Yves here. An ugly trade treaty that included corporate-profit guaranteeing “investor-state dispute settlement” mechanisms is again getting the bad press it deserves. We mentioned the 1994 Energy Charter Treaty in our 2013-2015 opposition to the TransPacific Partnership and its Atlantic sister, the TransAtlantic Trade and Investment Partnership because it had become notorious in Europe for undermining clean energy initiatives. From a November 2013 post, quoting Public Citizen:
Vattenfal, a Swedish company, is a serial trade pact litigant against Germany. In 2011, Der Spiegel reported on how it was suing for expected €1 billion plus losses due to Germany’s program to phase out nuclear power:
According to Handelsblatt, Vattenfall has an advantage in seeking compensation because the company has its headquarters abroad. As a Swedish company, Vattenfall can invoke investment rules under the Energy Charter Treaty (ECT), which protect foreign investors in signatory nations from interference in property rights. That includes, according to the treaty’s text, a “fair and equitable treatment” of investors.
The Swedish company has already filed suit once against the German government at the ICSID. In 2009, Vattenfall sued the federal government over stricter environmental regulations on its coal-fired power plant in Hamburg-Moorburg, seeking €1.4 billion plus interest in damages. The parties settled out of court in August 2010.
These treaty terms are designed to erode national sovereignity and establish supra-national mechanisms to make corporate profits senior to national laws. I’m not making that up. Again from that 2013 post:
Word has apparently gotten out even to Congressmen who can normally be lulled to sleep with the invocation of the magic phrase “free trade” that the pending Trans Pacific Partnership is toxic. This proposed deal among 13 Pacific Rim countries (essentially, an “everybody but China” pact), is only peripherally about trade, since trade is already substantially liberalized. Its main aim is to strengthen the rights of intellectual property holders and investors, undermining US sovereignity, allowing drug companies to raise drug prices, interfering with basic operation of the Internet, and gutting labor, banking, and environmental regulations.
Or as Public Citizen put it:
It’s not really about “trade”, but a system of enforceable global governance that is not designed for modification by those who will live the results.
The only good news about the Energy Charter Treaty, compared to its later versions of investor-state dispute settlement provisions, is that signatories can withdraw. And that might actually happen with the Energy Charter Treaty.
By Fabian Flues, an adviser on trade and investment policy at Berlin-based PowerShift, Cecilia Olivet, project coordinator with the Economic Justice Programme at the Transnational Institute, and Pia Eberhardt, a researcher and campaigner with the Brussels-based campaign group Corporate Europe Observatory. Originally published at openDemocracy
On 4 February the German energy giant RWE announced it wassuing the government of the Netherlands. The crime? Proposing to phase out coal from the country’s electricity mix. The company, which is Europe’s biggest emitter of carbon, is demanding €1.4bn in ‘compensation’ from the country for loss of potential earnings, because the Dutch government has banned the burning of coal for electricity from 2030.
If this sounds unreasonable, then you might be surprised to learn that this kind of legal action is perfectly normal – and likely to become far more commonplace in the coming years.
RWE is suing under the Energy Charter Treaty (ECT), a little-known international agreement signed without much public debate in 1994. The treaty binds more than 50 countries, and allows foreign investors in the energy sector to sue governments for decisions that might negatively impact their profits – including climate policies. Governments can be forced to pay huge sums in compensation if they lose an ECT case.
On Tuesday, Investigate Europe revealed that the EU, the UK and Switzerland could be forced to pay more than €345bn in ECT lawsuits over climate action in the coming years. This amount, which is more than twice the EU’s annual budget, represents the total value of the fossil fuel infrastructure that is protected by the ECT, and was calculated using data gathered by Global Energy Monitor and Change of Oil International.
With ECT-covered assets worth €141bn (or more than €2,000 per citizen), the UK – which in 2019 became the first major economy to pass a net zero emissions law – is the country most vulnerable to future claims.
