Glasgow Climate Pledges at Risk From Investment Disputes
A series of promising new climate pledges aimed at tackling fossil fuel emissions were announced in Glasgow last November. But as governments start taking actions to implement new climate mitigation policies, the looming threat of expensive investment arbitration claims under the Energy Charter Treaty is putting these efforts at risk.
The 26th United Nations Climate Change Conference of the Parties (COP 26) led to commitments to phase out coal, halt new drilling for oil and gas reserves, and reduce global methane emissions. But new analysis from the International Institute for Sustainable Development (IISD) indicates that this progress could be undermined by the Energy Charter Treaty.
While the Energy Charter Treaty was developed in the 1990s to enable multilateral cooperation in the energy sector in the wake of the Cold War, its signatories now recognize it is poorly aligned with their climate ambitions. An emerging body of research, including a recent IISD study, shows that the treaty is being used more and more frequently by fossil fuel investors to mitigate the losses they incur from climate policies. The result? Policies aimed at transitioning to a low-carbon economy are at risk of triggering arbitration claims that cost governments on average over USD 600 million—almost five times the amount awarded in non-fossil fuel cases.
As negotiators reconvene this week to continue discussions on modernizing the treaty with the goal of clinching a deal by June, IISD’s new article highlights just how critical these talks are for the future of the COP 26 pledges. “The Energy Charter Treaty needs a major overhaul to safeguard the progress made at COP 26,” said Lukas Schaugg, co-author of the article and International Law Analyst at IISD. “Unless real changes are made, states need to be ready to withdraw from the treaty entirely.”
Kyla Tienhaara, Canada Research Chair in Economy and Environment at Queen’s University, has researched the conflicts between investment treaties and environmental policies. Her message is clear: “We need to strike down legal barriers to climate action, and the Energy Charter Treaty—as it stands today—is a major one.”
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About the article
How the Energy Charter Treaty Risks Undermining the Outcomes of COP 26 was written by IISD’s Lukas Schaugg, International Law Analyst, and Greg Muttitt, Senior Policy Adviser, Energy Supply. It analyzes the investment arbitration risks posed by the Energy Charter Treaty for the following three climate pledges made during COP 26: commitments to phase out coal, the Beyond Oil and Gas Alliance (BOGA) initiative, and the Global Methane Pledge.
The International Institute for Sustainable Development (IISD) is an award-winning independent think tank working to accelerate solutions for a stable climate, sustainable resource management, and fair economies. Our work inspires better decisions and sparks meaningful action to help people and the planet thrive. We shine a light on what can be achieved when governments, businesses, non-profits, and communities come together. IISD’s staff of more than 250 experts come from across the globe and from many disciplines. With offices in Winnipeg, Geneva, Ottawa, and Toronto, our work affects lives in nearly 100 countries.
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