Extracts of the conference of Paul Fauteux entitled « Solidarity and Enlightened Self-Interest in International Law: Relic or Aspiration? » in teh session on the Future of Investor-State Dispute Settlement in the 51st Annual Conference of the Canadian Counsel of International Law, October 27 and 28, 2022.

The basic facts about climate change are now clear. It is no longer the risk that scientists have been warning against for over half a century, alas in vain, but the reality that we are now facing around the world, albeit in very different forms and with varying degrees of intensity in different countries and regions. While Canada has so far been spared the most extreme impacts of climate change, they are coming, here as everywhere else.

The G7 climate and environment ministers summed up the magnitude of the danger well when they acknowledged in their May 21, 2021 communiqué “with grave concern that the unprecedented and interrelated crises of climate change and biodiversity loss pose an existential threat to nature, people, prosperity and security.”

In the face of this existential threat, what is meant by “climate justice”? The Centre for Climate Justice at the University of British Columbia explains that this concept takes into account, among other things, the fact that “climate change is […] experienced highly unevenly, impacting most severely those who have least contributed to the crisis […]. For these reasons, efforts to address climate change […] have the potential alleviate, perpetuate, or exacerbate existing inequities and injustices.”

In this context, “climate justice names the fundamental commitment that responses to climate change should advance equity and address ongoing oppressions. A climate justice perspective is therefore relevant to climate solutions and responses at all scales.”

At the global scale, the climate response crystallized in the Paris Agreement of December 12, 2015, by which 196 states set themselves the goal of limiting global warming to well below 2, preferably 1.5 degrees Celsius, compared to pre-industrial levels. To achieve this goal, the Intergovernmental Panel on Climate Change (IPCC) called in 2018 for urgent action to phase out fossil fuels.

Seven years after the adoption of the Paris Agreement, the climate action plans submitted by states are very far from sufficient and could lead the planet on a path to 3-4 degrees Celsius of warming by the end of the century. Under this scenario, the IPCC warns that life on Earth as we know it would become unrecognizable, with a decline in life expectancy and quality of life in many parts of the world. The health and well-being of the population would be substantially reduced and would continue to deteriorate in the following decades. The IPCC also warns of major increases in food prices, conflict and climate migration.

The International Energy Agency therefore looked at how such a scenario could still be avoided. It concluded in a report published in 2021 that the only way to do so is to abandon all oil, gas and coal projects that are not yet in production.

In another report published last year, the IPCC once again showed how human activities, mainly the use of oil, gas and coal, are causing climate disruption of such speed and magnitude that it threatens the conditions necessary for human life on Earth. That is why, according to the UN Secretary General, this report “must sound the death knell for coal and fossil fuels, before they destroy our planet.”

It is clear, then, that climate change, fueled by the use of oil, gas, and coal, constitutes a grave and imminent peril that threatens the essential interests of all States and humanity as a whole.

However, research has shown that 75% of the world’s coal-fired power plants that involve foreign investment and need to be retired early to align with the Paris Agreement goal are protected by at least one treaty that gives investors access to ISDS. The value of fossil fuel infrastructure protected by the Energy Charter Treaty (ECT) alone is €344.6 billion in the European Union, the United Kingdom and Switzerland alone. More generally, the value of the potentially stranded assets represented by proven oil, gas and coal reserves, which could result in the emission of 3,000 billion tons of CO2, has been estimated at around US$1,600 billion.

It is against this backdrop that ISDS threatens climate action by allowing multinational companies to sue governments in opaque courts, outside of national legal systems, when they fear that legislative, regulatory, or even policy-level developments will reduce their profits.

As an example, in an attempt to implement the Paris Agreement, famed environmentalist Nicolas Hulot, then Emmanuel Macron’s environment minister, introduced a bill in 2017 that would have phased out fossil fuel extraction in France. Calgary-based Vermillion Energy, which extracts nearly 75% of all French oil, threatened to file an ISDS lawsuit. As a result, the bill was dropped and replaced by a watered-down law that continues to allow such extraction. Hulot resigned shortly thereafter.

