Performance

Building codes are critically important because it is much more cost-effective to incorporate energy-saving measures during the initial construction than to retrofit buildings later. The federal government has developed the National Building Code of Canada, which provides a model that provinces can adopt in their entirety or with modifications. Provinces have adopted different tiers of the national building code framework, reflecting varying levels of ambition in energy-efficiency standards. The Province of Manitoba, for example, recently set its building codes at tier 1, the lowest standard. British Columbia, on the other hand, created its own Energy Step Code in 2017, which aligns closely with the national tiered system and has since driven significant improvements in building energy performance. Provinces should either adopt the highest tier of the national building code or, at a minimum, present a clear and credible roadmap for reaching that level in the near future. Likewise, the federal government should set an ambitious energy-efficiency standard for their commitment to build prefabricated homes for Canadians.

Integrate Energy Efficiency With Affordable Housing Policy

Increasing energy efficiency should complement other strategies to enhance housing affordability. Building retrofit programs have typically benefited Canadians with the means to invest in their own properties; however, affordability is increasingly being recognized as a key concern in housing policy. The Canadian Affordability Action Council has recommended that the federal government invest in the not-for-profit and cooperative housing sector as a means to address social inequalities while simultaneously addressing the climate crisis. Additionally, advocacy groups such as EcoTrust Canada have proposed policy adjustments to help provincial governments design efficiency programs that better serve low-income renters.

Implement Innovative Financing Solutions

Financing is a key barrier to scaling up energy efficiency in buildings. Without accessible funding mechanisms, many property owners are unable to invest in the deep upgrades needed to reduce emissions and energy costs. Financing mechanisms like Property Assessed Clean Energy (PACE) or public banks specifically targeting building retrofits can provide essential solutions to homeowners. For example, Germany's KfW Development Bank offers low-interest loans for residential, commercial, and institutional retrofits, as well as energy-efficient new construction. PACE allows homeowners and businesses to finance upgrades—such as heat pumps, insulation, and high-performance windows—through their property taxes, spreading costs over time while ensuring that repayment stays with the property rather than the individual. PACE legislation has been enacted at the provincial level in both Alberta and Saskatchewan, enabling municipalities to establish property-assessed clean energy financing programs. At the same time, public banks can provide stable, low-interest financing for large-scale retrofits, filling gaps where private lenders may be reluctant to invest.

Enhance Efficiency Programs

Energy-efficiency programs are active across much of Canada, with provincial organizations providing funding to reduce energy use and lower emissions. These programs play a crucial role in helping households, businesses, and industries cut costs and transition to cleaner energy. Efficiency Canada's Scorecard highlights a range of tailored policy opportunities for each province, including measures to support electrification, enable deeper building retrofits, and improve efficiency in industrial operations. Strengthening and expanding these efforts can help unlock greater savings and climate benefits across the country.

Headline Policies: Recommendations

The table below summarizes key actions that provincial and federal governments can take to support building energy efficiency across Canada. These recommendations focus on expanding retrofit financing, strengthening building codes and energy labelling, and leveraging public investment to accelerate the transition to low-carbon buildings.

Conclusion

Implementing an effective net-zero buildings policy in Canada will be an essential element of climate policy in Canada. This should include a robust DER program, more ambitious building code standards, and the adoption of new technologies. Beyond a climate imperative, investments in net-zero building policies will benefit the economy and provide jobs for Canadians. In addition to their economic benefits, net-zero building policies offer an opportunity to address pressing social challenges like housing costs and inequalities.

A full list of references can be found here.

Re-Energizing Canada is a multi-year IISD research project envisioning Canada's future beyond oil and gas. This publication is part of IISD's Clean Energy Insights policy brief series under this project, which outlines the benefits of a net-zero economy for Canadians across the country.

On June 19, 2025, the British government published new guidance that, for the first time, requires oil and gas companies to consider end-use emissions associated with oil and gas production in their environmental impact assessments (EIAs) when applying for development consents (legal permits that allow for the construction and operation of major infrastructure projects).

This new guidance changes everything. It will ensure that the full effects of oil and gas extraction on the climate are recognized in consent decisions. Until now, EIAs have focused only on the emissions that occur in operating an oilfield, such as from fuelling support ships or powering rigs. But about 75% of the greenhouse gas (GHG) emissions associated with a barrel of oil occur when the fuel is ultimately consumed, such as in a car or airplane, which means the largest climate impact comes from the decision to extract the oil in the first place, rather than from a decision about how to extract it. It’s this impact that companies will soon be required to assess.