In 2019 the European Commission called the ECT “outdated” and “no longer sustainable”, and more than 450 climate leaders and scientists and 300 lawmakers from across Europe have called on governments to withdraw from the treaty.
But in response, powerful interests have mobilised to not just defend the treaty, but to expand it to new signatory states. These interests include the fossil fuels lobby keen to keep its outsized legal privileges; lawyers who make millions arguing ECT cases; and the Brussels-based ECT Secretariat, which has close ties to both industries and whose survival depends on the treaty’s continuation.
A Bodyguard for Polluters
Supporters of the ECT make a number of controversial claims to prevent countries from leaving the treaty and persuade new countries to join. But their myths and misinformation are easily debunked.
For example, ECT supporters say the treaty attracts foreign investment, including into clean energy. However, there is no clear evidence that ECT-style agreements do this: a recent meta-analysis of 74 studies found that investment agreements’ effect on increasing foreign investment “is so small as to be considered zero”.
And while ECT supporters claim the treaty protects renewable investments, in reality it predominantly protects and prolongs the fossil-fuel dominated status quo. In recent years only 20% of investments protected by the ECT covered clean energy, compared to 56% for coal, oil and gas.
By protecting the status quo, the ECT acts as a bodyguard for polluters. As the RWE example shows, when a government decides to phase out coal or cease oil and gas operations, fossil fuel companies can demand steep compensation via the ECT. So with no public benefits and clear risks for climate action, why are countries hesitant to leave the treaty? Two more myths are preventing them from taking action.
Firstly, ECT proponents claim that an ongoing process to ‘modernise’ the treaty will fix its flaws. But modernisation has proceeded at a snail’s pace since 2017, and is unlikely to succeed given resistance from powerful ECT members like Japan, whose companies have used the ECT to take legal action against other governments. Leakedreports show that the talks are stalled due to the requirement to take decisions unanimously.
No signatory state has proposed removing its dangerous corporate courts, which take the form of arbitration tribunals run by three private lawyers. No state has proposed a clear exemption for climate action. No ECT member wants to exclude protection of fossil fuels from the modernised treaty any time soon.
In short: the negotiations around ECT ‘modernisation’ will not bring the treaty in line with global climate commitments.
Secondly, ECT supporters claim that leaving the treaty offers no protection against costly lawsuits. The ECT’s sunset clause – which allows investors to sue a country for 20 years after its withdrawal from the treaty – makes a unilateral ECT exit useless, it is claimed.
In practice, however, withdrawing from the ECT significantly reduces countries’ risk of being sued and avoids carbon lock-in from new fossil fuel projects. The ECT’s sunset clause only applies to investments made before withdrawal, while those made after are no longer protected.
At a time when the majority of new energy investment is still in fossil fuels, not renewables, this is important. The sooner countries leave, the fewer new dirty investments will fall under the ECT and be ‘locked-in’ by its legal status.
Italy took the necessary step of withdrawing from the ECT in 2016. Going forward, if multiple countries decide to withdraw together – say, the EU bloc, supported by allies such as the UK or Switzerland – they can further weaken the sunset clause. Countries that withdraw could adopt an agreement that excludes claims within their group, before jointly leaving the ECT at the same time. That would make it difficult for investors from those countries to sue others from the group.
This week a European-wide petition has been launched so that citizens can call on their governments to end the ECT madness.
Leaving the outdated, climate-killing ECT is a no-brainer. It is not just good governance, but the logical step for all who take global warming seriously.
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Those “investor-state dispute settlement” mechanisms are nuts and I can see a rush for the door if one or two countries pull out of the Energy Charter Treaty. There has to be a point where they realize that the Energy Charter Treaty is not in fact a suicide pact. Good thing that there is not an equivalent in the medical industry or else healthcare companies would be suing nations for giving their citizens vaccines on the grounds that it is robbing those companies of future income from treating them during the present pandemic.
