As Canada burns and eastern North America suffocates under our smoke, coal, gas and oil companies in Canada and around the world continue to use dispute resolution clauses between investors and states (ISDS) in international investment agreements (IIAs) to prevent governments from taking action to address climate change.
In its latest report, published in March 2023, the Intergovernmental Panel on Climate Change found that maintaining the ability—with only a 50% chance of success—to limit further global warming to 1.5°C above pre-industrial levels (the ultimate goal of the 2015 Paris Agreement) not only requires that all coal, oil and gas projects not yet in production be abandoned (as the International Energy Agency had already told us in 2021, advice that the Canadian government ignored by authorizing the Bay du Nord deep-sea oil project in 2022). But it also now demands that at least some of the existing fossil fuel infrastructure be shut down.
In this context, there is growing concern that ISDS is hampering state action to address climate change. ISDS allows fossil fuel companies and those who invest in these companies or their ISDS claims to attack any measure that could reduce their profits, including those aimed at addressing the climate emergency. Governments that try to prevent projects that increase reliance on fossil fuels and accelerate climate change can thus be held liable for billions of dollars in damages.
For example, in 2017 Calgary-based oil and gas company Vermilion, which extracts nearly 75% of France’s oil, used the threat of an ISDS lawsuit to dissuade the French government from legislating a phase-out. extraction of fossil fuels. The bill was dropped and replaced with watered down legislation that continues to allow it.
A “grotesque greed”
Fossil fuels are the most litigious sector under the ISDS system, accounting for almost 20% of the total number of known cases. Most of these cases are decided in favor of foreign investors, who won in 76% of cases at the merits stage. In addition, the average amount awarded in fossil fuel cases — over US$600 million — is almost five times the amount awarded in non-fossil fuel cases.
The five major oil companies recorded a record net profit of US$153.5 billion for 2022, and are approaching the total figure of US$200 billion in adjusted net profit, i.e. excluding provisions and exceptional items.
UN Secretary-General António Guterres has denounced the “grotesque greed” of oil and gas companies and their backers, and said it is immoral for them to reap record profits from the current energy crisis on the backs of the poorest people and communities, “at enormous cost to the climate”.
There is, however, a way to end this madness. Given the existential threat posed by climate change, states should unilaterally withdraw the consent they have given to foreign investors in IIAs containing ISDS clauses to submit claims arising from climate change measures to arbitration. climatic.
States should also unilaterally take away from their national coal, oil and gas companies, as well as from those who invest in these companies or their ISDS claims, the right they have given them unilaterally by becoming parties to IIAs containing ISDS clauses to sue other state parties for climate action.
A State could not be sued for having withdrawn its consent to have claims against it based on measures it has taken or proposes to take to combat climate change be submitted to arbitration under the ISDS clause. of an IIA to which it is a party than by another State party to that IIA.
A political act
The initiation of a state-to-state dispute settlement procedure is always a political act. In the current highly tense political circumstances surrounding both climate change and ISDS, a state’s decision to unilaterally withdraw its consent to arbitration is unlikely to be challenged by other states.
Since the obligation created by IIAs to submit ISDS claims is owed to the other States party to those IIAs, foreign investors could only sue the withdrawing State on the basis of an alleged loss of profits resulting from measures to combat climate change.
Foreign investors making such allegations would have brought their ISDS claims anyway, so withdrawing consent does not increase the risk of litigation from the withdrawing state.
If a State that has unilaterally withdrawn its consent to arbitration under the ISDS clauses of IIAs is nevertheless the subject of an ISDS claim from a coal, oil or gas company or those who invest in that company or in its ISDS claims due to measures taken by that State to combat climate change, and that claim reached the merits stage, the State could invoke the defense of necessity to justify those measures .
The doctrine of state of necessity is an international customary rule according to which a factual situation of grave and imminent danger to the essential interests of a State can legally justify a breach of an international obligation by that State as the only means of safeguarding those interests. essential interests.
Climate change, fueled by the use of coal, oil and gas, is an extremely serious and imminent danger that threatens the essential interests of all States, and indeed of all humanity.
It is too late to stop climate change. The best we can hope for now is to avoid their most catastrophic and irreversible effects.
ISDS is not compatible with the necessary energy transition. Maintaining it will only prolong the age of fossil fuels and accelerate catastrophic climate change.
Instead of protecting profits, the law should be put at the service of climate justice. Preventing coal, oil and gas companies and those who invest in those companies or their ISDS claims from continuing to use ISDS to block state climate action would be a good start.