That’s more than the $321bn of public money for climate finance in 2020.

“It means that money countries might otherwise spend to build a low-carbon future could instead go to the very industries that have knowingly been fuelling climate change, severely jeopardising countries’ capacity to propel the green energy transition forward,” wrote the authors.

Countries have signed thousands of treaties that protect foreign investors from government action.

These treaties allow investors to sue governments for compensation when contracts have been interrupted, drilling permits refused or policies affecting their operations are introduced. They are known as investor-state dispute settlements (ISDS).

The study warns that these treaties create “a chilling effect” on governments, deterring them from implementing ambitious climate policies.

This “could lock countries into high carbon growth trajectories” and “choke the climate transition,” co-author Kevin Gallagher, professor of global development policy at Boston University, told Climate Home.

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In a major report last month, the Intergovernmental Panel on Climate Change warned that the ISDS mechanism risked delaying the energy transition.

By the end of 2021, there have been at least 231 cases of fossil fuel investors suing a government. Of the 171 that were concluded, a third were ruled in favour of the fossil fuel company and another third were settled.

The latest is that of UK-based company Ascent Resources, which filed a case against the Slovenian government on Thursday for implementing a ban on fracking. The company is already seeking €100m ($106m) in damages after the government demanded it complete an environmental impact study before fracking near a water source.

Another British firm, oil exploration company Rockhopper, is seeking compensation from the Italian government over a ban on coastal oil drilling. In the US, TC Energy, a Canadian company, is seeking $15bn over US president Joe Biden’s cancellation of the Keystone XL Pipeline.

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Developing countries, which require most support to transition away from a fossil-fuel dependent economy, are among those facing the greatest potential losses under the dispute system.

Mozambique, which gave the green light to a huge gas development project, tops the list, risking $7-31bn in compensation costs should it change course, according to the study. It is followed by Guyana, home to one of the largest oil discovering in recent years, where $4-21bn is at stake. They are followed by Venezuela and Russia.

A total of 33 governments are vulnerable to claims if they cancel oil and gas projects that are further along in development but not yet producing. Kazakhstan could lose $6-$18bn and Indonesia $3-$4bn.

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This is the first peer-reviewed study to estimate the potential costs of investments covered by an ISDS mechanism but it only provides a partial picture.

It is limited to upstream oil and gas projects in pre-production phases. It doesn’t cover coal, operating oil and gas projects, fuel transport infrastructure such as pipelines and LNG terminals, or investments related to projects that cause tropical deforestation – the third largest source of global emissions.

Companies often use complex subsidiary structures to hide the real owner of a firm, which means the estimate of oil and gas production projects that are covered by ISDS are likely underestimated.

In 2020, a study looking solely at the Energy Charter Treaty – the greatest contributor to potential claims – found that member countries faced up to €1.3 trillion ($1.4trn) by 2050 of compensation claims by fossil fuel investors.

The author, Yamina Saheb, used to head the Energy Charter Treaty’s energy efficiency unit and is now one of its most vocal critics.

“It’s a disaster for climate action,” said Saheb, an analyst with thinktank OpenExp. She described the continuation of ISDS mechanisms as “ecocide” and a “neocolonial way to keep control on developing countries”.

Saheb explained that power purchase agreements, which were promoted by the World Bank and other international institutions to provide long-term electricity contracts for developing countries, have locked nations into contracts with investors protected by ISDS mechanisms.

“If the UN secretary general [António Guterres] wants to practice what he preaches, he needs to call for an emergency meeting to cancel all ISDS treaties,” said Saheb. The world’s ability to meet the Paris Agreement goals depend on it, she added.

The post Governments risk $340bn in legal claims for limiting oil and gas projects, study finds appeared first on Climate Home News.

In the past year, fossil fuel companies have used the Energy Charter Treaty to sue the Slovenian government over environmental protections and challenge the Dutch government‘s coal phaseout plan.

Similar cases could cost taxpayers across the world up to €1.3 trillion ($1.5tn) by 2050, according to the Open Exp think tank, based on the value of coal, oil and gas assets protected by the treaty.

Around 42% of these costs would fall on the EU. The bloc is pushing for amendments of the treaty to support climate goals, including replacing the investor state dispute settlement (ISDS) model with something more transparent.

But at “modernisation” talks between the 53 signatories of the pact last week, Japan and central Asian countries refused to entertain fundamental changes to the ISDS system.

Japan blocks green reform of major energy investment treaty

In its statement on the talks, the ECT secretariat said: “No consensus was reached on a request by one delegation to discuss a broader reform of ISDS beyond the list of topics for modernisation.”

Investment law expert at the Columbia Center on Sustainable Investment Lise Johnson told Climate Home News the talks were “a missed opportunity” and “risk locking in the same unsustainable status quo”.

Harro van Asselt, climate law professor at the University of Eastern Finland, said replacing the ISDS is just one of several possible ways of ‘greening’ the ECT. “Such proposals could still be pursued under the current list of topics for modernisation. However, the unwillingness by some parties to even discuss these issues does not bode well for reform efforts,” he concluded.

Proposals still on the table include measures to deter frivolous claims and regulate the role of “no win, no fee” litigation finance companies.

Kyla Tienharaa, assistant professor of environmental studies at Canada’s Queen’s University said if fully pursued, these changes might help prevent lawsuits by fossil fuel companies bankrupted in the transition to clean energy. But negotiators were merely “tinkering” and “ultimately, in my view, termination [of the treaty] is the way to go”.

