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Corporate Courts Are Helping Capital Kill the Planet

Fossil fuel giants around the world are suing governments for their climate policies, and winning hundreds of millions of dollars – the result of a system that protects dirty investments over a liveable earth.

Fossil fuel companies win seventy-two percent of ISDS lawsuits, earning an average of $600 million in compensation. (georgeclerk / Getty Images)

Last month, activists from social justice organisation Global Justice Now staged protests across the country, urging the government to withdraw from the Energy Charter Treaty (ECT), a controversial international agreement ratified by fifty-three countries and already described as ‘the world’s most dangerous investment treaty’.

The group highlighted the dangers stemming from the treaty, under which transnational corporations with significant fossil fuel investments can sue governments for implementing environmental policies which cut into their profit margins. Britain currently faces £11 billion in legal claims from oil and gas companies, as environmental campaigners fear that the treaty will imperil the country’s chances of meeting ambitious climate commitments.

The ECT, which calls for ‘fair and equitable treatment of investors’, stipulates that the investments of multinational corporations ‘shall not be nationalised, expropriated or subjected to a measure or measures having equivalent to nationalisation or expropriation, except where such expropriation is … accompanied by the payment of prompt, adequate and effective compensation’. Britain is particularly vulnerable to the treaty’s provisions, with fossil fuel infrastructure worth around 140 billion euros, the owners of which could sue the government following attempts to reach the legally binding net zero carbon emissions target by 2050.

Jean Blaylock, trade campaign manager at Global Justice Now, excoriated the ECT as an obstacle to climate action, arguing that ‘the fossil fuel industry is already doing everything in its power to delay and deter climate action, and we have lost too much time already to this glacial pace’. She continues: ‘The last thing we need is for governments to give these companies a secret weapon in their battle to squeeze maximum profits out of climate breakdown. But that’s what we’ll be doing if we fail to withdraw from the Energy Charter Treaty.’

The ECT is one example of an investor-state dispute settlement (or ISDS) agreement, a mechanism which allows corporations, particularly the most egregious polluters, to undermine the authority of governments seeking to curtail carbon emissions. It gives fossil fuel companies the opportunity to bypass local courts, suing governments in international tribunals for substantial pay-outs. At a critical juncture in the fight against climate change, when a recent IPCC report has advocated for the ‘decommissioning and reduced utilisation of existing fossil fuel installations in the power sector,’ and the ‘cancellation of new installations,’ the ECT illustrates the potency of corporate power in stymying commitments to climate justice.

The Threat of Regulatory Chill

The ECT’s terms are often highly effective in dissuading smaller states from implementing policies to divest from fossil fuels. Earlier this year, the Danish government pushed back an important deadline for cancelling oil pipelines to avoid incurring litigation, which would have led to the payment of ‘incredibly expensive’ compensation to fossil fuel multinationals, according to the country’s climate minister.

The staggering sums which corporations can extract from governments under the ECT have drawn criticism from reputable climate science organisations. A recent IPCC report warned that the threats brought on by corporate treaties, in which corporations often contribute to the selection of judges and cannot be counter-sued by governments, may lead to ‘regulatory chill’, a process whereby governments are incentivised not to enact policies intended to mitigate climate change for fear of litigation.

The report mentioned the ECT specifically, stating: ‘in particular, transactions in the energy sector show a high level of investor protection against much needed climate action, which is also well illustrated by the share of claims settled in favour of foreign investors under the Energy Charter Treaty and investor-state dispute settlement’.

A particularly striking example of the effectiveness of ISDS settlements in undermining ambitious climate policies came in 2017, when Canadian oil firm Vermillion, responsible for around seventy-five percent of the oil production in France, threatened to sue the French government following its decision to ban fossil fuel extraction on French territory by 2040. After the French Council of State received several letters claiming that this policy failed to adhere to the ECT’s ‘fair and equitable treatment of investors’ rule, the French government amended the law so that it permitted exploration licences to continue until 2040.

