If we want to redress global and historical injustices and prosper within planetary boundaries, we must change the rules of the global economy, including our trade rules. This will mean abandoning or strictly circumscribing what goes into trade deals, revising or abolishing treaties, investment agreements and institutions that entrench corporate power and the domination of the global south by the global north.
A priority is ending ISDS (Investor State Dispute Settlement). ISDS is a mechanism written into trade deals that empowers corporations to sue countries that adopt policies that affect the profits, or hypothetical future profits of the corporations. Projections of lost hypothetical profits are calculated in ways that are highly speculative and preferential to the investor. For decades, fossil fuel and mining corporations have brought cases against countries, mostly global majority countries, over policies that have impacted mining and extractive projects, often aimed at protecting the rights of marginalised communities at the frontlines of extraction. The ISDS claims have often served to put pressure on governments to roll back the rights of these communities, and to ensure corporations can carry on an unimpeded campaign of extraction and destruction.
We are seeing an increase in cases brought against countries explicitly over climate measures. For example;
- Energy companies RWE and Uniper took claims of a combined €2.4 billion against the Netherlands over the Netherland’s plans to phase out coal powered electricity generation by 2030. [1]
- Canadian TC Energy is making a USD $15 billion claim against the US government over President Biden’s decision to cancel the Keystone XL Pipeline. [2]
- Rockhopper, a British oil and gas company won a GBP210 million claim against Italy after Italy banned near shore oil and gas drilling amidst concerns over environment, earthquake risks, local fisheries, and tourism;
- In a US$1.4 billion claim by Vattenfall against Germany, the company claimed that environmental requirements to take measures not to pollute a nearby river amounted to expropriation. The case resulted in the environmental protection requirements being dropped.
- British Ascent Resources is taking a €500 million arbitration suit under the ECT over Slovenia’s decision to ban fracking.
ISDS challenges, complicates and raises the costs of the kind of climate action we desperately need. Germany is seeking to end coal-fired power generation by 2038. In negotiations with companies over the phase out, coal companies have used the threat of ISDS as leverage, agreeing only to waive their right to sue the country using ISDS if the German government massively increased the compensation package, demanding twelve times more than that to which they would have otherwise been entitled. ISDS also dissuades governments from adopting more ambitious climate policy. Governments have admitted as much – a Danish Minister saying that said that the price tag on removing permissions for fossil fuel extraction earlier than 2050 “is one that no government would be able to bear”. [3]
Although most of the ISDS claims explicitly against climate policy mentioned are against Global North countries, getting rid of ISDS is an act of global solidarity. The interests of corporates and governments in the Global North in the natural resources of the Global South are the DNA of the ISDS regime. The mechanism itself was designed by a group of men including executives from Shell and the forerunners of ExxonMobil, Total, Rio Tinto, and others in the 1950s, when national independence movements in the post-colonial era threatened to deprive Northern corporations of their access to the riches of South. The majority of ISDS cases are brought against developing countries. [4] The findings of a recent study [5] on the chilling effect of international investment disputes suggest that the chilling effect on policy innovation is more strongly felt by developing countries. ISDS cases brought by fossil fuel companies over environmental protection and climate concerns could in particular prevent developing countries, often most severely impacted by the effects of climate change, and with fewer resources to implement climate adaptation measures, from taking action over climate. Meanwhile the home states of the vast majority of investors taking ISDS claims, and their financial backers and lawyers, are in the Global North. The UK, US and Netherlands are the three countries that have been the three most frequent home States of claimants in known ISDS cases filed from 1987 to 2020. [6] The onus is on global minority countries to take action.
The Energy Charter Treaty (ECT) is the single most-used treaty for fossil fuel companies using ISDS. It was the treaty used in three of the five cases mentioned above. The ECT is an international agreement, first signed in 1994 and with more than 50 member states, that provides ISDS powers to energy corporations. Including ISDS in trade treaties is increasingly controversial. Its inclusion in the defeated TTIP undoubtedly led to its demise. Its inclusion in deals like CETA (Canada-EU deal), TPP (Trans Pacific Partnership) and bilateral EU deals has delayed and frustrated the ratification of these deals. Campaigners in Asia have succeeded in having ISDS excluded from RCEP (Regional Comprehensive Economic Partnership). Getting rid of the Energy Charter Treaty would be a serious blow to the ISDS industry. It’s clear that if it were being negotiated today, the Energy Charter Treaty, whose cornerstone is its ISDS provisions, would not fly.
The good news is that at the time of writing, getting rid of the ECT seems possible. At the time of writing, amidst a failed ‘modernisation’ process, which has failed to make the Treaty in any way compatible with our climate goals, countries are leaving it. Over the course of a few weeks, Poland, Spain, the Netherlands and France have joined Italy (which left in 2016) in announcing that they will abandon the ECT. In their announcements these governments have cited climate concerns and the ‘chilling effect’ of the Treaty on government policy. A collective withdrawal of countries from the ECT could deal the Treaty a serious blow. If we are successful in that, however, our efforts can’t stop there.
We must get rid of ISDS entirely. It can be done, and here, Global South countries have led the way. South Africa, for example, revised all of its bilateral investment treaties to exclude ISDS. Brazil has never included ISDS in its trade deals. Nothing must stand in the way of an urgent transition. Yet ISDS does just that. In a global context of climate breakdown, in which there is no need for investment in new fossil fuels, and fossil fuel corporations are already making record breaking profits by driving the planet towards destruction, we must end the madness that is ISDS.
