Climate ambition could drive over $9 trillion in fossil fuel ‘ransom’, threatening COP26 pledges
Fossil fuel companies could demand as much as $9 trillion from governments for enacting climate legislation, using secretive tribunals. And more ambitious climate policy will drive an increase in the number of claims, according to ground-breaking revelations that could threaten the pledges made at the COP26 summit in Glasgow.
In a presentation obtained by Global Justice Now and War on Want, energy industry insiders predict that when governments are ambitious in policies to achieve the globally agreed aim of holding warming well below 2°C, seeking to limit it to 1.5°C, this will increase the use of the tribunal mechanism.
Trade agreements like the Energy Charter Treaty contain investor arbitration clauses, known as investor-state dispute settlement (ISDS). They enable foreign companies to demand payouts from governments for enacting legislation or policies they think will harm their profits. Fossil fuel companies have increasingly started to use this mechanism against governments phasing out fossil fuels.
The presentation says that the number of trade deals agreed with this mechanism is another critical factor in the likelihood of such claims.
A higher proportion of privatisation in the energy sector is also identified as driving further cases.
The UK government is currently seeking to include the tribunal mechanism in a new post-Brexit trade deal with Canada and to join the Trans-Pacific Partnership (CPTPP) trade deal, which already includes the mechanism.
But campaigners warn that world leaders must scrap ISDS and exit trade deals that include it, like the Energy Charter Treaty, to give pledges made at COP26 a fighting chance.
The presentation reveals estimates that companies could claim trillions of dollars from governments in compensation for fossil fuel investments turned to ‘stranded assets’ by climate legislation.
Companies could demand damages against up to $6.5 trillion from the upstream fossil fuel sector and $900 billion from oil reserve write-offs. There could also be claims against power generation assets of up to $1.9 trillion, of which $104 billion could be from European gas power and up to $700 billion from coal power.
The total at stake could be over $9 trillion, which is more than ten percent of the global economy.
Earlier this year, Global Justice Now revealed that just five fossil fuel companies were already demanding $18 billion from governments through ISDS. Cases are heard in ad hoc tribunals outside of the national legal system, hosted by bodies including the International Centre for Settlement of Investment Disputes (ICSID).
The UK is a hub for the ISDS system, which is dominated by a relatively small number of specialist law firms who actively promote the use of corporate courts. All but two of the top 30 investment dispute law firms have offices in London.
Jean Blaylock, trade campaigner at Global Justice Now, said:
“These corporate courts have long been the global trade system’s dirty little secret. They largely operate away from the public eye, but multinational companies use them to demand eye-watering sums from governments enacting even the mildest reforms.
“Now we’re increasingly seeing the fossil fuel sector use investor-state dispute settlement to hold climate action to ransom. These companies have made unfathomable profits from fueling the climate crisis. We cannot let them demand even bigger payouts.
“These revelations show that, as long as trade deals contain corporate courts, more ambition in climate policies will lead to more fossil fuel companies suing. Governments need to exit agreements like the Energy Charter Treaty and scrap corporate courts in any future trade deals if the pledges made at COP26 are to have a fighting chance.”
Leah Sullivan, trade campaigner at War on Want, said:
“The science is clear. The vast majority of fossil fuels must stay in the ground to avoid catastrophic global heating. Fossil fuel companies are effectively using ISDS to seek “reparations” if governments take the only course of action in line with the Paris Agreement. It’s ordinary people who will have to pay for this.
“Now UK law firms, who have long profiteered from the destructive Corporate Courts regime are actively supporting some of the biggest oil, coal and gas companies to exploit this legal mechanism, eyeing up the trillions of dollars up for grabs, in the knowledge that the higher the climate ambition, the greater the opportunity for compensation claims. It’s nothing short of scandalous.
“The UK government must drop ISDS and leave the Energy Charter Treaty immediately. Otherwise the kind of climate action we need to keep to 1.5 degrees of warming will see tax payers on the hook for millions if not billions of pounds.
“We’re facing an energy crisis. The revelations are also all the more evidence for public ownership of energy, as the leak identifies privatisation of the energy sector as a key factor in Corporate Court cases over climate action.”
Notes for editors
 The presentation gives the example of the Climate Action Tracker as a measure of ambition. Climate Action Tracker describe themselves as: “an independent scientific analysis produced by two research organisations tracking climate action since 2009. We track progress towards the globally agreed aim of holding warming well below 2°C, and pursuing efforts to limit warming to 1.5°C.”
 See the minimum and maximum amounts from the slide, and sources, at https://docs.google.com/spreadsheets/d/1qxFDBoyCkEi68CHvkQHzH9tpb-7K_tIq7bnYV8vwrp0/edit?usp=sharing. The presentation gives stranded power generation assets as $4.0-7.0 trillion. However the source cited gives the figures as $0.9-1.9 trillion, which is the amount used here.
Photo: UNclimatechange/Flickr (CC BY-NC-SA 2.0)