The oil company is using the Energy Charter Treaty to demand 300 million euros in compensation-seven times the company’s initial investment.
This case, like the 1,000 other investment treaty lawsuits known worldwide24, will be decided by three private lawyers serving as arbitrators.
These arbitrators tend to defend the rights of private investors rather than the public interest,25 revealing an inherent pro-corporate bias. Their decisions are binding and can be implemented immediately.
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The arbitrator’s ruling usually ignores public interest issues that prompted government intervention, or the fact that the company may have been fully aware of the risks when investing.
Fossil fuel companies have also used the threat of billions of dollars in litigation to discourage the government from taking effective climate action.
Canadian oil and gas company Vermillion, which exploits almost 75% of French oil, used the threat of an ECT lawsuit to discourage the French government from legislation to phase out fossil fuel mining. The law was shelved and replaced by a watered down version that continues to allow it.
Recently, the German coal giant Uniper threatened to sue the Netherlands for a new law banning the use of coal for power generation by 2030, with a compensation of up to 1 billion euros.
The threat was made when the law was discussed in the Dutch parliament. Although the threat did not prevent the proposal from becoming law, the intention to cool the legislation is clear-the company may still stick to it.
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In the era of climate crisis, it is almost unthinkable that the government is still subsidizing dirty energy.
However, if they start to cut subsidies for coal, natural gas or oil, countries are likely to see a large number of investment lawsuits. Spain has been prosecuted 47 times for cutting renewable energy subsidies. Cuts in any type of energy subsidy could have the same result.
The cost of investment litigation is as high as billions of dollars, which may bring the budget of most countries, especially those in the global South, to a tipping point.
By the end of 2018, countries around the world had been ordered or agreed to pay investors a staggering 88 billion U.S. dollars due to ISDS cases. Otherwise, the money could have been used for climate adaptation and funding the energy transition.
From this perspective, the Adaptation Fund is one of the major multilateral climate funds and has pledged US$720 million for different projects since 2010. This is less than 1% of the government fees paid to foreign investors due to ISDS cases.
litigation
Is the energy transition friendly investment agreement feasible?
The shortest answer is no. There are many other legal instruments that can support the energy transition—we don’t need investment treaties, even reformed and improved treaties.
The International Investment Agreement (IIA) was signed mainly because the government believed that they would help countries attract foreign direct investment (FDI).
However, years of research and rich experience have shown that international investment agreements are not the decisive factor in attracting foreign direct investment, including today’s claimed clean energy investment. Therefore, for the states, what remains is the risk of prosecution.
International investment agreements only protect foreign investors. They do not include any obligations, and only investors can file a lawsuit. In particular, they protect large multinational companies.
The fossil fuel industry has initiated at least 150 ISDS lawsuits, making it one of the most prolific users of the Fossil Fuel Treaty. ‘The Fossil Fuel Non-Proliferation Treaty. Fossil fuel treaty system.
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However, multinational companies, especially fossil fuel companies, certainly do not need and should not enjoy additional protection.
The governments of India, Morocco and even the Southern African Development Community (SADC) have advocated an “alternative” investment agreement model.
However, while these new treaties may reduce the risk of prosecution, they will not change the nature of investment agreements and may still hinder the government’s efforts to resolve the climate collapse.
Investment protection treaties are not just a shield to protect the fossil fuel industry, they are also powerful swords that enable them to attack governments trying to combat climate change.
The international investment system is incompatible with the energy transition or the Green New Deal. Persevering will only extend the fossil fuel era.
compensate
The solution to a predatory investment treaty is not a better agreement to “reduce” country risk. The solution is for governments to follow the example of South Africa, Indonesia, Ecuador, Italy, and even all EU member states.
They must urgently terminate all international investment treaties in force, especially the Energy Charter Treaty, and stop negotiating new treaties.
Only in this way can the government phase out fossil fuels and really promote a green new deal, without having to risk millions of euros to compensate companies.
These authors
Cecilia Olivet is the coordinator of trade and investment projects at the Belgian Transnational Institute. Lucía Bárcena is a project officer for trade and investment projects at the Spanish Transnational Institute.