The new guidance is particularly timely, released just ahead of the International Court of Justice’s advisory opinion on climate which made clear that end-use emissions from burning extracted fossil fuels must be considered in project EIAs. In this sense, the United Kingdom was ahead of the curve and has set an example that other countries can follow. The guidance will be put to the test when the British government decides on the development consent for the Rosebank project, the United Kingdom’s largest undeveloped oil field, estimated to contain around 300 million barrels of oil.

The guidance responds to the Finch v Surrey County Council judgment of June 20, 2024, where the British Supreme Court ruled that planning authorities must assess “downstream” GHG emissions (Scope 3 emissions) as part of the EIA process for fossil fuel projects. The case specifically concerned oil extraction at Surrey’s Horse Hill site, where planning permission was granted without considering emissions from burning the extracted oil.

This deep dive unpacks the new guidance. In summary, it is robust, providing regulatory certainty over the approach to be taken to new fossil fuel projects. Arguments commonly brought up by the fossil fuel industry to justify new projects, arguments that commonly lack credible supporting evidence—such as market substitution arguments, “drop in the ocean” arguments, and carbon offsets and removals—are rejected or held to a high standard.

No Hiding Behind Substitution Claims

Market “substitution” is the idea that granting consent for a certain oil field will not cause an aggregate increase in GHG emissions, since production to meet market demand for oil and gas would come from another project elsewhere if the relevant field is not opened. In other words, it is the idea that proposed production would replace, rather than supplement, production elsewhere. Substitution arguments made by oil and gas industry players often lack credible supporting evidence.

Significantly, the new guidance is clear that substitution does not affect whether Scope 3 emissions need to be assessed in the EIA, following the judgment in Friends of the Earth v Secretary of State for Levelling Up. Housing and Communities (Whitehaven coal mine case). In other words, oil and gas companies may put forward substitution arguments, but Scope 3 emissions from downstream should be considered regardless. Companies may use substitution arguments to contextualize the emissions, but must back this up with credible evidence.

This is a highly effective approach. Stating the full emissions from a project provides transparency, clarity, and consistency. In the light of the net-zero goal, the correct comparison to be made is with no project, not with a project being claimed as worse or a “business-as-usual” scenario.

Presumption That All Oil and Gas Produced Will Be Combusted

In Finch, all parties agreed that it was inevitable that the oil extracted would be sent to refineries and the refined oil would eventually be combusted. But this is not a given in every situation. Oil and gas companies often argue that some of the extracted oil, for example, would be used to produce plastics or other petrochemicals.

The guidance states that the starting point is a rebuttable presumption that all produced oil and gas over the lifetime of a project will eventually be combusted. But even if developers choose to include evidence that not all oil and gas will be burned, they still must put forward an estimate of emissions based on the total combustion assumption. This approach prevents oil and gas companies from making false or unsubstantiated claims that the oil and gas will not be burned.

Significantly, too, the guidance makes clear that the end-use emissions should be presented against a "do-nothing" scenario (i.e., a "no-project" scenario). This recognizes that there will be no Scope 3 emissions if the field does not go ahead.

Scope 3 emissions include several other categories of emissions in addition to downstream combustion emissions, such as emissions from waste generated in operations, emissions from business travel, and emissions from investments. End-use emissions are Scope 3, Category 11 emissions. While a developer may choose to present other elements of Scope 3 emissions in addition to end-use emissions, the guidance says that those emissions should always be presented separately to avoid confusion. This is important because Category 11 emissions are by far the largest element for oil and gas fields, and are the most straightforward to assess, simply by multiplying the expected production by the appropriate emissions factor.

"Drop-in-the-Ocean" Arguments Rejected

Oil and gas companies have been known to make so-called "drop-in-the-ocean" arguments, i.e., that a given project’s emissions are so small compared with total global emissions as to be a drop in the ocean, so that the project consent should therefore be granted.

The guidance is clear that this approach will not be countenanced, because it “would not on its own provide a meaningful expression of the global effect of those Scope 3 emissions, because of the obvious difference in scale between individual projects and global emissions levels.”

Rather, the guidance requires an assessment of Scope 3 emissions in relation to global and national climate objectives and the current state of climate and global emissions reduction pathways. The impact must also be considered cumulatively with other existing and planned future projects in a global context. This approach aligns with IISD’s recommendation that the impacts of a project should be considered significant if the project is not consistent with credible 1.5°C scenarios or carbon budgets.

