Rising Trend in Investment Arbitrations Threatens to Undermine Critical Climate Measures
As one of the world’s most controversial international investment agreements on energy cooperation is put back under scrutiny this week, new research from the International Institute for Sustainable Development (IISD) highlights what could be at stake for climate action.
Negotiators are gathering virtually from January 18-21 to discuss modernizing the Energy Charter Treaty—an accord developed in the 1990s to enable multilateral cooperation in the energy sector. Given the protection the treaty provides to foreign fossil fuel investments, it is now widely seen as an obstacle to the transition to a low-carbon economy.
IISD’s new report emphasizes what is in the balance in these negotiations. It analyzes the trends in investor–state disputes initiated by investors in the fossil fuel industry. The findings show that the fossil fuel industry uses investor-state arbitration more than any other sector, and that arbitration claims challenging environmental measures are on the rise.
“The fossil fuel industry is behind a fifth of all known investor-state dispute settlement cases,” said Lea Di Salvatore, the report’s author and PhD researcher at the University of Nottingham School of Law. “Most of these cases are decided in favour of investors, and the average amount awarded is almost five times the amount awarded in non-fossil fuel cases. The Energy Charter Treaty helps facilitate this, it is the most employed international investment agreement in fossil fuel arbitrations.”
The recent but growing trend of investment arbitrations initiated by the fossil fuel industry to counteract environmental measures threatens progress made by world leaders to commit to more ambitious climate pledges at the 26th United Nations Climate Change Conference in Glasgow last November.
“We are on the cusp of a new wave of investor-state arbitration that is more and more in conflict with our efforts to protect the environment,” said Nathalie Bernasconi-Osterwalder, Executive Director of IISD Europe and Senior Director of IISD’s Economic Law and Policy Program. “It is threatening to make the implementation of critical climate action crushingly expensive, unless states take prompt action to reform or withdraw from the investment treaties on which these arbitrations are based.”
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About the report
Investor–State Disputes in the Fossil Fuel Industry by Lea Di Salvatore analyzes the trends in investor–state disputes initiated by investors in the fossil fuel industry to understand the extent to which this industry relies on investor-state dispute settlement (ISDS) to protect its investments. It identifies and examines 231 known investment arbitrations related to fossil fuels, which account for 20% of the total known ISDS cases across all sectors. The findings suggest that the fossil fuel industry has been using the ISDS system extensively to protect its investments, with a rising trend in arbitrations to counteract critical environmental measures.
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 120 people, plus over 150 associates and consultants, 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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