This is one of many cases where foreign coal, oil and gas investors are suing States, or merely threatening to sue them, under ISDS clauses in international investment protection agreements to block the energy transition and extend the fossil fuel era. Due to time constraints, I will only give four more examples.

In 2013, the Quebec government adopted a moratorium on shale gas exploitation through hydraulic fracking in the St. Lawrence Valley. Lone Pine Resources, also headquartered in Calgary, used a subsidiary incorporated in the state of Delaware, a tax haven and Joe Biden’s home turf, to file an ISDS lawsuit for nearly US$110 million under the North American Free Trade Agreement (NAFTA).

After 10 years of popular mobilization, in 2015 the Italian Parliament finally approved a ban on oil and gas projects within 12 nautical miles of the coast. British company Rockhopper Exploration filed an ISDS suit under the ECT and last month an arbitral tribunal ordered Italy to pay it more than £210 million – six times more than the company’s actual investment in a drilling project.

Here we see – and this is just one of many cases – the profoundly anti-democratic nature of ISDS: the people mobilize, elected officials respond to that mobilization by exercising their legislative responsibilities, and an arbitral tribunal, neither elected nor appointed by an elected authority, penalizes the State that had the nerve to do what its constituents wanted it to do. Moreover, this penalty is not compensatory but, on the contrary, highly punitive and based on supposedly anticipated profits that were never realized.

That said, I return to my list of examples where ISDS is used to block climate action by States.

In 2018, the Dutch government announced its intention to permanently close two of the country’s oldest coal-fired power plants by 2025. ISDS lawsuits were filed by Uniper and RWE, for €1 billion and €1.4 billion respectively.

Following President Biden’s decision to revoke the permit for the Keystone XL pipeline after his election in November 2021, TransCanada Energy – wait for it, also headquartered in Calgary – filed a ISDS lawsuit under NAFTA with a reported value of C$15 billion, which would make it one of the largest trade cases ever brought against the United States.

Industry experts believe that these cases may be just the tip of the iceberg, given the volume of stranded fossil fuel assets.

The IPCC report published this year makes it clear that ISDS risks blocking the phase-out of fossil fuels. It specifically mentions the ECT, which many fossil fuel companies rely on and which developing countries are encouraged to join.

The main risks posed by ISDS for the fight against the climate crisis are twofold.

First, the increased cost of climate action. Companies can claim huge sums of public money through ISDS, often much higher than in national courts. As we have just seen, the claims in recent climate cases run into the billions and often include large amounts for hypothetical future profits. This is beyond the financial capacity of many States and makes the climate transition too expensive.

Second, regulatory chill. Fear of lawsuits can cause States to delay or even abandon necessary climate measures. The Danish and New Zealand climate ministers have publicly acknowledged this reality. As we have seen in the Vermillion case, the mere threat of an ISDS lawsuit can be enough to intimidate and push back even G7 governments. After decades of inaction, the world can no longer afford for fossil fuel companies to use ISDS to plunge it into climate paralysis.

As Shane’s presentation shows, these risks of ISDS to the fight against the climate crisis are not being discussed at all in UNCITRAL Working Group III, which is concerned only with procedural issues, to the exclusion of substantive ones. Even if this work, which is proceeding slower than glaciers are melting, were to lead to an agreement, it could therefore not prevent coal, oil and gas companies from continuing to use ISDS to block the measures taken by States in favour of the climate, however timid and inadequate they may be.

Given the magnitude and urgency of the crisis, which their climate and environment ministers acknowledged “with great concern” in their aforementioned May 21, 2021 communiqué, why then do the G7countries, including Canada, continue to support a system that limits their ability to adopt the necessary energetic and ambitious public policies, by allowing oil, gas and coal companies to sue or threaten to sue them, and every other State in the world, if they take, or even propose to take, action to fight climate change?

Because the right to make profits outweighs the need to protect the conditions essential to human life on Earth.

And this, even though, as Gabriel Zucman, co-author of the book The Triumph of Injustice, has stated, we cannot continue with an international system that only benefits a certain category of actors, namely multinational corporations and their shareholders.