Offsets and Removals Subject to High Standard

The final point of note in the new guidance is that it raises the bar when it comes to the evidence required for so-called "mitigation" measures. There is little that can be done to mitigate Scope 3, Category 11 emissions from fossil fuel extraction projects other than compensating with carbon dioxide removals. The guidance agrees with this point of view, and states that any such emissions removal measures would need to be “transparent and easily verifiable at a project level (i.e., can be linked back to the proposed project).” They would also need to have confirmed permanence and be subject to robust third-party monitoring, reporting, and verification methodologies to ensure the measure is genuine and of high integrity.

Importantly, while the door is left open to the purchase of offsets, the guidance says it is unlikely that the purchase of carbon credits on the voluntary carbon market will be an effective mitigation measure.

The Guidance’s First Test: Rosebank

When it comes to the question of the effectiveness of this new guidance, the first test will come when the revised EIA for the Rosebank project is submitted and the decision on its development consent is made.

The Finch judgment was clear that EIA legislation does not prevent development consent being granted for projects that will cause significant harm to the environment. However, “it aims to ensure that, if such consent is given, it is given with full knowledge of the environmental cost.”

Rosebank certainly comes with a huge environmental cost when it comes to Scope 3 downstream combustion emissions. Uplift estimates that those emissions would amount to more than 200 million tonnes of CO2, more than the combined annual emissions of all 28 low-income countries.

Evidence shows that opening any new North Sea oil and gas fields is incompatible with achieving the Paris Agreement goal of limiting warming to 1.5°C.

 

Indeed, the world already has more oil and gas in existing fields than can be consumed while achieving the Paris goals. To follow through credibly on this new guidance, the British government should reject the consent for Rosebank.

International Significance

The guidance has international significance, representing the first time to this author’s knowledge that EIA law requires end-use emissions to be accounted for. Others are likely to follow, as other climate-leading countries will watch and learn from how this guidance is implemented and can replicate it. Effects on domestic oil and gas project consents aside, that role model impact could be the guidance’s biggest achievement.

Introduction

Since President Trump's first day in office, U.S. tariff policy has dominated headlines and global trade policy debates, but much of the coverage focuses on major economies. In this new issue of the Trade and Sustainability Review, we shift the lens to explore how regions such as Latin America, the Middle East and North Africa (MENA), the rest of Africa, and Southeast Asia are experiencing and responding to these evolving trade measures. 

Tariffs affect the price of everyday goods—like washing machines, clothing, and food—and can shape the future of jobs, exports, and livelihoods. Beyond immediate price changes, tariffs disrupt supply chains, create uncertainty for businesses, and can slow investment and growth, complicating efforts to achieve sustainable development goals. 

This issue of the Trade and Sustainability Review brings together four timely and regionally grounded analyses that show how many of these effects could come to be. The articles explain how developing and least developed countries are experiencing and responding to the shifting U.S. tariff landscape. Liliana Rojas-Suarez and Ignacio Albe explore Latin America's dual exposure to direct U.S. tariff impacts and the broader economic risks tied to China's slowing demand. Yara Aziz examines how the MENA region, while less exposed to tariffs directly, faces rising trade turbulence through energy price volatility and mounting geopolitical strain. In Southeast Asia, Poppy S. Winanti analyzes ASEAN countries' varied yet pragmatic responses, including diplomatic engagement, regional coordination, and diversification strategies. Finally, Kholofelo Kugler and Tani Washington assess how African countries are navigating the consequences of a sweeping new U.S. tariff regime. They highlight both the economic risks to countries like Lesotho and Madagascar and the potential opportunities for others like Egypt and Kenya, while also calling for a cohesive continental strategy aligned with Africa’s broader regional integration goals. 

Together, these articles provide a diverse and insightful look at how developing regions are adapting to the ripple effects of tariff policies and seeking more resilient, equitable positions in global trade. 

Happy reading,

Alice Tipping and Maria Barral

Articles 

U.S. Tariffs Hit Latin America Hard—But China's policy response may matter even more 

Liliana Rojas-Suarez and Ignacio Albe highlight how U.S. tariffs impact Latin America while underscoring that China's policy reaction and economic health may present an even greater challenge for the region's growth and stability. 

Read article here.

