Why fear of billion-dollar lawsuits stops countries phasing out fossil fuels | Investor-state dispute settlement
IThe Tranvania Mountains, a Canadian company, set plans for the Gold and Gold and Silver. The proposal – which involves stirring Four mountain peaks – It escapes from the national screaming, and the Romanian government withdraws its support.
After protests from local communities, the Italian government prohibits oil drilling 12 miles from the coastal line. The UK fossil fuel company must dismantle its oil field.
Under the gray whales and marine turtles in the Gulf of Mexico, an underwater exploration company gets a permit to explore a huge phosphate deposit. Before you can start, Mexico withdraws the permit, saying that the “natural treasure” ecosystem can be threatened with mining.
Such cases appear to be part of bread and butter of governments – updating environmental laws or responding to voter pressure. But every time, the company filed a lawsuit against the government to obtain profits and often won (Romania prevailed in its case, and Italy and Mexico were forced to pay).
They are among more than 1,400 cases analyzed by the guardian from within the ISDS system, a group of private courts that companies can prosecute countries with billions. There have been long-term concerns about the creation of ISDS “organizational cold”-where governments were afraid of working on the loss of nature and the climate crisis through legal risks. Now, government ministers from a group of countries have confirmed that this “chill is already” valid – and that the fear of ISDS is actively forming environmental laws and regulations.
Quick evidence
What is Isds and how it works?
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What is this?
Investor Dispute settlement (ISDS) has been created to help companies protect investments abroad. Companies are allowed to prosecute countries for missing profits due to governmental procedures, including corruption, asset seizure, or the introduction of health and environmental policies.
The system was It was created in the 1960s By the World Bank. Companies were supposed to give confidence in investing in poor countries that have weak political systems as they may not get a fair hearing in local courts.
How do you work?
The foreign company must provide a case that shows that the state has affected its profits. Most international investment treaties and free trade deals include ISDS conditions. Cases are heard by the Special Arbitration Court, and it is usually decided by a committee of three arbitrators – one chosen by the company, one chosen by the state and the third chosen.
How much is the value of cases?
Prizes regularly reach hundreds of millions of dollars, some in billions. In 2024 it was the average amount granted $ 385 million (304 million pounds). The average amount granted Increasing These batches can form a large part of the annual budgets of poor countries.
Who participates?
Fuel and fossil mining industries are the most severe in the ISDS system, where they represent More than 30 % From well -known cases.
Most claims are submitted by companies in rich countries against the governments of developing countries. Companies registered in the files of developed countries 81 % of ISDS lawsuitsAccording to United Nations data, while developing countries have faced 62 % of cases.
How common?
Isds started as a mysterious legal mechanism, and its average One case per year For her first contract. Now, dozens are brought every year, as the trustee analysis finds more than 900 since 2013.
In April 2018, New Zealand banned new marine oil exploration projects, but did not reach a complete ban or cancel the current concession. James Show, who was the Minister of Climate at the time, said that due to the risk of a lawsuit by foreign oil and gas companies. “When we implemented the ban on exploration of oil and gas abroad, we had to create this incredibly careful to avoid the risk of litigation. He said that the way we did is to leave the permits in place. As a result, New Zealand was unable to be a complete member of Beyond the oil and gas coalition.
Shaw said that the effects of ISDS were discussed on the cabinet table, where the Ministry of Foreign Affairs and Trade has been pushed to environmental policies and “we are repeatedly talking about the risks that we will end in litigation,” although ISDS was rarely martyred clearly.
He said, “We can see what was happening all over the world.” “We followed the number of ISDS cases that were taken and what is the percentage that was mainly hostile to environmental regulation.”
Toby Landau, who has been a leading lawyer for 30 years, said that acting according to the Paris Agreement could lead to “very large demands” for countries. He said: “It is very important because of the state of climate emergency in which we are – we have a necessity under the Paris Agreement to act quickly and decisively.”
