The linking problem: emissions trading, investment treaty jurisdiction, and the globalization of carbon markets

In 2024, an arbitral tribunal dismissed for lack of jurisdiction a claim brought by Koch Industries against Canada arising from the cancellation of Ontario’s cap-and-trade programme. This article argues that the award should be read not as a case-specific outcome but as the first encounter in investment treaty arbitration with a structural problem that will recur with increasing frequency as carbon markets globalize and establish links. Emissions trading systems are dynamic regulatory instruments whose caps must contract, whose rules will change as governments respond to shifting political priorities, energy security pressures, and geopolitical disruption, and whose linking arrangements may be modified or terminated. When regulatory action impairs or extinguishes allowances held by foreign investors across a linked system, the domestic legal character of those allowances enters a jurisdictional analysis whose structure and decisive threshold vary according to the treaty definition, the arbitral forum, and the interpretive methodology of the tribunal. The article examines Koch v Canada as the first decided investment case and traces the mechanism through two further configurations under a broad asset-based bilateral investment treaty and the Energy Charter Treaty, demonstrating that the same instrument may or may not constitute a protected investment depending on a configuration of variables that no single actor controls and most will not have foreseen. The problem operates at a level logically prior to the post-establishment regulatory space questions that dominate the current literature on investment protection and climate policy.