MENA at the Crossroads: Growing exposure to trade turbulence, tariffs, and strategic strain 

Yara Aziz explores how MENA's seemingly low direct exposure to U.S. tariffs conceals deeper risks from global trade disruptions, energy market instability, and geopolitical tensions that could challenge the region's traditional non-alignment amid rising U.S.–China competition. 

Read article here. 

The ASEAN Members' Response to Trump's Liberation Day: Multifaceted and pragmatic approaches 

Poppy S. Winanti analyzes ASEAN countries' pragmatic responses to U.S. tariffs, highlighting negotiation, regional cohesion, and market diversification as key strategies to manage risks and strengthen resilience. 

Read article here. 

How Africa Is Responding to U.S. Tariff Policies 

Kholofelo Kugler and Tani Washington explore how African countries are responding to a new U.S. tariff regime, highlighting uneven economic impacts and calling for a coordinated continental strategy to protect trade and integration goals. 

Read article here.

The World’s Eyes Turn to the Hague

On July 23, 2025, the International Court of Justice (ICJ) delivered its landmark advisory opinion on “the obligations of states with respect to climate change” at the Peace Palace in The Hague. 

The ICJ determined that the 1.5°C temperature target is legally binding under the Paris Agreement and that all states, in particular the largest emitters, must take ambitious mitigation measures in line with the best available science. The opinion arrives 6 years after a group of 27 students from the University of the South Pacific began campaigning on this issue, and more than 2 years since the United Nations General Assembly (UNGA) adopted a resolution requesting the advisory opinion.

The court rejected arguments from some high-emitting states that climate treaties are the only applicable law to the climate crisis, excluding broader international law. It found that multiple sources of law impose legal duties on states to prevent “transboundary environmental harm,” act with precaution, and take due diligence measures to reduce greenhouse gas (GHG) emissions and adapt to the adverse impacts of climate change.

The ICJ’s Answers: States must act—or be held responsible

The court left no doubt that international law provides a sufficiently robust framework to assess climate-related state responsibility, while acknowledging the unique features of climate change.

Key findings include:

• 1.5°C is the primary agreed-upon legally binding target for limiting the global average temperature increase under the Paris Agreement, noting that every increment of global warming escalates climate risks.
• Customary international law imposes binding obligations on states to take preventive and precautionary measures to avoid climate harm, including through the regulation of private actors.
• While the emission of GHGs is not unlawful, per se, failure to take appropriate measures to prevent foreseeable harm—including through fossil fuel production and consumption, new exploration licenses, subsidies, or inadequate regulation—can constitute a wrongful act attributable to the state.
• States must regulate private actors’ emissions as part of their due diligence obligations. Where states fail to do so, responsibility arises from their failure to regulate the conduct of private actors within their jurisdiction or control.
• Both customary international law and climate treaties, such as the UN Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, impose binding obligations on states to undertake adaptation measures in line with the best available science. And developed countries have the additional responsibility of helping developing countries meet the costs of adaptation.
• Scientific evidence allows emissions to be attributed to individual states, including cumulative historical and current emissions. This enables states harmed by climate change to invoke legal responsibility. All states have a legal interest in compliance. As such, any state—not only those harmed directly—can invoke responsibility for breaches of climate obligations under customary international law and climate treaties.

Climate Inaction Can Trigger Legal Consequences

The ICJ confirmed that states violating their international obligations can face a full range of legal consequences under the law of state responsibility:

• Cessation and guarantees of non-repetition: States must stop wrongful acts, which in some cases may amount to revoking policies or licences that promote fossil fuel activity. They may also be required to provide assurances against future breaches.
• Reparation: Where harm is shown, states must make full reparation through, for example:
• restitution, such as ecosystem restoration or rebuilding climate-resilient infrastructure;
• compensation for financially quantifiable loss; or
• satisfaction, including public acknowledgement or apology.

Even where they have breached their obligations, states have a continuing duty to comply, such as by submitting new or revised nationally determined contributions (NDCs) under the Paris Agreement that must be progressively ambitious.

While the court did not apportion blame or quantify compensation, it clarified that such determinations are legally permissible and must be made on a case-by-case basis based on a “sufficiently direct and certain causal nexus” between the wrongful act and the harm suffered.

Opinion Puts Fossil Fuel Producers on Notice

The opinion has significant implications for energy producers. The court was clear that the “relevant conduct” for the proceedings was not limited to conduct that itself directly results in GHG emissions (i.e., fossil fuel combustion) but rather comprises “all actions or omissions of States which result in the climate system and other parts of the environment being adversely affected by anthropogenic emissions.” In other words, fossil fuel production is included in the scope of conduct that can potentially be in breach of international law.

