Introduction
As part of the general neoliberal thrust, resources companies, especially oil companies, were worried that that governments might ‘interfere’ in the market and cost them profits. In particular, former colonies might nationalise resources, weaken the companies’ control over these resources, increase royalty demands, or otherwise hurt corporate business models. Decolonization was a risk. The idea was to team up with banks, who would presumably have their income streams threatened if the companies were unable to pay off loans, and construct a international legal regime to protect their interests. Western governments also supported this movement, which helped come into being, but they ‘forgot’ (?) that it could apply to them as well. The eventual solution became known as ‘investor-state dispute settlements’, or ISDS. [1]
Energy Charter Treaty
The Energy Charter Treaty (ECT) is one such ISDS treaty. It is:
an international agreement from the mid-1990s. Investor rights apply to 53 countries stretching from Western Europe through Central Asia to Japan, plus the EU and the European Atomic Energy Community. It grants corporations in the energy sector enormous power to sue states at international investment tribunals for billions of dollars, for example, if a government decides to stop new oil or gas pipelines or to phase out coal.
ECT’s Dirty Secrets
Another account:
The ECT gives sweeping powers to foreign investors in the energy sector, including the peculiar privilege to directly sue states in international tribunals consisting of three private lawyers, the arbitrators. In these tribunals companies can claim dizzying sums in compensation for government actions that have allegedly damaged their investments, either directly through expropriation or indirectly through regulations of virtually any kind….
This investor-state dispute settlement system – also known under the acronym ISDS – can be used to dispute any action by a nation state that could affect an investment: laws and regulations from parliaments, measures by governments and their agencies, and even court decisions, no matter whether they are taken at the local, regional, or national level. ‘Investment’ is interpreted so broadly that mere shareholders can sue and corporations can claim not just for the money invested, but for future anticipated earnings as well.
One Treaty to Rule Them All. p.13 emphasis added.
The treaty is sometimes defended as it means that States have to continue to support any renewable energy provisions they made to attract investors, but it would also apply to any rules that had encouraged or allowed dangerous or ecologically destructive fossil fuel developments and investments, and this is more likely to be an issue as fossil fuel exploitation has gone on much longer (One Treaty to Rule Them All. p.77).
As Secretary General of the ECT Urban Rusnák has said: “The ECT is technologically neutral…. We have to use the entire variety of energy sources available and the ECT is friendly to all of them.”
One Treaty to Rule Them All. p.78
This treaty sets up “Investor-state dispute settlement” (ISDS) mechanisms which are common in most ‘free trade’ treaties. Chris Hamby on Buzzfeed (not the most respectable news source) writes of ISDS in general.
An 18-month BuzzFeed News investigation into ISDS for the first time casts a bright light on the use of these threats. Based on reporting from Asia, Africa, Central America, and the US; interviews with more than 200 people; and inspection of tens of thousands of pages of documents, many of which have never before been made public, the series has already exposed how executives accused or convicted of crimes have turned to ISDS to help them get off the hook…. Today’s story reveals how corporations have turned the threat of ISDS legal action into a fearsome weapon, one that all but forces some of the countries where these corporations operate to give in to their demands….
Only companies can bring suit. A country can only defend itself; it cannot sue a company. Arbitrators who decide the cases are often drawn from the ranks of the same highly paid corporate lawyers who argue ISDS cases. These arbitrators have broad authority to interpret the rules however they want, without regard to precedent and with almost no public oversight. Their decisions carry extraordinary power. Often, countries are obligated to obey ISDS judgments as if they came from their own highest courts. And there is no meaningful appeal.
ISDS is so tilted and unpredictable, and the fines the arbitrators can impose are so catastrophically large, that bowing to a company’s demands, however extreme they may be, can look like the prudent choice. Especially for nations struggling to emerge from corrupt dictatorships or to lift their people from decades of poverty, the mere threat of an ISDS claim triggers alarm. A single decision by a panel of three unaccountable, private lawyers, meeting in a conference room on some other continent, could gut national budgets and shake economies to the core.
Hamby. The Secret Threat That Makes Corporations More Powerful Than Countries. Buzzfeed, 30 August 2016
Lets summarise this:
- Any action which might cause a foreign company to lose money is a target of the ISDS.
- Executives convicted of crimes in a country can use ISDS mechanisms to intimidate that country.
- Companies can sue countries, but countries cannot sue companies.
- The justice of the cases is decided by a tribunal of lawyers who use the system to make money by suing countries under ISDS.
- These lawyers apparently have the power to decide how the agreements work, and so are likely to oblige fellow lawyers who might be sitting on a case they are participating in, later on.
- The fines are punitive, often making it a good strategy to yield when such a case is brought..
The buzzfeed article goes on to detail several cases, which are relevant to mining.
Australian response
The Australian Government remarks that such an agreement does not prevent the Government from:
- changing its policies;
- regulating in the public interest;
- regulating in the interests of the environment;
- regulating in the interests of the Pharmaceutical Benefits Scheme or health system.
ISDS does not freeze existing policy settings. ISDS claims must be based on breach of an investment obligation. It is not enough that an investor does not agree with a new policy or that a policy affects its profits.
Investor-state dispute settlement (ISDS)
It points out that:
there has been just one ISDS tribunal hearing against Australia. The dispute was brought by Philip Morris Asia challenging Australia’s tobacco plain packaging legislation. On 18 December 2015, the tribunal issued a unanimous decision agreeing with Australia’s position that the tribunal had no jurisdiction to hear Philip Morris Asia’s claim. More information on this case is available at Tobacco plain packaging – investor-state arbitration.
