Oil and gas, because the giants are asking the states for billionaire reparations

Oil and gas, because the giants are asking the states for billionaire reparations

Oil and gas

About 210 million euros: this is the very high bill that Italy will have to pay to the British Rockhopper for blocking oil extraction to try to meet the objectives of the energy transition. In 2016, the Ministry of Economic Development blocked the Ombrina Mare mining platform project. In the Adriatic, off the Trabocchi coast in the province of Chieti, an extractive oil platform should have been built. Last August, an international court ordered the Italian government to pay millions in compensation for the company's lost profits.

A lot? Definitely, but still 30 times less than what Pakistan will have to pay: in 2019 the government was ordered to pay nearly 6 billion dollars to the Australian company Tethyan Copper Company for lost future profits resulting from the nation's decision to suspend extractive explorations: also in this case, for reasons of environmental protection. The paradox is that just a week earlier the International Monetary Fund had granted 6 billion dollars in loans to Pakistan: an amount equal to 40% of the country's foreign currency liquidity reserves.

These are not isolated examples, but the chronicle of how in recent years private companies have been bringing into the dock states that forbid practices such as new drilling, exploration to discover fossil deposits or in general extractions with an impact on the environment. And thanks to the weight of the lawyers of these corporations, they often manage to win.

The Keystone XL pipeline What are the ISDSs The number of ISDSs and the amounts of compensation The Energy Charter Treaty Even the NGOs in court

The Keystone XL pipeline

While laboriously the nations of the world are trying to put in place alternative solutions to fossil energies, which can lead us towards the goal of containing the rise in temperature within 1.5 degrees between now and 2100, a creeping war has begun.

Biden wants to block the construction of the colossal Keystone pipeline A conflict that takes place in some special courtrooms according to particular treaties and agreements. A dispute made up of papers and deeds with which multinationals and nations clash. Legal conflicts where the best lawyers - often alongside corporations - manage to obtain billionaire compensation when, for example, exploration projects are abandoned. Take the case of one of the most famous: the Keystone XL pipeline.

In 2015, after kicking off the initial stages of the project, Barack Obama's administration rejected permits to cross the national border: a well-known case, an important victory that seemed to indicate a "green" turn ” in US energy policies. What is less famous is the fact that the pipeline's contracting company, TransCanada, is suing the United States for more than $18 billion. The reason? Cover the investments already made (3 billion) and compensate for lost profits (15 billion). Thus, in 2017, the Donald Trump administration signed an executive order to allow TransCanada to go ahead again: the latter consequently withdrew the lawsuit filed on the basis of an ISDS. It is the acronym of the judicial mechanisms that allow this type of legal resolutions. By now the number of this type of lawsuit has become "alarming" and the consequences of the verdicts in favor of Big Oil & co. trigger “chilling effects” on action against the climate crisis. Words and expressions used last June by the European Parliament in a resolution to urge the Commission to counter the phenomenon of ISDS, which create very heavy economic damage to the nations that succumb.

What are ISDS

According to the United Nations , there are 3,253 international investment agreements in the world, of which 2,579 are in force . These are divided into Bits, bilateral investment treaties (about 87% of the total) and Tips, treaties with investment provisions (such as the Energy Charter Treaty, described below). Since these treaties often concern trade relations between private companies and nations, they contain international investment protection agreements (IPAs). These are rules that create a legal framework to protect investments held by investors of one Party located in the territory of the other Party (host country). And theoretically they make perfect sense: otherwise any nation could violate commercial contractual provisions going to harm the legitimate economic interests of any foreign private investor. Thus the IPAs allow out-of-court procedures to resolve disputes: their characteristic is that private investors can take legal action against a state. And on the basis of these IPAs procedures for the resolution of investor-state disputes (the acronym is ISDS ) are born before arbitral tribunals , i.e. far from national judicial courts.

If the expression "blackmail" comes to mind, it is precisely the indirect effect that resulted from the application of the ISDS. For example, New Zealand recently declared that it does not want to join the Beyond Gas Alliance (a consortium of governments committed to phasing out fossil fuels) for fear of clashing with agreements between investors and states: the ISDS, in fact. This choice is beyond the will of the voters or even of the New Zealand government itself, but is based on the economic calculation of the risk of having to pay huge compensations. And if we think instead of the so-called developing countries, where they are more often asked to activate ISDS mechanisms? In fact, while on the one hand COP27 affirms that the richest nations must economically support the poorest ones in the energy transition, on the other hand concrete action is taken to indirectly condition the energy policies of the countries with weaker financing and richer in fossil resources. All to the advantage of large corporations that often reside or are at home in the richest nations on the planet. Even though Pandora's box has now been opened and the large number of ISDSs in recent years is affecting the large European nations.

