Energy Charter Treaty Allows Oil Companies To Sue Nations, But Not The Other Way Around

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There is only one way to prevent the Earth from becoming too hot for humans — leave all existing oil, gas, and coal deposits in the ground. If not, irreversible damage to the Earth’s environment will result and the human species will disappear the way the dinosaurs did millions of years ago. There will always be life on Earth, but it won’t include humans much longer, given the way things are going.

The CleanTechnica community is well versed on this topic. We have exhaustively covered Greta Thunberg, IPCC 6, and the Extinction Rebellion. But what we have not covered until know is something called the Energy Charter Treaty, an international agreement that allows energy and mineral companies to sue the 57 signatory nations for damages if those countries in any way inhibit, restrict, diminish, or otherwise interfere with the companies’ ability to continue extracting natural resources. Conversely, those nations are barred from pressing any claim for damages against the companies.

This all came to light because of a recent column by Guardian columnist George Monbiot, who is one of the most outspoken and proactive journalists writing today. He is my muse. When I am conflicted about a story I am writing, I ask myself “What would George do?#8221; and let the answer be my guide. As Guardian contributor Nicolás Perrone explained earlier this year:

“In the late 1950s, Shell and other oil firms were concerned about maintaining control of the global south’s natural resources. Decolonization was a risk to their business model. They were also worried that governments…..were taking a more active role in the economy. The lawyers of oil firms and international bankers joined forces to imagine a legal regime that would protect their oil and mineral businesses from state intervention. This regime would consist of a structure of international treaties and international arbitration known as investor-state dispute settlement, or ISDS. Although the wording of these treaties remained vague, their expectation was that international arbitration would serve to develop the proper legal rules to promote and protect foreign investment.

“The two masterminds of this project were Hermann Abs and Hartley Shawcross. Abs was a famous German banker who was also a director of several corporations, including Deutsche Shell. Shawcross, a renowned English politician, was the chief counsel of Royal Dutch Shell. Together the two gathered the support of fellow foreign investors to form the International Association for the Promotion and Protection of Private Foreign Investments. The members of its directing committee included V Cavendish-Bentinck , a director of Rio Tinto); Arthur Dean, chief counsel to Standard Oil of New Jersey; Michael H Haider, chairman of Standard Oil of New Jersey; and Victor de Metz, president of Compagnie Française des Pétroles, now known as Total.

“Shell lawyers were particularly active in the project. GW Haight, counsel for Shell in the United States, was involved in promoting commercial arbitration and creating the International Centre for Settlement of Investment Disputes (ICSID). John Blair, another adviser of Shell, also worked closely in the creation of ICSID. Blair later directed the team that drafted the 1972 Guidelines for International Investment at the International Chamber of Commerce. These guidelines reflect current international law in this field — strong obligations for states, vague standards and non-binding principles for corporations. Unsurprisingly, an observer reported that technical discussions in those years were being “overcome by the fumes of petrol”.

“These efforts were not in vain. ISDS took some time to take off, but countries signed investment treaties en masse in the late 1980s and 1990s. The Energy Charter Treaty was signed in 1994. This is a plurilateral investment treaty that deals solely with foreign investment in the energy sector.

“Thanks to this network of treaties, foreign investors can bring ISDS cases against states without exhausting local remedies — a privilege exclusive to foreign investors. Further, international arbitrators protect foreign investors’ expectations, but not the expectations of states or local communities. This legal regime also allows oil companies to strike back after local courts find them responsible for environmental degradation, like Chevron did in the Lago Agrio (Ecuador) case. A few weeks ago, Shell did the same thing. It launched an ISDS case against Nigeria after a domestic court ordered the multinational giant to compensate the Ejama-Ebubu community.

“ISDS has served firms in the extractive sector, including oil firms, to maintain and expand their rights over natural resources worldwide. It can help them likewise to fight the phasing-out of fossil fuels. They can bring ISDS cases for the breach of their legitimate expectations and, if they prevail, would probably receive compensation far above what a domestic court would order. Producers of nuclear and coal energy have already filed arbitration cases against Germany, Canada and the Netherlands for the phasing-out of their licences. New ISDS cases only depend on the will of corporations, lawyers’ creativity and, of course, the existence of investment treaties and ISDS.”

20-Year Sunset Clause

Well, if that doesn’t scare the bejeus out of you, I don’t know what will. Like any treaty, nations may withdraw at any time, however, the Energy Charter Treaty has a 20-year sunset clause.That means a company can sue up to 2 decades later for any harm it claims was done to it before the country withdrew.

According to The Guardian, Rockhopper Exploration, a UK company, bought a license to drill for oil off Italy’s Adriatic coast in 2014. Two years later, the Italian government imposed a ban on oil and gas projects within 12 nautical miles of the Italian coast. Rockhopper has filed suit against Italy using the ISDS process claiming damages of $275 million — the profit it says it could have made from the project. The German energy company RWE is suing the Netherlands for $1.6 billion because of its plans to phase out coal.

Mining companies Anglo American and Glencore are suing Colombia because in 2017 the government banned an open pit mining project that would have a detrimental impact on the environment. Ascent Resources is suing Slovenia because that country’s environment agency asked it to carry out an environmental assessment before beginning a fracking project which opponents say could pollute critical water sources nearby. Ascent claims six of Slovenia’s government ministries and conservation organizations concluded that an EIA was not required so the request was “manifestly arbitrary and unreasonable.”

