New report: corporate rights in trade deals could threaten climate action, and cost billions

May 10, 2022: A new report published in the prestigious journal Science has raised the alarm on how corporate rights to sue governments through trade deals could threaten climate action, and cost taxpayers billions. 

The report details how investor-state dispute settlement (ISDS) mechanisms in trade deals protect fossil fuel investors and create a “chilling effect” on environmental regulation.

ISDS clauses allow foreign investors to argue that if a country’s policy changes renders a project unviable, the country should compensate the investor not only for what they have invested, but for claimed future profits.

For example, the US Westmoreland coal company is suing Canada because the province of Alberta decided to phase out coal-powered energy, and the German RWE power company is suing the Dutch government over its decision to end coal-powered electricity generation by 2030.

The authors identify at least 231 ISDS cases related to fossil fuel investments, which is almost 20% of the all ISDS cases. The average compensation awarded in these cases, according to the report, is $600 million USD, while the total potential liability of fossil fuel ISDS cases could be $340 billion USD.

The report advocates “an abolitionist approach” to reduce existing ISDS threats without limiting national climate ambitions, recommending that states consider:

  • Terminating all bilateral investment treaties with ISDS

  • Negotiate the removal of ISDS clauses from other trade agreements, 

  • Withdraw consent to ISDS in cases involving fossil fuel investments

The authors write:

“Our proposals are more efficient and effective than trying to fix the investment treaty system through procedural reforms or the introduction of exceptions clauses for climate policy. Reformist approaches would be time-consuming and likely ineffectual.”

  • To read the Conversation article, click here.

  • To read the Grid article, click here.

  • To read the report, click here.