The idea that this does not create a chilling effect that is “ancient and inaccurate”. He says: “My impression of working closely with governments is that ISDS is now on their radar, as this is an increasing problem for them to consider it: whether implementing a specific policy may lead to claims.
“We have left two systems of conflict: The Paris Agreement (on a large scale) requires a gradual disposal of fossil fuel, and the ISDS system provides guarantees for investors who protect their investments – even if it is an investment in fossil fuels. This is the conflict – it’s simple.”
“The international arbitration costs a lot of money,” says Manuel Diaz Galis, the prosecutor of Honduras, who fights $ 18 billion (14 billion pounds)-larger than the annual budget in the country. “Thousands of millions of dollars demand compensation is simply absurd,” he says.
Díaz-Galeas adds that the effects of ISDS claims are especially important for countries such as Honduras with high poverty rates and limited budgets.
Rob Davis, who was Minister of Trade and Industry in South Africa, from 2009 to 2019, withdrew the country from a number of treaties with ISDS conditions from 2013 onwards. ISDS has suffered from a “great danger” on government legislation.
He says: “Companies have the right to challenge any policy … that would affect their expectations for profitability in the future, regardless of the list, regardless of their motivation, regardless of its design or anything.” Davis recently believes that fossil fuel companies are using ISDS provisions “to thwart the regulations related to green transition. He says: “It has a chilling effect, especially on developing countries.”
In 2021, and The International Energy Agency issued a report He said 1.5C Path No new oil, gas, or coal requires. However, the issue of organizational cold was recognized by a number of international bodies, including 2022 IPPC report on climate change. The authors wrote: “Many scientists indicated that fossil fuel companies have indicated that ISDS can use them to prevent national legislation that aims to gradually get rid of using their assets.” The United Nations, the Council of Europe and its European Parliament has All similar concerns raised About climate work that is delayed or watered by ISDS.
“There can be astronomical costs associated with these cases,” says Kayla Tinhara, a co -professor at the College of Environmental Studies at Queen University in Canada. Tienhara says countries are afraid to implement environmentally friendly policies because they cannot afford the ISDS cost. “Governments do not have funding to deal with the issue in the first place.”
The Guardian investigation at ISDS reveals $ 84 billion of payments from governments to fossil fuel companies. More than $ 120 billion of public funds have been granted to private investors in all industries since 1976. The average payment to demand fossil fuels was $ 1.2 billion.
Some cases can cost countries a large part of their total annual budget. For example, in 2015 he received Occidental Petroleum A. Pay $ 1.1 billion From the Ecuadorian government. Country The budget amounted to $ 29.8 billion in 2016. Honduras He faces 11 claimsWith a damage Equal 30 % From the country’s gross domestic product.
The problem is increasingly discussed by climate ministers and heads of state. At the Campaign in 2020, the American presidential candidate Joe Biden said ISDS conditions in commercial agreements because they allow “companies to attack high policies, health and environmental”.
Last March, Mary Robinson, former President of Ireland, said There was “an increasing number of claims made by fossil fuel companies against governments that wanted to take measures to address climate emergency,” claiming that fossil fuel companies were seeking financial compensation from the states that decided to address nature and the climate crisis. She said, “I cannot exaggerate the extent of the necessity of this.”
The Danish government has set a final date to stop the exploration of fossil fuels by 2050 instead of 2030 or 2040 because it had to pay “expensive” compensation to companies, bonus Dan Juerginson said.
2023 United Nations Report By David Boyd, the Special Rapporteur of Human Rights and the Environment, Denmark, New Zealand and France found their climatic policies due to the ISDS threat, as the Spanish government said it slowed down its move away from fossil fuels on “fear of being sued by a foreign investor.” The report stated that this threat has become a “major obstacle” for countries that deal with the climate crisis.
Find more Covering the era of extinction hereHe followed the correspondence of biological diversity Vepi Weston and Patrick Greenfield In the Guardian app for more nature coverage.