In other words, we are going straight into the wall because our governments favour the venal gain of this category of actors – which in its day the Occupy Wall Street movement called “the 1%” – at the expense of the public interest, that is, the interest of the other 99% of humanity.

Faced with this new triumph of injustice that is ISDS, for several years an international movement has taken shape to oppose it. This movement, made up of State and court decisions and citizens’ initiatives, has contributed to the fact that the European Union has ended the use of ISDS in relations between its member States. Countries such as South Africa, India, New Zealand, Bolivia and Tanzania have also taken steps to eliminate ISDS mechanisms. These are almost no longer part of the Canada-U.S.-Mexico Agreement (CUSMA), which replaced NAFTA, because the U.S. opposed them.

At the end of the CUSMA negotiations in October 2018, Chrystia Freeland, then Canada’s foreign minister, presented the elimination of ISDS, not as a concession to the United States but as an achievement of her government. Picking up on one of its opponents’ key arguments, she said, ” ISDS elevates the rights of corporations over those of sovereign governments. In removing it, we have strengthened our government’s right to regulate in the public interest, to protect public health and the environment.”

Yet Canada continues to promote ISDS outside of North America, for example with Mercosur and the United Kingdom. This is surprising, particularly for the country that was responsible for the adoption by the United Nations in 1982 of the Montevideo Programme for the Development and Periodic Review of Environmental Law.

Why has Canada so far refused to join the international anti-ISDS movement? Is it because it is a petro-state and the objective of its climate policy is not actually to protect the climate, but rather its oil and gas industry, which as we have seen is a major user of ISDS?

The Canadian government’s decision last April, two days after the publication of an IPCC report calling for a substantial reduction in greenhouse gas emissions by 2025, to give the green light to the Bay du Nord oil project off Newfoundland seems to confirm this.

Of course, Canada is not alone in putting the protection of its foreign investors’ profits ahead of the future of humanity. In Human psycho: how humanity has become the most dangerous species on the planet, Sébastien Bohler explains the paradox at the root of his thinking: on the one hand, humanity is supposedly the most intelligent species, capable of producing masterpieces, mathematical equations, fighting infant mortality, inventing antibiotics, airplanes and high-speed trains; but, at the same time, it is a species stupid or suicidal enough (or both) not to realize that it is going to the dogs because of its own behaviors of destroying nature and overconsumption.

As a multinational indigenous delegation to the United Nations General Assembly in New York last month said, “We’re all going to die if we keep doing this.” And yet, we keep doing it.

This is not a figure of speech, and it is not just indigenous people who are saying it. Just the day before yesterday, a new study by nearly 100 experts from 51 institutions on every continent, released in the run-up to COP27 in Egypt, concluded that the health of the world’s people is at risk from a global addiction to fossil fuels. The analysis points to an increase in heat-related deaths, hunger and infectious diseases as the climate crisis intensifies, while governments continue to provide more subsidies to fossil fuels than to the poorest countries suffering the effects of global warming.

“The climate crisis is killing us,” the U.N. Secretary-General said this time in response to the report. “It is compromising not only the health of our planet, but also the health of people everywhere – through toxic air pollution, decreased food security, increased risks of infectious disease outbreaks, records of extreme heat, drought, flooding, and more.”

As far back as 2019, Nobel Prize-winning economist Joseph Stiglitz worried that ISDS, which he called “litigation terrorism,” could have a chilling effect on the implementation of the stringent measures required to achieve the Paris Agreement goal. He said reform should include lifting the secrecy surrounding ISDS cases, limiting the grounds for filing a complaint, requiring recourse to domestic courts before ISDS, and excluding damages for loss of expected benefits. “Until you resolve all these issues, there should be a complete moratorium,” he concluded.

It is too late to stop climate change. The best we can hope for now is to avoid its most catastrophic and irreversible effects.

ISDS is not compatible with the energy transition. Maintaining it will only prolong the fossil fuel era and accelerate catastrophic climate change.

Instead of protecting profits, law must be used in the service of climate justice. Stopping oil, gas, and coal companies from using ISDS to prevent States from taking climate action would be a good place to start.