Risks of Investor-State Dispute Settlements (ISDS) for Climate Policy

23 Jul 2019

Read on Twitter:



“Investor-State Dispute Settlements (#ISDS) are a risk for climate policy” - @mondiaalnieuws http://bit.ly/2JMCC7i

/thread

“Legal experts from @ClientEarth, an international non-profit organization in the field of environmental law, are calling on governments worldwide to reduce this risk.Investor-state arbitrage could prevent climate measures such as phasing out fossils or introducing a CO2 tax.”

#ISDS provisions are included in around 3000 agreements worldwide. They mean that investing companies, if hindered in their business operations, can demand compensation from the government.

This also applies to social and environmental policies that can affect investments.”

“In a letter to the UN Commission on International Trade Law (#UNCITRAL) that deals with reform of the ISDS system http://bit.ly/2JMqVO1 @KylaTienhaara ], legal experts warn that foreign investors may use ISDS to delay the implementation of the Paris Climate Agreement”

“The ISDS system has led to an alarming number of claims against environmental measures. This is now the fastest growing type of claims. They pose a threat to the global fight against climate change” Amandine Van den Berghe @ClientEarth

“Among other things, the legal experts recommend developing a mechanism that will allow countries to evade traditional investment treaties and ISDS.”

Risks posed by ISDS to the global fight against climate change

@ClientEarth @KylaTienhaara article http://bit.ly/32NA5RV

[1] Estimated 1 to 4 trillion worth of assets in the energy sector that may become stranded by 2050 https://t.co/Eo3ZzM6Zx7

[2] Cost of compensation and only participating in legal cases in the context of ISDS’s increases the cost of the energy transition and can be very high for governments in developing countries https://t.co/T0OHGjfIcO

[3] Growing body of evidence of “regulatory chill” effect of ISDS on policy, ex:

@VermilionEnergy threatened to sue France under ISDS in 2017 if it pushed ahead with the law to phase-out fossil fuel extraction in all French territories drafted by @Min_Ecologie (@corporateeurope)

[4] Risk of ISDS acute for developing countries :

Majority of claims are brought by investors from high-income countries (86.25%) against upper–middle-income (42.15%) and lower–middle-income (24.26%) countries http://bit.ly/2Y1fV8c from https://t.co/VsENh54RCb?amp=1 : https://t.co/FtE4zsT6yY

Phase 3 of UNCITRAL WG III : Consistency with international obligations

“discussions have failed to address the potential for inconsistency between ISDS and broader societal objectives found in other areas of domestic/international law” https://t.co/CQL91yVRxl

Options to address the negative impacts of ISDS on climate change policy

[1] Terminating investment treaties / moving away from ISDS

“WGIII should develop a mech. to allow countries to easily move away from traditional investment treaties and ISDS” https://t.co/G7I0moBav9

Termination sounds radical, but already occurring https://hyp.is/q6cKJK1UEemq0edCZQ9zKw/www.documents.clientearth.org/wp-content/uploads/library/2019-july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf:

107 ISDS have been terminated and not replaced recently https://t.co/TyqA11VAK5

…so that only responsible investors who respect international climate commitments can utilize ISDS https://hyp.is/_jG5Lq1UEemtPJdTNQIlRQ/www.documents.clientearth.org/wp-content/uploads/library/2019-july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf

to:

{a} Carve-out government measures taken in pursuit of international obligations under the Paris Agreement

https://t.co/a06qu8hcJk

“Dismissal of any claim that challenges climate mit./adapt., as determined by an independent panel of climate change experts” (link: http://bit.ly/2M8JWvI) bit.ly/2M8JWvI

{b} Require exhaustion of local remedies

https://hyp.is/aJM6mq1VEemaGCMWA8R8ug/www.documents.clientearth.org/wp-content/uploads/library/2019-july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf

= resorting to domestic courts first [https://t.co/DLe0mKtcb2]

{c} Allow counterclaims and ensure full participation for affected third parties

https://hyp.is/1FxNwK1VEemTUAcI8oy02g/www.documents.clientearth.org/wp-content/uploads/library/2019-july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf

“rulings such as these are not the norm: counterclaims are generally unsuccessful in the absence of explicit language in the applicable investment treaty” https://t.co/yywDdp9noZ

{d} Ban third-party funding

https://hyp.is/VpAm9K1WEem46P-Vp2EYhA/www.documents.clientearth.org/wp-content/uploads/library/2019-july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf

“third-party financing is an emerging trend, although it remains difficult to estimate the exact scale of itin ISDS given the lack of rules around disclosure” https://t.co/VCypWD4UU8

{e} Include climate change impacts in the calculation method for compensation

https://hyp.is/dV4wEq1WEem3IvfRmp4atA/www.documents.clientearth.org/wp-content/uploads/library/2019-july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf

Currently notion of “fair market value”, but: “may be inappropriate or unjust” https://t.co/aXfz4uAPhT

Example: current debate in @UKLabour to nationalise energy system to speed up transition

“British Parliament should determine the level of compensation + it should consider issues such as stranded assets and state subsidies provided since privatisation”

-> this would likely mean a payment for expropriation that is far below “fair market value” @DrSimEvans @CarbonBrief

Conclusion

“Governments must remove any obstacles that could prevent or delay the adoption of emission reduction policies or other mitigation measures.”

+

“carefully consider the proposals outlined above and encourage the identification of additional innovative solutions”

Updates

9/9/2019 : German energy company Uniper preparing a costly lawsuit against the Dutch coal phase-outs

26/9/2019 : Gazprom sues the EU over new gas regulation