In particular, issuing fossil fuel exploration licences, allowing new production projects, or granting fossil fuel subsidies can be a breach of international law. The court explicitly said that “a state’s failure to take appropriate action to protect the climate system from GHG emissions—including through fossil fuel production, fossil fuel consumption, the granting of fossil fuel exploration licenses or the provision of fossil fuel subsidies—may constitute an internationally wrongful act.”

This means that states that produce coal, oil, and gas are put on notice. Any expansion of production will now attract increased legal risk.

In addition to the advisory opinion, some judges issued separate declarations setting out their interpretations of the case. In their joint declaration, Judges Bhandari and Cleveland examined the issue of fossil fuel production in greater depth. Noting that to stay below 1.5°C, no new fossil fuel extraction projects can be developed, they said environmental impact assessments for fossil fuel extraction projects must take into account downstream combustion emissions (Scope 3 emissions).

In addition, they said new national climate plans (NDCs) must address all fossil fuel production, licensing, and subsidy activities in a manner consistent with the 1.5°C path. They also said the stringent due diligence obligations to implement NDCs and to prevent significant transboundary harm require states to adopt and enforce regulations to phase out the production and use of fossil fuels. 

To avoid legal risks, states that produce fossil fuels need to:

• stop issuing new fossil fuel exploration licences;
• stop issuing development consents for new fossil fuel extraction projects; and
• adopt regulations to phase out fossil fuel production.

A Major Shift in How Climate Change Adaptation Is Perceived 

The court was equally clear that “adaptation obligations under the Paris Agreement complement the mitigation obligations in preventing and reducing the harmful consequences of climate change.” 

Simply put, the level and need for future adaptation depend on states’ mitigation ambition and emission reductions today.

The ICJ’s opinion found that states have legal obligations under climate treaties, customary international law, and other applicable international law to carry out climate adaptation planning and implement adaptation actions, in line with the best available science. It spelled out that the adverse effects of climate change may “significantly impair the enjoyment of certain human rights,” including the right to life; a healthy environment; health; an adequate standard of living; to privacy, family, and home; and the rights of women, children, and Indigenous Peoples.

In other words, the ICJ sees states’ failure to implement adequate and timely adaptation measures as a potential violation of their international human rights obligations.

This opinion represents a major shift in how adaptation is perceived under global policy frameworks. While it has often been treated as optional or secondary, this decision puts adaptation on equal legal footing with mitigation efforts to cut emissions.

In addition, the court also considers adaptation measures as a part of states’ customary duty to prevent significant harm to the environment by acting with due diligence. Applying a due diligence lens to states’ adaptation obligations allows for an assessment of whether governments are making serious, genuine efforts in taking timely, informed, and credible adaptation actions in meeting their obligations under applicable treaties and customary international law.

What all this means is that the advisory opinion raises the bar for governments.

Adaptation can no longer be treated as an option, but a legal obligation. It clarifies governments’ accountability for their (in)action on strengthening resilience and providing support for the most vulnerable countries in meeting the costs of adaptation.

 

It also empowers the most vulnerable and most affected communities to assert their right to demand concrete, timely adaptation planning and meaningful actions and support to cope with the real and growing impacts of climate change, now backed by international law.

Advisory Opinion Underlines Urgency of ISDS Reform

The opinion also carries major implications for international investment law. Fossil fuel investors have increasingly relied on investor–state dispute settlement (ISDS) to challenge climate-related regulations, including phase-outs, licensing bans, or fiscal reforms.

The ICJ’s opinion reinforces that states have a legal duty—not mere policy discretion—to adopt and maintain ambitious climate measures. This should rule out claims from investors alleging that such climate action violates investment law because they are supposedly arbitrary or unfair. 

The court specifically emphasizes that states can be responsible for failing to take necessary “measures to limit the quantity of emissions caused by private actors under its jurisdiction.” This unequivocally includes an obligation to limit emissions caused by foreign investors, including fossil fuel companies, who might use ISDS to challenge such action internationally. 

In addition, the opinion directly addresses fossil fuel licensing and subsidy regimes, areas that have previously triggered ISDS claims and are likely to lead to further disputes. The court’s reasoning implies that states may have a duty to revise or rescind such licensing and subsidy policies, even if these changes lead to investor–state claims. 

