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May 12, 2022, 12:34 p.m. EDT

How treaties protecting investors could jeopardize global efforts to save the climate—and cost countries billions

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By Rachel Thrasher, and Blake Alexander Simmons, and Kyla Tienhaara

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Both  Denmark and New Zealand , for example, seem to have designed their fossil-fuel phaseout plans specifically to minimize their exposure to ISDS.  Some  climate policy  experts  have suggested that Denmark may have chosen 2050 as the end date for oil and gas extraction to avoid disputes with existing exploration license holders.

New Zealand banned all new offshore-oil exploration in 2018 but did not cancel any existing contracts. The climate minister acknowledged that a more aggressive plan  “would have run afoul of investor-state settlements.”

  France revised a draft law  banning fossil-fuel extraction by 2040 and allowing the renewal of oil exploitation permits after the  Canadian company Vermilion Energy /zigman2/quotes/200622500/delayed CA:VET +3.37% threatened to launch an ISDS case.

Securing the green-energy transition

While these findings are alarming, countries have options to avoid onerous legal and financial risks.

The Organization for Economic Cooperation and Development is  currently discussing proposals  on the future of investment treaties.

A straightforward approach would be for countries to terminate or withdraw from these treaties. Some officials have  expressed concern  about unforeseen impacts of unilaterally terminating investment treaties, but other countries have already done so,  with few or no real economic consequences .

For more complex trade agreements, countries can negotiate to remove ISDS provisions, as the United States and Canada  did when they replaced  the North American Free Trade Agreement with the United States-Mexico-Canada Agreement.

Additional challenges stem from “sunset clauses” that bind countries for a decade or more after they have withdrawn from some treaties. Such is the case for Italy, which  withdrew from the Energy Charter Treaty  in 2016. It is  currently stuck  in an ongoing ISDS case initiated by the U.K. company Rockhopper /zigman2/quotes/205981415/delayed UK:RKH -3.85% over a ban on coastal oil drilling.

The Energy Charter Treaty, a special investment agreement covering the energy sector, emerged as the greatest single contributor to global ISDS risks in our data set. Many European countries are  currently considering  whether to leave the treaty and how to avoid the same fate as Italy. If all country parties to a treaty can  agree together to withdraw , they could  collectively sidestep  the sunset clause through mutual agreement.

The global transition

Combating climate change is not cheap. Actions  by governments  and the private sector are  both needed  to slow global warming and keep it  from fueling increasingly devastating disasters .

In the end, the question is who will pay—and be paid—in the global energy transition. We believe that, at the very least, it would be counterproductive to divert critical public finance from essential mitigation and adaptation efforts to the pockets of fossil fuel industry investors whose products caused the problem in the first place.

This commentary was originally published by The Conversation — How treaties protecting fossil fuel investors could jeopardize global efforts to save the climate—and cost countries billions

Rachel Thrasher is a law lecturer and researcher at the Boston University Global Development Policy Center, Boston University

Blake Alexander Simmons is a postdoctoral research fellow in the human dimensions of natural resources at Colorado State University

Kyla Tienhaara is a Canada research chair in economy and environment and an assistant professor in the School of Environmental Studies and the Department of Global Development Studies at Queen’s University, Ontario.

/zigman2/quotes/200622500/delayed
CA : Canada: Toronto
$ 30.69
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Volume: 1.43M
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5.51
Dividend Yield
0.78%
Market Cap
$4.90 billion
Rev. per Employee
$3.42M
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/zigman2/quotes/205981415/delayed
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8.75 p
-0.35 -3.85%
Volume: 1.13M
Aug. 9, 2022 4:35p
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£50,837
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