Investor-state dispute settlement (ISDS)
Perhaps the ECT is one reason why most Australian political parties seem to shy away from any restrictions on gas and coal, and they do not wish to admit there lack of sovereignty, which is usually such a big trigger for them.
A Boon to Fossil Fuel Companies
Paul de Clerck, the economic justice coordinator at Friends of the Earth claimed that:
the treaty was outdated and “a boon to dirty fossil fuel companies”…. “As soon as people hear about this obscure pact undermining the public interest and the fight against climate change, they will be outraged. Either the EU and member states fundamentally revise it, or pull out,”…
Friends of the Earth Europe is one of 260 civil society organisations and trade unions that have warned the ECT is incompatible with climate action because it contains measures to protect energy investments even where they contradict climate goals.
Ambrose Energy treaty ‘risks undermining EU’s green new deal’. The Guardian 9 December 2019
Activists tell us that the treaty has already been used to extract compensation for government action:
The risk is illustrated by Vattenfall’s €4.3 billion lawsuit against Germany over the shut down of two nuclear power plants. The ECT can also be used to put significant pressure on governments to allow new projects which would accelerate climate change and further lock-in fossil fuel dependence. This is illustrated by Rockhopper’s ECT challenge to Italy’s ban on new off-shore oil drilling projects….. as well as ECT litigation threats against laws to put an end to fossil fuel extraction (in France), and to ban the use of coal for electricity production (in the Netherlands)…. Also, When in 2019 the opposition British Labour Party planned to take the energy industry back under public control, arbitration lawyers predicted a “flood of claims” under the ECT and other investment deals. [for the Labour Party see also [1], [2]]
ECT’s Dirty Secrets (ECT power #2) & (ECT accession risk 3) & (ECT accession risk 4) cf One Treaty to Rule Them All p.80-81.
The One Treaty to Rule them All site adds
Another telling example comes from the North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico, which includes investor rights similar to the ECT’s. In 2013 oil and gas company Lone Pine sued Canada under NAFTA for US$118.9 million due to a moratorium on hydraulic fracturing…
TransCanada sued the US for a stunning US$15 billion in damages over the Obama administration’s rejection of the Keystone XL oil pipeline, which would have increased CO2 emissions by up to 110 million tons per year. While the company withdrew the lawsuit when the Trump administration approved the project, it is worth noting legal experts thought that TransCanada had a good chance of winning
One Treaty to Rule Them All p.80
In a similar manner:
foreign investors can bring ISDS cases against states without exhausting local remedies – a privilege exclusive to foreign investors. Further, international arbitrators protect foreign investors’ expectations, but not the expectations of states or local communities. This legal regime also allows oil companies to strike back after local courts find them responsible for environmental degradation, like Chevron did in the Lago Agrio (Ecuador) case. A few weeks ago, Shell did the same thing. It launched an ISDS case against Nigeria after a domestic court ordered the multinational giant to compensate the Ejama-Ebubu community.
Perrone. Oil companies don’t deserve reparations for fossil fuel bans. They’ll still want them. The Guardian 19 April 2021
The Dutch government could be taken to court by German fossil fuel company Uniper if it goes ahead with plans to phase out coal-fired energy generation by 2030.
The activists also suggest that:
Cutbacks to state support for fossil fuels would likely trigger expensive investor lawsuits under the ECT.
ECT’s Dirty Secrets (ECT power #3)
Equally worrying is the assertion that:
Today no other trade and investment agreement has triggered more investor-state lawsuits than the ECT. By October 2020 a total of 134 ECT investor lawsuits were listed on the website of the ECT Secretariat. Both the number of cases and the amount of money at stake for public budgets and taxpayers is on the rise.
ECT’s Dirty Secrets (ECT accession risk 1)
Another important claim they make is:
More than 80 per cent of the companies on the ECT’s Industry Advisory Panel make money with oil, gas, and coal.
ECT’s Dirty Secrets (Putting polluters in the driving seat)
Another cause for concern is that the possibility of such action against States, not just from the Energy Charter Treaty but other trade agreements, is now considered a potential corporate asset
The sums awarded in damages are so vast that investment funds have taken notice: corporations’ claims against states are now seen as assets that can be invested in or used as leverage to secure multimillion-dollar loans. Increasingly, companies are using the threat of a lawsuit at the ICSID to exert pressure on governments not to challenge investors’ actions…..
There is no appeals process – only an annulment option that can be used on very limited grounds. If states do not pay up after the decision, their assets are subject to seizure in almost every country in the world (the company can apply to local courts for an enforcement order). While a tribunal cannot force a country to change its laws, or give a company a permit, the risk of massive damages may in some cases be enough to persuade a government to reconsider its actions.
Provost & Kennard The obscure legal system that lets corporations sue countries. The Guardian, 10 June 2015
These laws, aimed at protecting companies and investments, help to discourage energy transitions, and recompense the fossil fuel companies for no longer being able to destroy the world.
Looking at the Treaty itself UNFINISHED
The Section of the Treaty most relevant to our consideration is “Article 19: Environmental Aspects”.
each Contracting Party shall strive to minimise in an economically efficient manner harmful Environmental Impacts occurring either within or outside its Area from all operations within the Energy Cycle in its Area, taking proper account of safety.
In doing so each Contracting Party shall act in a Cost-Effective manner.
In its policies and actions each Contracting Party shall strive to take precautionary measures to prevent or minimise environmental degradation.
The Contracting Parties agree that the polluter in the Areas of Contracting Parties, should, in principle, bear the cost of pollution
The International Energy Charter: Consolidated Energy Charter Treaty with Related Documents 15 Jan 2016
Tags: fossil fuels, Law, renewable energy
Climate, technology and chaos Blog 
Leave a comment