Moving forward, international investment law must not be designed or interpreted in a way that impedes or penalizes states for fulfilling their international obligations on climate change; investment treaties and other instruments that are not aligned with this interpretation must be reformed. 

The court affirmed that states’ climate obligations are owed to the entire international community. Consequently, foreign investors cannot credibly assert—as they often do in ISDS claims—that they legitimately expected a host state to continue violating these universal obligations, such as by issuing or extending fossil fuel exploration or production licences. 

Judge Sarah Cleveland underscored these implications in her separate declaration. Citing the Intergovernmental Panel on Climate Change’s recognition that ISDS can deter climate regulation (so-called “regulatory chill”), she clarified that investment treaties must not be interpreted in isolation, but in harmony with international climate law. 

The ICJ opinion and Cleveland’s declaration strengthen the case for reforming investment treaties to bring them in line with climate commitments. In particular, states should consider steps such as:

• carving out lawful climate measures from compensation claims,
• limiting forward-looking damages that penalize states for avoided emissions, and
• reforming or removing ISDS mechanisms that deter regulatory action.

Ultimately, the ICJ affirmed that international law supports—does not hinder—climate ambition. The obligation to act cannot be overridden by investment protections for private investors that run counter to the international legal interest in preserving a stable climate system.

 

A Global Legal Foundation for Climate Action

The ICJ’s advisory opinion follows similar climate-related conclusions on states’ obligations to address climate change. In 2024, the European Court of Human Rights recognized that insufficient climate action can constitute a violation of human rights, following a claim by a group of over 2,000 senior Swiss women against the Swiss state.  Opinions from the International Tribunal for the Law of the Sea, which looked at the obligations under the UN Convention on the Law of the Sea, and the Inter-American Court on Human Rights, as analyzed by IISD, have also come to similar conclusions. The African Court on Human and People’s Rights has also been asked to give an advisory opinion.

The ICJ opinion affirms what many legal scholars and advocates have long argued: states have binding obligations to prevent climate harm and can be held responsible for failing to do so. The ICJ has now authoritatively interpreted international law in a way that strengthens the legal foundation for ambitious, science-based climate action.

The opinion is likely to influence future domestic and international climate litigation, shape negotiations under the UN climate regime, and provide new leverage to vulnerable states seeking accountability and climate justice.

The authors would like to thank Nathalie Bernasconi-Osterwalder, Anne Hammill, and Farooq Ullah for their guidance and contributions to this article. 

A United States-led wave of tariffs and trade negotiations is disrupting international trade, adding uncertainty to global energy markets. As a response in Canada, industry proponents and government leaders have suggested accelerating support for new projects such as LNG facilities to diversify the country’s export markets while supporting global energy security. However, LNG is a volatile commodity, subject to high and unreliable prices, international supply shocks, and trade disruptions. Importing markets—notably in Europe and Asia—are already downgrading demand for LNG in favour of more reliable and affordable alternatives, including domestic renewables. For exporters such as Canada, long-term demand decline and low prices threaten the profitability of high-cost, long-lived, and often publicly supported new LNG projects. This leaves taxpayers and communities exposed as global markets shift—all while increasing domestic greenhouse gas emissions and possibly delaying the energy transition abroad. Ultimately, LNG is a risky bet for exporters and importers alike.

Canada’s Proposed LNG Exports: Economic risks

Investment decisions for LNG infrastructure are not to be taken lightly and must consider long-term market dynamics. LNG export and import infrastructure—including liquefaction facilities, pipelines, regasification plants, and supportive electricity lines (see Figure 1)—is capital intensive, likely to run over budget and/or rely on public subsidies, and takes years to complete. LNG Canada Phase 1, for example, began construction in 2019 and is only now set to begin operations, over 6 years later and following several delays, such as disputes between contractors over rising costs. Indeed, the LNG terminal itself, and the Coastal GasLink pipeline built to supply it with gas, ran 29% and 263% overbudget, respectively, amounting to an estimated CAD 14.5 billion in unexpected costs. Most other Canadian LNG projects, aside from Woodfibre LNG, are not expected to come online until near 2030 (far too long to address immediate LNG demand in Europe, for example).

Moreover, as a new entrant facing high construction and infrastructure costs, Canadian LNG is expected to struggle as it competes with cheaper producers such as the United States and Qatar, both of which are rapidly expanding production. The United States is also leveraging the persistent threat of tariffs to pressure importers to buy more American LNG in an increasingly mercantile trading environment, exacerbating Canada’s competitiveness challenge. With long construction times, potential cost overruns, increasing competition, and infrastructure lifespans of 20 to 60 years, the profitability of Canadian LNG projects would depend on sustained global demand and high prices over the long term.

