ISDS threat to coal phase-out needed to meet Paris emission reduction target

October 8, 2020: ‘Raising the cost of climate action?’, a new report from the International Institute for Environment and Development issued on October 4, 2020, includes a focus on coal-fired power stations covered by investment treaties which contain Investor-State Dispute Settlement (ISDS) provisions.

At least five coal-fired power stations in Australia are in the list of the world’s 257 foreign-owned coal plants, which must be retired early in order to put the planet on track to keep temperature rise below 1.5°C above pre-industrial levels. These five are protected by ISDS agreements that Australia has with Hong Kong, Canada and Japan, and which do not have exclusions for such claims. They are:

  • Mount Piper Power Station, opened 1993, owned by CLP Group, Hong Kong
  • Millmerran Power Station, opened 2002, partly owned owned by Ontario Teachers Pension Plan, Canada,
  • Loy Yang B Power Station, opened 1993, owned by Chow Tai Fook Enterprises Limited, Hong Kong
  • Yallourn-W Power Station, opened 1973, owned by CLP Group, Hong Kong
  • Bluewaters Power Station, opened 2009, owned by Kansai Electric and Sumitomo Corporation, Japan

The report found that Indonesia, with 12 coal-fired power stations covered by ISDS, could face claims starting at US$7.9 billion, based on their valuation, but not counting “future earnings,” which have been used to build ISDS claims to billions.

ISDS enables foreign investors, including shareholders, to sue states over conduct they believe breaches international investment protection rules, and can include actions needed to cut emissions. The US Westmoreland coal company is suing Canada because its Alberta provinces plans to phase out coal-powered energy.

Possible government action on climate change could include the early retirement of coal-fired power stations and oil refineries, not exploiting coal, oil and gas reserves, and scrapping pipelines and other fossil fuel transport infrastructure.

These are the measures needed to fulfil the climate commitments governments have signed up to under the Paris Agreement.

Right now the United Nations Commission on International Trade Law (UNCITRAL) is reviewing ISDS because its use has provoked strong protests, and many governments have cancelled treaties which contain ISDS provisions.

The study’s authors Kyla Tienhaara, Canada research chair in economy and environment at Queen’s University, and IIED’s Lorenzo Cotula, urge terminating old investment treaties, developing innovative drafting approaches for any new treaties, and radically modernising the Energy Charter Treaty, which plays a significant role in protecting foreign-owned coal power plant assets.