“not an equivalent in the medical industry or else healthcare companies would be suing nations for giving their citizens vaccines on the grounds that it is robbing those companies of future income from treating them during the present pandemic”
Are you sure?
They have been given a non-liability clause for side-effects. The EU has ordered more vaccine in spite of not knowing if the vaccines will stop the transfer of the disease. If that doesn’t sound like an equivalent, what does?
No. that’s quite different. The governments under an ISDS type of regime would be required to buy or to compensate for non-purchases.
Here, they are competing with each other to try to get supplies. The liability waivers are in a completely different economic category and result from governments being so eager to get the vaccines that they were released without going through the normal approval process (and the drug companies as a result having an upper hand in bargaining).
It was the governments themselves who enjoined the pharma companies to rush vaccine development and who then also rushed the approval process. Thus in this case (and only in this case) I think that a waiver of liability (maybe with some residual liability for gross negligence) is entirely appropriate.
I believe the EU contracts kept at least some liabilities, which was one of the reasons why it took so long to get it.
Good for the EU not being as supine as the US.
well, we’ll see how it works out.
Israel, to get things quickly, paid a lot, waives liability, and also commited in giving back the vaccination data. It got the most vaccines.
But I agree that the states behaved suppine (it’s amusing how the UK screams sovreignty over any EU deal while happily ceding it to corporates), especially since pretty much all the sovreigns where the vaccine is manufactured could have user war-time like powers to basically take it from the companies – including the patents.
According to a recent Swedish Radio podcast (sorry, it’s in Swedish!) the EU was slow for a few reasons. It was late before they transitioned from negotiating purchases on a national basis to an EU-wide basis, they wouldn’t grant blanket liability to the companies for vaccine complications, and they wouldn’t do the same patient data sharing that other countries had agreed to (I don’t have details on the last point).
Good for the Donald for pulling out of TPP as about his earliest action. Surprised that there wasn’t more push-back.
But the establishment in the USA still longs for the TPP.
Here is the former UN weapons inspector, Scott Ritter
,”The TPP was seen by the Obama administration as a perfect vehicle for containing Chinese economic influence in the region. It would allow the US to dictate the rules relating to international commerce while reducing the dependence of the other signatories (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam) on China. This in turn would draw these nations closer to the US.”
So the TPP was not about free trade, it was about containing economic influence.
It is interesting that Scott Ritter, who watched as his Iraq inspection data was ignored and the USA attempted to dictate the rules in the Middle East, is so willing to have the USA dictate the rules in international commerce.
https://thealtworld.com/scott_ritter/chinas-new-pacific-trade-deal
Ritter has no mention of the ISDS provisions of the TPP.
I am very conflicted on this. The US may have been supine, but now the US has lots of vaccines and we do not.
Sterilizing immunity against viral infection was not the primary target for the vaccine efficacy trials, protection against symptomatic disease was. As far as I can tell, everyone is operating under the assumption that if you’re protected against disease then you are likely to shed less virus which should have an impact on transmission, but the first numbers on that are only now starting to come out from places like Israel with high vaccination rates.
Setting the bar at “sterilizing immunity” is unreasonable unless vaccination has little to no impact on transmission which seems unlikely.
Israeli now say that they data suggest the P/B vaccine has some sterlising effects.
Yes there is some reduction in virus quantity (observed as higher Cycle Threshold values) but my understanding, speaking as an unqualified oaf here, is that it’s a bit of a tricky observable to work with because CT values naturally vary a bit depending on reagents and the vendor for the machines, so unless the differences are big it might be tough to say anything with confidence.
The ECT mechanism is a reasonable response to a question: “If a company in good faith follows a nation’s laws and invests money in a long-term, legal project, who should pay for the stranded costs if the nation decides to change the law to make the project illegal?” This is about who should pay for stranded assets.