Figure 1. LNG production and shipping process

LNG Market Volatility: History and current risks

LNG prices can fluctuate significantly, carrying risks for producers and consumers. In the short term, if prices are high, there could be profits for exporters. However, LNG links regional gas markets together as it is increasingly traded around the world, meaning supply shocks abroad could raise prices for Canadians who use gas for home heating. Over the longer term, as the market saturates with increased supply, and as countries, homeowners, and businesses move to more price-stable and increasingly affordable renewable energy options, an international oversupply of LNG is expected. Exporters would then face strong competition, declining profits, and long-term viability risks for multi-billion-dollar infrastructure investments. 

Piped natural gas and shipped LNG are each subject to supply shocks and price spikes that can be triggered by several events, including export facility outages, extreme weather, and geopolitical shocks. LNG markets spread these local supply risks globally, as shipments can be redirected to regions where gas prices are inflated by local supply constraints. In this way, regional gas price spikes can raise global LNG prices. The economic impacts of these supply disruptions are then amplified further by speculative trading in commodity markets, resulting in dramatic swings in benchmark prices (e.g., the Dutch Title Transfer Facility [TTF] and the Japan/Korea Marker [JKM]; see Figure 2).

Figure 2. Major gas and LNG pricing benchmarks from 2019 to 2025
 

LNG markets also work the other way, exposing regional gas and electricity markets to international shocks. In 2022, diverted shipments to Europe drove record-high LNG prices, which raised domestic gas costs in Canada to unprecedented highs in May 2022, with knock-on effects for home heating and electricity bills. Even larger impacts were seen in price-sensitive countries like India, Pakistan, and Bangladesh, where high prices and supply defaults led collective LNG consumption to fall 16% in 2022. Similarly, domestic gas consumers in countries that export LNG are exposed to higher prices during global price spikes as domestic gas is diverted for more lucrative exports abroad. This happened in both the United States and Australia during the 2022 price spike. Higher domestic gas prices are also expected in British Columbia as LNG exports grow, along with more expensive electricity rates for businesses and households as ratepayers partially subsidize LNG-related grid expansions.

This increasing awareness of LNG’s economic volatility and risks coincides with utility-scale renewables like wind and solar becoming the cheapest option for new electricity generation in most markets. Renewables now offer an affordable alternative to LNG imports that can reduce countries’ exposure to the international supply volatility and price spikes associated with traded fossil fuels. Meanwhile, high prices have sparked unprecedented plans to increase global LNG supply. Market analysts thus widely expect an oversupply of LNG, which could begin as early as 2026 and extend well into the 2030s, driving down prices and threatening exporter profitability. This market glut could extend indefinitely as the global energy transition accelerates (see Figure 3). While low prices may benefit importing countries with existing regasification facilities and pipelines in the short term, they are unlikely to incentivize the infrastructure investments in many emerging markets needed to sustain high LNG demand over the medium to long term, as we discuss below.

Figure 3. Global LNG capacity versus demand under three International Energy Agency scenarios

The Downward Trend in Global Demand 

We can look at three key market geographies—Europe, East Asia, and South and Southeast Asia—to assess how energy security concerns appear to be influencing LNG demand.

Europe

Following the disruption and record prices of LNG in 2022, the European Union (EU) and some individual members, notably Germany, have emphasized the importance of replacing Russian gas in the long run with affordable and secure clean energy. This is most explicit in the RePowerEU plan, which, if implemented, would see total gas demand in the continent decline by over 40% from 2024 to 2030 in favour of renewable energy and energy efficiency. Even if Europe’s energy transition policies fall short of their targets, the benefits of domestic renewables over imported LNG are already evident for European consumers and governments. For example, the IEA estimated that the EU’s expansion of wind and solar saved consumers EUR 100 billion between 2021 and 2023 by reducing exposure to record gas prices. More recently, the European Commission’s Action Plan for Affordable Energy (February 2025) includes the goal of “decoupling retail electricity bills from high and volatile gas prices,” in part by scaling up stable and affordable renewables. Thus, while Europe may benefit from lower LNG prices in the short term as supply expands, sustained demand for LNG, even in the medium term, is unlikely.

Basing investment decisions on today’s high prices risks stranding costly LNG infrastructure in Europe and Canada alike.

