To avoid the worst outcomes from climate change, humanity has less than a decade to make substantial progress towards eliminating greenhouse gas emissions. We literally do not have time to try to twist climate initiatives to align with the expansive rights that oil, gas, coal and other corporate interests are awarded within existing trade agreements, nor to litigate such policies in extrajudicial trade tribunals.
Establishing New “Rights” for Oil, Gas and Coal Companies
Trade agreements establish a host of new “rights” for transnational corporations, including the right to move goods across borders, to invest across borders and to access markets across borders. This gives a lot of power to the fossil fuel industry because policies that interfere with these so-called rights are subject to attack in trade tribunals.
Oil, coal and natural gas are all goods moved across borders, and the largest fossil fuel companies all invest across borders. As such, government actions that limit the export or import of fossil fuels can be challenged as violations of trade agreements. Even indirect restrictions on trade or investment in fossil fuels are subject to attack, including restrictions on oil or gas drilling; restrictions on the building of pipelines or export terminals; and any other actions that have the effect of reducing trade in oil, gas, coal, plastic, timber and other goods.
Wake-Up Call: the $15 Billion Keystone XL Pipeline Case
In July 2021, the company TC Energy launched a suit under the North American Free Trade Agreement (NAFTA) against the United States for refusing to grant it permits for the Keystone XL Pipeline, a project designed to increase the flow of dirty tar sands oil from Canada thru the United States to markets throughout the world.
The company is demanding $15 billion in taxpayer compensation for its “lost expectation of future profits.” A so-called “regulatory takings” case like this would be laughed out of the U.S. court system, but has a real chance of winning in a trade tribunal.
Allowing trade deals to require that governments pay off polluters for the loss of their “expected profits” whenever taking climate action is extremely dangerous.
As written, these trade pacts expose even the richest nations to billions, if not trillions, of dollars in penalties that could otherwise be spent on things like green energy, public transportation, a just transition and disaster relief. Given that low- and middle-income nations simply don’t have the funds available to lose such suits, many may give in to fossil fuel sector demands to avoid that liability.
This is a clear and immediate threat to any progress we can hope to make on climate change.
Other Examples of Trade Attacks on Climate Policies
The Keystone XL trade suit is just one of over 1,100 trade challenges brought throughout the world. Not all of these cases have to do with climate, but fossil fuel companies are now launching more trade challenges than any other sector, with more than one in three of all new cases over the past decade affecting oil and gas extraction, mining or power plants. Among many examples:
- A U.S. company called Lone Pine is using NAFTA to demand over $100 million from Canadian taxpayers because Quebec put a moratorium on fracking under the Saint Lawrence River.
- The company behind a coal-fired power plant that Germany had refused to grant operating permits used a trade challenge to force the government to grant the permits — so the power plant is now up and running.
- The oil giant Chevron used a trade tribunal to undermine an Ecuadoran court order that it pay $9.5 billion to clean up oil spills in the Amazon and provide health care for affected indigenous communities — and now the tribunal is determining how much the government will have to pay the company instead.
Policies that restrict fossil fuel projects aren’t the only ones at risk. Existing trade pacts have likewise been used to attack governments’ green energy projects.
Eliminating Trade Attacks on Climate Initiatives
The straightforward solution here is to make climate initiatives immune from attack under trade agreements.
Trade justice campaigners worldwide have made considerable progress in recent years against the “Investor-State Dispute Settlement” (ISDS) provisions in trade agreements that allow individual corporations to directly challenge government policies they believe violate their trade agreement “rights” in extrajudicial tribunals that circumvent domestic courts. The ISDS system is both anti-democratic and anti-environment, and it must be eliminated altogether.
“Government-to-government” trade challenges also jeopardize robust climate action. To help remove this threat, the World Trade Organization (WTO) should enact a “peace clause” under which governments agree not to use WTO rules to attack one another’s climate policies. A WTO peace clause already exists for food security measures, and that precedent must now be extended to climate policies, too.