Legislators naturally are looking for someone else to pick up the bill and the “someone else” is often a foreign company because domestic companies have to much political power to be messed with and the company shareholders are often local people.
The Canadian gas pipeline to the US gulf coast is an example. More than two billion dollars were invested, the proper permits were gotten and the pipeline was built- all except a five mile stretch now held up in the usual creative American litigation machine. So who should pay for the two billion invested- half of which came from the Alberta provincial government? Alberta has already filed the arbitration claim and I support their position; if a country encourages a legal investment and then changes the rules the country can do it- but the country should pay for the loss.
When American assets are confiscated overseas using the same sort of creative legal reasoning the US investors are rightly up in arms. I’m specifically not including the all-to-common cases of fraud and political payoffs by foreign investors. In the cases Yves cites there are no allegations that the contracts were tainted by fraud.
A well known modern historian has pointed out that if the American abolitionists wanted to end slavery they should have campaigned to do what the British did- buy all the slaves, set them free and compensate the owners for the “taking” of the property. In the 1830s the British spent the money and freed the slaves. In the U.S., on the other hand we had a civil war, more than half a million young men killed- and the cost of the war was five times what it would have cost to purchase and free all the slaves. I use this example because there were clearly both moral and economic issues involved in slavery, just as there are in the fight to limit air pollution and stop climate change.
Not only is there no free lunch, but there is always a fight about who should pay for the lunch.
“A well known modern historian has pointed out that if the American abolitionists wanted to end slavery they should have campaigned to do what the British did- buy all the slaves, set them free and compensate the owners for the “taking” of the property.”
Riiight.?
For example (from the above):
“In the mere financial, or pecuniary view, any member of Congress, with the census-tables and Treasury-reports before him, can readily see for himself how very soon the current expenditures of this war would purchase, at fair valuation, all the slaves in any named State. Such a proposition, on the part of the general government, sets up no claim of a right, by federal authority, to interfere with slavery within state limits, referring, as it does, the absolute control of the subject, in each case, to the state and it’s people, immediately interested. It is proposed as a matter of perfectly free choice with them.”
Lincoln made this offer, a number of times. It was turned down, repeatedly, both by secessionist states as well as remaining Union-slave states.
I can see why the historian is “well known”.
While my other comments is in moderation, you’re saying that a company should be able to sue the government for costs if laws change because?
Sorry. It’s a risk a company takes. It’s a well known fact that legal environment changes (which is why companies lobby).
It’s a risk _everyone_ in a given jurisdiction takes, why should companies be entitled to being treated specially? As a citizen, if my old car doesn’t meet the emission hurdle at the next technical, I get no compensation, even if the hurdle changes from year to year. No-one’s gonna ask me what I paid for it, or that I had a bad luck buying it a week before the change was announced.
I could see how a government could offer it in a negotiation, if it just went through a turbulent period and wanted to offer an incentive to incoming investemnet.
Why would a normal, (theoretically) stable government offer anyone anything like that?
I’d like to see the UK being taken to an arbitration court by some multinationals over Brexit, which very visibly hurt their investments in the UK. It would be very much fun to watch..
It’s a risk _everyone_ in a given jurisdiction takes, why should companies be entitled to being treated specially?
Who says there’s no free lunch?
And more directly from Dave from Austins comment above…
Alberta has already filed the arbitration claim
It appears that alberta has a remedy available and ISDS is just a jurisdiction exchange where corporations can wash each others hands…
Capitalism in it’s first iteration “produce goods people want and make money”
second iteration pay for goods with excess funds (hm. where do those dollars come from anyway?) at below cost to destroy competition/undermine society (uber, amazon, facebook, google) while preparing to raise costs after the competition is killed off (public transport, USPS, and etc…)
Third iteration “Have states pay corps to not do the destructive things that they will otherwise do without the payoff”
Changes the dynamic from “do things people like and get money” to “threaten people with things they don’t like unless they pay you to not do it.”