ISDS claims are particularly powerful because a state’s assets abroad can be seized in order to pay any damages awarded. Scottish oil and gas company Cairn Energy is attempting to seize the planes of state-owned Air India after India was ordered to pay the company $1.2 billion in damages in an ISDS case. With that kind of money on the table, it is little wonder that international law firms have entire departments devoted to pursuing such claims.

The Impact On Climate Action

The threat of ISDS litigation is a primary reason why governments are reluctant to impose aggressive restrictions on fossil fuel companies. Ruth Bergan, senior adviser at the campaign group Trade Justice Movement, tells The Guardian, “People are watching these cases and there is evidence that they look at what is happening elsewhere and it puts the brakes on their own policies. It also just adds a huge price tag to climate action and we can’t afford it.”

The UK has not been on the receiving end of any ISDS claims yet, but an analysis by Investigate Europe shows that with more than $150 billion worth of fossil fuel infrastructure owned by foreign companies, making it far more vulnerable than any European country.

Lawyers confirm that governments are acutely aware of the threat of litigation when developing policy. Toby Landau, a top litigator in ISDS cases, said in an interview with the London School of Economics, “As a practitioner, I can tell you that there are states who are now seeking advice from counsel in advance of promulgating particular policies in order to know whether or not there is a risk of an investor-state claim.”

Proponents say that by protecting companies from unfair treatment by governments, ISDS encourages foreign investment. Guillaume Croisant, managing associate at Linklaters, a law firm active in ISDS cases says, “For many companies, what is important is the deterrent effect of those protections.”

So if you ever wonder why action on global heating is moving so slowly, one important factor is legal restrictions set in place almost 70 years ago that metastasized during the globalism feeding frenzy of the 80s and 90s into a “heads we win, tails you lose” monster that makes hostages of national governments.

Under international law, treaties are sacrosanct. One could argue that a local law is unfair and you might win, but challenge a treaty? Never. No way. Unh unh. Back in the late Pleistocene era when I was a young law student, there used to be a “public policy” notion that would protect people from stupid, ignorant, or rapacious legal contracts. It was an offshoot of the equity side of American jurisprudence that came to the colonies with English common law.

In a nutshell, English courts were once so imbued with arcane legal precepts that while the law might be served, justice seldom was. A system of ecclesiastical courts grew up to counterbalance the hidebound strictures of the law courts. Those courts were more concerned with justice than statutes and those notions are enshrined in American jurisprudence today under the general heading of “equity.”

One of the overarching principles in equity is the doctrine of “clean hands.” Courts are fond of saying “If you seek equity, you must first do equity.” What that means is, don’t come sucking around looking for equitable relief from a court if you yourself are guilty of bad faith. A first year law student could construct a defense to ISDS proceedings based on the premise that fossil fuel companies do not have “clean hands” when they come before tribunals seeking relief. A judge steeped in the traditions of equity would send those claimants packing.

The suitability of the Earth for continued human habitation is simply too important to allow greed and rapacious practices to prevail over common sense and the greater good. It would take a courageous court to throw these fossil fuel charlatans out of court but, at some point, that’s what will be necessary to break the death grip these companies have on civilization.

George Monbiot Speaks

“The human tragedy is that there is no connection between what we know and what we do. Almost everyone is now at least vaguely aware that we face the greatest catastrophe our species has ever confronted. Yet scarcely anyone alters their behavior in response — above all, their driving, flying and consumption of meat and dairy. During the most serious of all crises, the UK elected the least serious of all governments,” Monbiot says. He points out the current UK government has allocated £145 million for environmental measures, but £40 billion for policies that will increase carbon emissions.

He lambastes the Johnson government for approving new oil field development in the North Sea and the Biden administration for approving 2000 new drilling leases on federal land and begging Saudi Arabia to increase oil production.

“Unless we leave fossil fuels in the ground, any commitment to stop climate breakdown is merely gestural. The atmosphere does not respond to gestures. It is unmoved by promises, unimpressed by words. It has no factions that can be set against each other, no voters who can be fobbed off and distracted,” Monbiot writes.

“The global emergency requires a new politics, but it is nowhere in sight. Governments still fear lobby groups more than they fear the collapse of our living systems. For tiny and temporary political gains, they commit us to vast and irreversible consequences. No government, even the most progressive, is yet prepared to contemplate the transformation we need — a global program that places the survival of humanity and the rest of life on Earth above all other issues. We need not just new policy, but a new ethics. We need to close the gap between knowing and doing. But this conversation has scarcely begun.”

What Can Be Done?

Monbiot’s writing is far from hopeful, but it does recognize the reality. Humans are far more concerned about greed and power than keeping the world from overheating. Governments are feckless and hamstrung by ridiculous legal strictures that hobble even the most feeble efforts to address the problem.

But there is a way to stop the fossil fuel companies in their tracks. Eliminate demand. Foreign corporations may be able to sue governments for interfering with their business model, but they can’t sue you and me for buying an electric car or for choosing to eat less beef or for installing solar panels on our roof. They can’t sue utility companies for building solar and wind farms or internet companies for using only renewable energy to power their servers.

It’s simple, really. All economics comes down to supply and demand. Eliminate the demand and the supply becomes a stranded asset. Our governments cannot or will not do it for us so we have to do it ourselves. We have the power. All we need to do is use it while there is still time.