Friends of the Earth campaigner Paul de Clerk said the decision not to discuss broader reform, shows “the ECT will continue to promote an ISDS model that was declared unacceptable by the EU and its member states a couple of years ago. Therefore, it is time to leave the ECT.”

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Several European politicians have said the EU should consider pulling out of the treaty if it doesn’t achieve meaningful reform. Italy and Russia left the ECT after legal action was brought against them, although a ‘sunset clause’ means the treaty’s provisions apply for 20 years after the exit date.

The head of the ECT secretariat, Urban Rusnák, has said that if modernisation talks fail, there is no future for the treaty. But he insisted it could be a positive force for climate protection in a June interview with Borderlex.

“Apart from the Yukos case, damages awarded under arbitration cases up to now are twice as high in the renewable energy sector as in fossil fuels. Yet somehow the NGOs fail to mention this,” he told Borderlex.

The treaty’s disintegration “would seriously hamper the ability of the world to meet the Paris climate targets,” Rusnák said. Unlike Paris, the ECT protects investments, he said, and so the two are complementary.

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In response to this point, Johnson said that renewable subsidies were important but “it is dangerous if we use the treaty to lock in unsustainable incentive schemes”. She said governments needed the ability to review and withdraw subsidies if they were not catalysing investment or were an “excessive” use of taxpayers’ money.

These talks were the second of three ‘clarification rounds’ this year, meaning that no substantive decisions were expected. There will be a further clarification round in November before a progress report is submitted to the ECT’s December conference and then negotiations will continue throughout 2021.

The post Energy companies keep right to sue states in private courts, as treaty reforms blocked appeared first on Climate Home News.

While the European Union is pushing for updates of the Energy Charter Treaty (ECT) to make it more climate-friendly, Japan has resisted any changes.

Ahead of a second round of negotiations on modernising the pact this week, Luxembourg’s energy minister Claude Turmes said in a webinar the EU might quit the treaty if there was no progress.

“I would not rule out that if nothing moves, if there is not sufficient movement, then you would have no other option than to collectively step out. That was also a discussion raised by France, although I can’t confirm the French government’s commitment,” he said.

Marjolaine Meynier-Millefert, a French lawmaker from president Emmanuel Macron’s party, said reform was preferable to ditching the treaty, but “if we are forced to do so then there would be no other option than to do so”.

On Tuesday, 139 lawmakers in the European Parliament issued a statement warning the treaty “is threatening the climate ambition of the EU domestically and internationally”. They said the EU should withdraw unless it can achieve a rewrite of the pact to scrap protections for fossil fuel investors.

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The ECT is a pact signed in the 1990s to boost investment flows between western and post-Soviet countries. Provisions to deter states from grabbing private assets have been retooled by energy companies to fight climate policies.

Last year, German utility Uniper threatened to sue the Dutch government under the treaty, because a national plan to phase out coal burning would force the early closure of Uniper’s power station near Rotterdam.

The European Union has proposed amendments that reinforce governments’ “right to regulate” on issues like public health and the environment. But any changes must be passed unanimously and so can be blocked by any of the ECT’s 53 signatories.

A written submission from Japan published by the ECT secretariat in October 2019, before modernisation talks began, asserts 26 times: “Japan believes that it is not necessary to amend the current ECT provisions”.

Among the proposals rejected by Japan are language on the “right to regulate” and changes to the investor-state dispute resolution (ISDS) mechanism.

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Leaked ECT notes seen by Climate Home News show that, ahead of the first round of negotiations in July 2020, Japan expressed “great concerns” about an EU plan for a multilateral investment court to replace the ISDS.

Japan was supported in this by Kazakhstan. In the notes, both nations said “modernisation should be minimal”.

According to Yamina Saheb, a former head of the ECT energy efficiency unit and observer of the negotiations, the 12-strong Japanese delegation in July made no proposals to change the text and called for 2020 discussions to be limited to clarifying national positions.

Japan’s position as the largest single donor to the ECT and the vice chair of the modernisation negotiations means it is influential.

Pia Eberhardt, a researcher at Corporate Europe Observatory, told CHN Japan’s opposition means “it’s very unlikely that we will see any of the changes which we would need to see to make this agreement compatible with climate action”.

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Japan’s reluctance to change the ISDS mechanism reflects the fact that, unlike many European countries, it has never been sued by foreign investors.

On the other hand, Japanese companies have used the ECT to take legal action against governments. So far, these have only been renewables companies angry at a decision by Spain’s previous government to cut subsidies and increase taxes – but fossil fuel companies could use the treaty in a similar way.

Japan is the only G7 country still building coal-fired power plants, both in Japan and overseas. According to Mission 2020, Japanese public finance is behind 24.7 GW of coal power in other countries. That is larger than Australia’s entire coal fleet.

These coal power plants are in India, Indonesia, Vietnam, Bangladesh, Chile and Morocco. None of these countries are signatories to the ECT but several are either in the process of acceding or are observers.

And in 2016, the Japanese government changed the law to allow its state-run JOGMEC agency to buy foreign energy assets.

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Italy and Russia have left the ECT, although a ‘sunset clause’ means the treaty’s provisions apply for 20 years after they leave.

Russia withdrew from the treaty in 2009, when former shareholders of the Yukos energy company used the ISDS to claim compensation for assets they said had been expropriated by the Russian government.

Italy withdrew from the ECT in 2016. The government said this was to reduce costs associated with membership but it may also have been a response to renewable energy companies taking legal action over a reduction in solar power subsidies.

The post Japan blocks green reform of major energy investment treaty appeared first on Climate Home News.