To your point, there were similar complaints when our city cracked down on illegal Airbnb properties. People claimed that they wouldn’t be able to afford their mortgages if they could no longer charge the higher illegal hotel rates. Those people learned a valuable lesson that Silicon Valley does not (yet, at least) set the laws and ordinances in this country. Some of them had to then sell the properties for mere tens of thousands of dollars of short term profit. The horror….
Alberta went ahead with its foreign investment in the face of continued and sometimes violent opposition to this investment on foreign soil. There should be no presumption here of fair sailing. Alberta and its cohort launched this project amidst fierce resistance. In fact, it may well be that the project sponsors saw ISDS as guaranteed back-up to any failure in securing their big payday. ISDS…just another acronym for no-risk investing.
This sets the stage to rethink contracts of all kinds. If the Energy Charter Treaty (basically contracts to protect vested interests for profits and against liabilities) is breached by a country simply leaving the organization it makes all those contracts… worthless. And it explains why the TPP and the TAP don’t have a get-out clause. I think the question of stranded assets is being mishandled too. Especially because we will need fossil fuel for many decades to come. At this point it is a question of what do we sacrifice to protect the atmosphere? It looks like gasoline-cars and maybe home heating fuel. But not electricity. RWE AG is a huge generator and provider of electricity. Asia Pacific as well as the EU. So taking Texas as a good example, what happens to RWE if they are faced with any number of problems and need to generate electricity fast? Their best backup is oil and natural gas. And it’s gotta be a no-brainer that they are seriously involved with Nordstream-2, and something similar in eastern Siberia (?), to supply fuel and back-up fuel for their operations. ECT is an old agreement. TPP is a newer one. Neither one of them are looking at the downside to the environment. So they should both be rethought and re-construed. Because, for more accurate consideration, fossil fuels are not so much a stranded asset as an asset that must be carefully conserved to last us through a long transition period.
Given that industries spend as much effort lobbying for the environmental disasters our leaders (they paid to get elected) approve I don’t think they deserve to earn back the expense of their investments, let alone the theoretical profit that that stupid, immoral investment could have generated
I think this sort of situation shows how important it is for governments to be the investors/owners of critical infrastructure instead of capitalists (paid for by asset taxes, transaction taxes and MMT).
At this point I can think of no wealthy person who’s fortune is not built on the misery of our grandchildren (Oh no! It’s us, now, not our grandkids at the edge of the abyss) and we need a massive asset tax on top of huge lifestyle changes. An asset free, radically different life is coming soon for us all whether we choose it or not and putting the decision off is only making the looming reality worse..
Remember that the Military is actually one of the largest sources of overall pollution n environmental degradation. Until this is publicized n dealt with,preferably by defunding, I dont think we will ever see a major decrease in pollution,especially toxic pollution.
This is what is known as regulatory risk. Businesses of all types takes these risks all the time. It should be considered a cost of doing business.
In my opinion, our physical survival requires aligning what is profitable and what is just as rapidly as possible. The health of a society always has and always will be determined by how much its citizens act based not simply “what is legal?” but instead “what is moral?”
While there will always be disagreement on the specifics of what is moral, in the case of the tar sands it is quite clear. Their negative impacts are not merely due to the CO2 released, but the incredible amounts of water they consume, the desecration of land they require, the dangers of transportation and the toxic sludge they leave behind. The tar sands are on par with mountaintop mining when it comes to their full impact, and any business calculation which doesn’t take this into account is pure stupidity.
Similarly, the vast majority of countries appropriating foreign assets do so because those assets were obtained through a combination of colonialism and graft. That, combined with their environmental impacts, have subjugated their people for decades – what right do these foreign companies have to cry foul? They should be ashamed they are still benefiting from such crimes.
As MLK wrote from jail (to excoriate liberals for their fixation on legality):
These instances you bring up are the epitome of actions which degrade human personality, as well as the natural environment upon which we all are dependent.
