Corporate Courts v The Climate

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Oil Refinery at Dawn by Iguanasan is licensed under CC BY-NC-ND 2.0
We have less than a decade left to keep global heating below 1.5°C and prevent climate-induced devastation. To achieve this, we must radically transform our economies and trade rules, including corporate courts - or ISDS.

What is ISDS?

ISDS (Investment to State Dispute Settlement) is the fossil fuel industry’s secret weapon. It is an extreme investor privilege in trade rules that allows corporations to sue countries in secretive ‘corporate courts’ when governments make decisions that may negatively impact their projected profits.

Right now, the fossil fuel industry is taking governments around the world to court for billions over climate action. There are a growing number of ISDS cases destroying our chances of a just and sustainable future - below are five key cases.

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1. Coal phase-out under attack

RWE and Uniper v Netherlands: Phasing out coal is critical to meeting climate commitments. However, the Dutch government is finding that big business is not making this easy. In 2021, German energy giant RWE sued the Dutch government [1] over their coal phase-out for €1.4 billion [2], while another company, Uniper, is suing the Dutch government in both in Dutch national courts and taking out an ISDS lawsuit. The cost of compensating these polluters could eclipse the amount the Netherlands gives annually in official development assistance.

2. Climate laws stopped

Vermillion v France: In 2017, a French energy minister drafted an ambitious law aiming to end fossil fuel extraction by 2040. Vermillion, a huge energy company, wasn’t having any of it. They threatened the French government with a massive ISDS case. Vermillion succeeded in killing the law, setting back climate action in France by decades.

When a government acts on the mere possibility or actual threat of an ISDS case, this is called the ‘chilling effect’. When governments see another country being taken to corporate courts (or being threatened for billions over decisions to phase-out coal, oil or gas exploration) they might be less likely to attempt to phase-out fossil fuels, for fear of similar punitive claims - with the huge compensation awarded to corporations acting as a warning.

3. Oil spill compensation order overturned

Chevron v Ecuador: Over a period of nearly 20 years, Texaco dumped over 30 billion gallons of toxic waste and crude oil into the Amazon rainforest in Ecuador. This gigantic environmental disaster destroyed livelihoods, caused rivers to turn black, and caused cancer and birth defects.

In 2001, Chevron (which had since purchased Texaco) was ordered by Ecuador to pay $18.2 billion in compensation. In retaliation, Chevron launched an ISDS case against Ecuador for an undisclosed sum, also demanding to have the compensation order overturned. Chevron was successful. The ISDS tribunal overruled domestic justice - Chevron was not obliged to comply with the national justice system. To this day, no compensation has been paid, and the oil spills' devastating effects continue [3].

4. Fracking bans under attack

Lone Pine v Canada: When corporation Lone Pine began exploring for fracking in Quebec, locals became concerned and generated a mass movement against fracking, winning in a moratorium against fracking in the province. Although Lone Pine had never received actual mining permits – only exploration permits – the company decided to sue the Canadian government. Lone Pine, itself a Canadian company, used its offices in the US to sue Canada under the North American Free Trade Agreement (NAFTA), seeking US$109.8 million plus interest in damages [4].

5. Oil extraction ban challenged

Rockhopper v Italy: UK corporation Rockhopper is suing Italy for $350 million [5] (despite only originally investing $40-50 million) after Italy banned new oil and gas operations near the coast. The Italian government did so over environmental and earthquake concerns, and the impact on the local community where Rockhopper wanted to build an oil platform.

This case was brought under the Energy Charter Treaty - the single most-used treaty for fossil fuel companies using ISDS. Alarmingly, the case was brought against Italy despite the country having already exited the treaty. The ECT includes a “zombie clause” (because the corporate courts threat can ‘come back from the dead’) meaning countries can still be sued by an investor for 20 years after the withdrawal.  This is really concerning for the UK, because under the Energy Charter Treaty alone, we have fossil fuel infrastructure worth more than €140 billion euro, the owners of which could sue the government under ISDS [6].

If a single industrial sector might be called the cradle of international arbitration, it would be the energy business. Especially oil and gas.” [7]

While ISDS poses a threat to the UK’s own climate targets, the UK is also a hub for law firms and investors who use ISDS to sue other countries.

While the UK government is claiming it is a ‘leader’ on global climate action, it remains a solid supporter of the climate-destroying ISDS regime, here and across the globe. This wrecks any chance to stop runaway climate change.

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