Unless a coordinated, transnational withdrawal from the ECT takes place, the provisions within the treaty may significantly weaken environmental policy for decades to come. Research has shown that if the investor protection clauses in the ECT were used to prolong fossil fuel usage until 2050, the pay-outs issued to fossil fuel companies would amount to $1 trillion, more than the sum of money needed to finance the Green New Deal.

As oil and gas pipelines and fields account for a combined eighty percent of the fossil fuel infrastructure protected under the ECT’s terms, ratifying policies to divest from polluting sources of energy is likely to become increasingly difficult. The UK government continues to increase the production of North Sea oil and gas in response to spiralling energy prices.

Punishing the Global South

ISDS settlements originated in the 1950s, as Western corporate magnates sought to assuage the looming threat of decolonisation in the aftermath of the Second World War. Hermann Josef Abs, director of the Deutsche Bank and poison gas manufacturer IG Farben, and Hartley Shawcross of Shell, christened a ‘Magna Carta for Capitalism’, a settlement which would entrench the power of Western corporations, defending them from ‘indirect expropriation’ in international tribunals.

Described by a contemporary as ‘a statement of banker’s terms seeking to be elevated to the dignity of law’, the doctrine propagated by Abs and Shawcross aimed to counteract a surge in the expropriation of foreign investments, which had risen to eighty-three in 1975, compared with just six in 1960. This wave of assaults on the supremacy of Western corporate power culminated in the announcement of the New International Economic Order at the UN in 1974, an agreement made between developing nations which advocated for ‘regulation and supervision of the activities of transnational corporations by taking measures in the interest of the national economies of the countries where such transnational corporations operate on the basis of the full sovereignty of those countries’.

To this day, ISDS settlements have been used to curtail the autonomy of developing countries, undermining their sovereignty to bolster the malign influence of transnational corporations. Perhaps the most illustrative example of the neo-colonial logic of corporate courts is the victory won by oil giant Chevron over the Ecuadorian government in 2018, which followed a complex and protracted legal battle.

In 1993, a lawsuit was issued by an association of small-scale farmers in the Lago Agrio region of Ecuador against Texaco, later purchased by Chevron, which had polluted the Amazon rainforest with billions of gallons of toxic waste since 1972. Despite a 2011 verdict finding Chevron guilty and issuing an initial fine of $18.2 billion (later reduced to $9.5 billion), Chevron challenged and overturned the verdict in an international tribunal, alleging that the judge’s statement had been ghostwritten by former judge Alberto Guerra. It later transpired not only that Guerra had lied about ghostwriting the initial verdict, but that he had accepted a suite of ‘favours’ from Chevron, which had included substantial amounts of money and an offer to relocate his family to the United States.

ISDS settlements, therefore, are used not only to exact debilitating payouts from governments in Global South countries, prolonging fossil fuel investments, but to absolve corporations of responsibility for their actions. During Chevron’s battle against the Ecuadorian people, the company invoked a 1998 bilateral treaty which stated that the company had been freed from all obligations to the Ecuadorian people, which shifted responsibility for environmental repair work to the Ecuadorian government.

Lawyer Pablo Fajardo identified the case as an egregious miscarriage of justice, stating: ‘What is the point of a country’s law if legal decisions can be suspended by decisions of international authorities in processes which the citizens of this country do not have access to?’

ISDS courts are emblematic of the anti-democratic measures employed by fossil capitalism to strengthen heavily polluting industries, even as renewable alternatives decline rapidly in cost compared to coal, oil, and gas. According to the International Institute for Sustainable Development, fossil fuel companies win seventy-two percent of ISDS lawsuits, earning an average of $600 million in compensation. That oil and gas companies are currently seeking to expand ‘carbon bombs’—new fossil fuel projects aiming to take advantage of high prices—illustrates the economic security that ISDS tribunals provide to the world’s dirtiest investments, allowing multinationals to circumvent governmental climate obligations.

International corporate courts have stymied governments’ ability to address the climate crisis, often exacting crippling settlements which force countries to prolong fossil fuel investments. Only a coordinated withdrawal from agreements such as the Energy Charter Treaty will allow sovereign countries to pursue independent policies which outline a substantive path towards decarbonisation.