This is how the Free Market System is supposed to work. Instead we have the Corporatocracy version where when the huge company makes a blunber in the market its Free because the tax payers pay for it.
The example of countries “investing” is not comparable imo. A more accurate example would be my investment in a home. After 20 years it has failed completely to even return my original investment,causing me to lose the profits any long term investment “should” create due to my government changing its policies. I would love to sue for those “missing” profits but People aren’t accorded the same ridiculous level of legal rights as Corporations. Imagine if 3 homeowners sat on my tribunal-lol.
So why can’t the investors be sued for the colateral damages – if they want to be compensated for one side of their product – why not the other. I suppose the private prison complex should sue should legislatures decide that private companies should not be in the business of locking up the public.
Or maybe the military industrial complex should sue countries who decide to stop producing nuclear weapons or sign into a peace deal and prohibit the production and importation of weapons designed for killing humans and mass destruction devices of any sort.
Show me where any investments without the taint of fraud and political payoffs.
I thought all investements are at risk … so why should a guarantee be handed to public private investors…what could go wrong… investors and private corps would never game that system..lol.
“More than two billion dollars were invested, the proper permits were gotten and the pipeline was built- all except a five mile stretch now held up in the usual creative American litigation machine. So who should pay for the two billion invested”? My answer – the two billion is already invested and paid for – it’s just that no return is coming – to bad.. that is the same guarantee that every investment house gives to it’s clients – none.
Personally, I think that everyone who were invested in fraudulent new fangled financial instruments like we saw in the lead into the 2008 crisis should not have been bailed by the people and should have been jailed for the toxic product – Maybe toxic securities are less damaging than toxic energy products
So Dave, I see your side – can’t blame you as it seems their is no safe investement. And just because we elect people to legislate – does not mean they will create good laws or are even interested in their campaign promises – one might even say that a majority are paid representatives of vested interests and big money who will create laws and issue permits in the interest of special interests who care not a whit about anything but the bottom line
Well said!
I side with the business runs legitimate risk side of this debate. It is there in the ordinary gambling of the real estate industry over time. One buys ahead of the land development curve, well ahead if one wants the largest gains – like George Washington speculating in Western Lands…but then a change of government steers the infrastructure in another direction. Tough luck. In the cases at hand, it is closer to the discovery of toxicity in tobacco products: general societal, all nation toxicity in the pollution/destruction of climate…information which serious legal cases say the major oil companies, and you know who, knew long ago and turned their back on their own scientists findings. Compensation to property owners for slavery? If that by Britain, how about unpaid wages to the freed slaves…oh well…as Thomas Piketty points out in his magisterial (a little editorializing here) “Capital and Ideology,” ponder the absurdity of France forcing newly freed Haiti to pay French slave holders as compensation…that’s what he means by the “sacralization” of private property, which he believes in, but not an “absolute.” That burden on Haiti, enforced by the threat of bombardment by the French navy, lasted into the 20th century, which no one should leave out of the history of that tragic country’s “trail of troubles.”
It is also a very relevant topic for American “land use” as linked to the “Takings Clause” in the Fifth amendment. It came up time and time again in New Jersey over the Pinelands Protection Act, Wetlands, Highlands…at one time in American jurisprudence, before the Reagan “Revolution/Neoliberalism” one had to prove a near total financial wipe-out, no viable use for property which was subject to land-use restrictions, usually in the form of government reducing the number of units which could be built. But there were always other uses, such a the desirability of neighbors buying “vacant” (Nature!) land to buffer or increase their privacy.
We greens argued in NJ that real estate investing carried risks like stock market investing, and one of them was governmental action in the public good, which takings jurisprudence said included valid, science supported findings: such as not to build in steep, wet terrain like the NJ Highland (a potential heaven for 5-15 acre mini-estates) because the water bodies which supply drinking water to millions couldn’t be protected.