Canada’s Fossil Fuel Funding Faces Growing Legal Risks After ICJ Ruling

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Last Updated on: 5th August 2025, 11:56 am

British Columbia recently announced $200 million in fresh funding to support Cedar LNG, a floating liquefied natural gas export terminal near Kitimat. The money is earmarked primarily to build transmission infrastructure, including a new 287 kV line, substation upgrades, and distribution networks needed to supply the facility entirely with renewable electricity from BC Hydro.

Provincial leaders touted the project as a showcase of clean energy innovation and Indigenous economic development. Cedar LNG, majority-owned by the Haisla Nation with Pembina Pipeline Corporation as a key partner, is expected to export about 3.3 million tons of LNG per year beginning in late 2028. Yet beneath the celebratory headlines, this latest subsidy highlights Canada’s ongoing and problematic pattern of providing substantial public financial assistance to fossil fuel projects, even as renewable energy investments struggle to secure similar backing.

Cedar LNG’s full climate impact, once the entire lifecycle from gas wells to final combustion is considered, will total roughly 300 million tons of CO₂e over its 25-year operating life. The project plans to export 3.3 million tons of LNG annually, accumulating to approximately 82.5 million tons of LNG over that period. When including extraction, processing, liquefaction, shipping, regasification, and ultimately combustion of the gas by consumers, the average lifecycle emissions come to about 3.64 tons of CO₂e per ton of LNG delivered. Most of these emissions, approximately three-quarters, occur during combustion in export markets. Despite efforts to brand Cedar LNG as a clean-energy initiative due to renewable electricity powering the liquefaction facility, the project’s broader emissions footprint remains substantial.

Cedar LNG is not alone in receiving generous public assistance. LNG Canada, now operational in Kitimat, benefited extensively from provincial support, including substantial discounts on electricity rates and a carbon tax exemption worth tens of millions annually. The project’s total subsidy value has been calculated at roughly $5.35 billion over its lifetime. That figure includes corporate income tax credits, deferred provincial sales tax on construction, and infrastructure upgrades like roads, bridges, and grid enhancements indirectly funded by BC taxpayers. Such large subsidies dramatically shift the economic landscape, tilting market conditions heavily in favor of fossil fuels at a moment when global energy markets and climate policy are moving rapidly in the opposite direction.

Canada’s history of supporting fossil fuel projects financially is long-standing and bipartisan. The federal government’s purchase and subsequent construction of the Trans Mountain Expansion (TMX) pipeline vividly illustrates the scale and pitfalls of these subsidies. Initially projected at $7 billion, the TMX pipeline ended up costing approximately $34 billion. Contracts signed with oil producers locked in shipping tolls at roughly half the level needed to recover actual costs, leaving taxpayers subsidizing the project by as much as $3 billion per year. Today, even with significant government intervention, TMX operates at only about 80% of its intended capacity, a cautionary tale that demonstrates the risks of publicly funded fossil fuel infrastructure in an uncertain energy landscape.

The International Court of Justice’s advisory opinion on July 23, 2025, regarding state obligations on climate change creates significant new legal risks around government subsidies for fossil fuel projects such as Cedar LNG. The court explicitly stated that nations have a legal responsibility under international treaty law and customary international law to protect the climate system from greenhouse gas emissions. According to the opinion, continuing to subsidize or authorize fossil fuel projects could represent internationally wrongful acts, potentially exposing governments to legal actions.

Nations found supporting these projects might face obligations to terminate subsidies, provide guarantees against recurrence, and potentially offer reparations if harm can be scientifically linked to climate impacts. Although advisory opinions do not carry direct enforcement power, this decision provides strong legal and ethical backing for domestic courts and international litigants now beginning to challenge the legality of fossil fuel subsidies, significantly increasing the legal vulnerability of projects like Cedar LNG.

While billions of public dollars flow into LNG and pipeline infrastructure, renewable energy projects in Canada frequently languish without comparable financial support or policy certainty. Investment in transmission infrastructure, particularly high-voltage direct current (HVDC) lines essential for renewable energy growth, has been consistently overlooked. Ambitious proposals for interprovincial clean-energy corridors connecting Alberta’s solar and wind resources, Quebec’s hydroelectric capacity, and Atlantic Canada’s offshore wind have stalled, awaiting meaningful government backing. Even simple, cost-effective improvements to the electricity grid and renewable energy storage face regulatory delays, underfunding, and policy indifference.

Indigenous communities, often presented as beneficiaries of fossil fuel development, are similarly left shortchanged by Canada’s subsidy choices. While projects like Cedar LNG offer significant economic participation for First Nations, the narrative that fossil fuels represent the best economic path for Indigenous communities is limiting and ultimately misleading. Many Indigenous communities across Canada have developed successful renewable energy ventures, including solar, wind, and community hydro projects. Yet these Indigenous-led renewable initiatives receive far less public financing, policy attention, and media coverage compared to fossil fuel projects, constraining their economic potential and slowing Canada’s broader transition to clean energy.

There are proven international models Canada can follow to avoid repeating these subsidy mistakes. The European Union, Australia, and China have prioritized investment in electricity transmission infrastructure as strategic public assets critical to renewable energy expansion. High-voltage transmission corridors and interconnections are treated as essential infrastructure, much like highways or railroads. In contrast, Canada’s policy framework continues to treat renewable energy infrastructure largely as a secondary priority, funding projects inconsistently and hesitantly rather than strategically and comprehensively.

Shifting public financial support from fossil fuels to renewables would yield substantial economic benefits for Canada. Renewable infrastructure projects offer greater certainty in long-term energy markets, reduced stranded asset risks, and more reliable pathways to climate goals. Prioritizing investment in renewable electricity transmission infrastructure would also drive down electricity costs for consumers and stimulate job creation in rapidly growing global clean energy markets. Equally importantly, it would avoid locking Canada into long-term carbon emissions and costly fossil-fuel infrastructure obligations, as has occurred with the TMX pipeline and LNG Canada.

The Cedar LNG subsidy announcement provides yet another opportunity for Canadians and their governments to reconsider the nation’s direction. Canada possesses enormous renewable energy potential, advanced technology, and robust financial capabilities. However, as long as billions of public dollars continue flowing preferentially to fossil fuel projects, the country risks undermining its own economic stability and environmental objectives. Redirecting financial support decisively toward renewable energy infrastructure represents a more prudent, economically responsible, and socially equitable approach. Canada must break free from this pattern of subsidizing the past, and instead, embrace investing boldly in the clean energy future it claims to want.