Outrage as Italy faces multimillion dollar ISDS damages to UK oil firm

August 4, 2021: Italy could be forced to pay US$275 million (A$371 million) in damages to UK oil company Rockhopper Exploration, after it banned new drilling within 12 nautical miles of its coast in 2016. Rockhopper reports that it has spent just US$29 million (A$39 million) on the project.

This is how Investor-State Dispute Settlement works – a company can claim its future earnings have been taken away and demand compensation.

Rockhopper Exploration, which used a specialist ISDS funder to finance its claim on Italy, has a stock market value of just US$58.3 million (A$78.7 million), so an ISDS award potentially worth hundreds of millions of dollars would be significant for its finances.

This case is brought against Italy under the Energy Charter Treaty (ECT), to which the UK is a signatory along with 52 other countries. Italy withdrew from the ECT in 2016.

There have been lengthy talks aimed at reforming the ECT, which resumed in July, but a leak of diplomatic cables suggests they face failure.

France and Spain both want to withdraw from the ECT, but that would not protect them from claims under a “sunset clause” that means former members are subject to the treaty for 20 years after they have left. That’s why Italy still faces the Rockhopper Exploration claim.

The case has sparked outrage at the secretive international tribunals at which fossil fuel companies can sue governments for passing laws to protect the environment – amid fears that such cases are slowing down action on the climate crisis.

The German energy company RWE, for instance, is suing the Netherlands for US$1.66 billion (A$2.24 billion) over its plans to phase out coal.

While the UK has not yet been sued under the ECT, an analysis by Investigate Europe shows it is the most vulnerable of all the countries in Europe, with more than US$166.7 billion (A$225.3 billion) worth of fossil fuel infrastructure owned by foreign companies.

Anglo American and Glencore are suing the Colombian government after they were banned in 2017 from exploiting part of a huge opencast coalmine because of its impact on the environment.

Ascent Resources is suing Slovenia after the country’s environment agency asked it to carry out an environmental assessment (EIA) before embarking on a fracking project, which activists say could pollute critical water sources nearby.

ISDS is considered particularly powerful because a state’s assets abroad can be seized in order to pay any damages. Scottish oil and gas company Cairn Energy, for example, is attempting to seize the planes of state-owned Air India after India was ordered to pay the company US$1.2 billion (A$1.6 billion) in damages under ISDS.