The number of ISDSs and the amounts of compensation

In recent decades the number of IPAs has increased, as have the number of lawsuits against states (ISDS) and the amounts requested. As the European Parliament reported in a specific analysis dedicated to the issue of ISDS and published in November 2022, 1,146 disputes were initiated worldwide in the period 2000-2021, of which 267 involved member states of the European Union. Cases involving European countries have been declining since 2017, while cases involving other countries around the world are steadily growing.

Number of Isds in Europe and in the world - Source: Investor-state protection disputes involving EU Member States - State of Play, Eprs

The report reads about the amount of reimbursements :

From 2013 to 2018, the European Union had to deal with an average annual total amount of 5.5 billion dollars : even if the causes have decreased, the average amounts have risen. And in all the other countries of the world, the average claims for compensation have reached 25 billion dollars a year since the last decade 

Source: Investor-state protection disputes involving EU Member States - State of Play , Eprs Of the approximately 620 billion dollars requested since 2000 through Isds mechanisms, 96 billion have been recognized in favor of private investors (9 from European Union nations). Approximately 90% of the total ISDS that have brought compensation to companies in the world in the last twenty years concerned mining and extractive projects (77%), financial and insurance (7%), gas and electricity supply (6%) .

The Energy Charter Treaty

Each ISDS is therefore based on a specific IPA: for example, NAFTA (the famous North American free trade treaty) is the agreement allowed TransCanada to activate an ISDS to act against the order to stop the Keystone XL pipeline. The lawsuits via ISDS that are now triggering more problems for the energy transition are linked to the Energy Charter Treaty (CTE). As stated in the aforementioned resolution of the European Parliament, today the ETC is the most controversial investment agreement in the world and one that urgently needs to be reformed: the invitation to the European Commission is then to ensure that a revised ETC immediately prohibits investors in fossil fuels to sue contracting parties for pursuing policies to phase out these energy sources, in line with their commitments under the Paris Agreement.

Ratified by 50 countries and signed in 1993, the CTE aims to protect the energy investments of its members. If in the past disputes often went to protect European companies in non-EU countries, for several years it has been the European nations that have become the object of the maxi-compensations requested by extractive companies from all over the world. For this reason, a few months ago and in the wake of the resolution of the European Parliament which targeted the CTE in particular, Poland announced its withdrawal from the Treaty and was quickly followed by Spain , France , Germany , Slovenia and the Netherlands .

Even the NGOs in court

The spread of ISDS triggered above all to effectively preserve the extraction of fossil and non-renewable resources is an enormous obstacle to the ever too timid attempts of nations to promote climate policies. At the moment, it is estimated that we will go beyond the increase in degrees promised at the Cop15 in Paris: anything but 1.5, at the moment we are going straight towards +2.8 degrees. To get back in line, we would need to halve gas, oil and coal extraction by 2050.

If we don't save the planet now, we will never succeed again The only way to avert the catastrophic and irreversible effects of the climate crisis is to intervene decisively immediately, as underlined by the latest UN report Thus, even some NGOs have begun to use the courts to force national policies from a "green" perspective: this is what happens in climate litigations, such as the Last Judgment. Or it is the case of Greenpeace, which took the European Commission into action for the first time for having included fossil gas and nuclear energy in the list of sustainable investments in the so-called green taxonomy. This is also the case of ClientEarth , a non - governmental organization and a shareholder of Shell , which has taken the latter to court for not yet drafting a plan enabling it to meet the objectives of the Paris Agreements . And again ClientEarth, together with Lipu-Birdlife Italy, has brought Ferrero into question for the exploitation of hazelnut monocultures in Lazio which is impoverishing local biodiversity, especially in the Lake Vico area. In fact, after 50 years of intensive cultivation of over 21,000 hectares of hazelnut trees in the area, the waters of the lake record alarming concentrations of pesticides and chemical substances of various types. Substances that also end up in the drinking water of neighboring areas. Another example of how the battle for the climate and for the protection of biodiversity is finding more and more space in the courtrooms.

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