 

East Asia

Some of the top LNG-importing countries in Asia are China, Japan, and the Republic of Korea (South Korea)—all of which are adopting measures to reduce LNG demand.

In China, renewables—not LNG—are displacing coal in power generation. Analysis shows that while gas use has remained steady, renewable energy has grown, reducing coal’s share in the power sector. As a major gas producer with access to cheaper pipeline supply and a goal to cut imports, China’s role as a future LNG growth market is increasingly uncertain, especially amid ongoing trade tensions with the United States.

Both Japan and South Korea are mature LNG markets with declining domestic demand. Japan’s LNG imports fell 8% in 2023, and South Korea’s declined 4.9%. In both cases, nuclear and renewables are cutting gas demand in the power sector, while in South Korea, high LNG prices accelerated the decline. As with Europe, importers with existing LNG import infrastructure may benefit from increased supply (and reduced prices) in the short term, but with domestic consumption in decline, excess supply is increasingly likely to be diverted to other markets for a profit.
 

South and Southeast Asia

Energy demand is certain to rise in South and Southeast Asian economies; the question, however, is what energy sources will be preferred to fill the gap? Cost is the first factor to consider, as high LNG prices are seen as a threat to energy security in many emerging economies, including India and Pakistan. While prices are expected to fall in the coming years due to the forecasted global supply glut (as outlined above), this in turn would threaten the profitability of new export facilities in countries such as Canada. As the IEA explains in its most recent World Energy Outlook:

“Gas-importing emerging and developing economies would generally need prices at around USD 3-5/MBtu to make gas attractive as a large-scale alternative to renewables and coal, but delivered costs for most new export projects need to average around USD 8/MBtu to cover their investments and operation.”

In other words, key importing countries need LNG prices to be lower than what new export projects would typically need to be profitable.

There are also significant infrastructure barriers to increased LNG consumption in South and Southeast Asia. In India, for example, “infrastructure development, including pipelines and LNG terminals, has not kept pace with internal demand,” and there are “no plans” to build new gas-fired power plants. Similarly, delayed LNG plant construction in Vietnam, regulatory restrictions in the Philippines, and an announced halt of new LNG-fired power plant construction in Pakistan demonstrate infrastructure constraints. As such, several governments in South and Southeast Asia have signalled that their energy future lies in rapidly expanding renewables, not LNG. Forecasted LNG demand in emerging Asian economies is being revised downward as energy security concerns rise.

Impacts of Canadian LNG on Climate Change 

Finally, LNG accelerates climate change across its entire value chain, due to emissions from energy-intensive gas extraction and liquefaction, transportation, end-use combustion, and methane leaks at all stages. New large-scale fossil fuel projects are incompatible with global climate goals (see also Figure 3). In Canada, LNG facilities will also undermine domestic climate commitments by generating direct local emissions and/or diverting clean electricity from other sectors. Rather than replacing coal abroad, LNG exports can reduce or delay investments in renewables and increase global fossil fuel use. For this reason, the U.S. Department of Energy recently concluded that “the overall global effect of producing and exporting U.S. LNG leads to an increase in global GHG emissions.” To displace coal use abroad, accelerating investments in renewable power generation is a more efficient approach. LNG, then, is more likely to exacerbate climate change than mitigate it, amplifying economic and environmental risks in Canada and beyond.  

Conclusions for Canada

LNG is a volatile commodity, and recent overreliance on it has undermined energy security across several importing countries following trade disputes and geopolitical shocks. Going forward, governments in Europe and Asia are increasingly favouring cheaper and more reliable renewable power over long-term reliance on fossil fuel imports.

Meanwhile, government support to expand Canadian LNG production exposes Canadians to economic risks. The forecasted oversupply of LNG on the global market could lead to prices trending lower, shrinking profit margins, and Canadian LNG assets becoming stranded, potentially triggering demand for more taxpayer-funded subsidies to keep projects viable. Meanwhile, short-term supply imbalances could raise Canadians’ heating and electricity bills as new LNG exports increase Canada’s exposure to international market volatility.

LNG expansion ultimately delays the shift to cleaner, more resilient energy systems for both exporters and importers, exacerbating climate change and compounding the risks of extreme weather events, such as wildfires and hurricanes. Every dollar spent on LNG expansion is a dollar lost for real clean energy solutions and a step backward on the path toward economic resilience for Canada and energy security for its trading partners abroad.