The Road to Decarbonization Is Littered With Dumb Lawsuits

A hallmark of U.S. climate diplomacy under Democrats has been to browbeat foreign governments into upping their climate commitments, while offering little beyond rhetorical commitments to binding climate action at home. The United States has a bully pulpit from which to go after the already embattled investor-state dispute settlement system and the threat it poses to a global energy transition, not just within the USMCA but in pressuring allies like the European Union to scrap controversial trade and investment deals that are undermining climate progress.

The highest number of cases brought before the international arbitration tribunal have been on energy-related issues, many of those under the Energy Charter Treaty. That agreement—signed in 1991 to assure investors that new ventures in the former Soviet Union wouldn’t be expropriated—entitles energy investors to sue governments for any policies they deem a threat to their profits, including urgent ones like coal phaseouts. Bizarrely, the ECT allows for investors to sue countries for 20 years after they pull out of the agreement, meaning that even if individual nations pull out, the system treaty could remain a powerful counterweight on climate action.

The majority of investor-state dispute settlement cases are brought against developing countries by investors in developed countries. Looking ahead, this system could not just slow efforts to transition off fossil fuels but also empower investors in everything from critical battery minerals like lithium and cobalt to green energy infrastructure like solar and wind to put profits ahead of the planet. Renewable energy now accounts for approximately 60 percent of suits under the ECT. (Many of those, the deal’s proponents like to point out, are battling anti-renewable statutes.) As the industry develops, it could also allow companies to sue over new regulations on the sector or competition from publicly owned firms. Advocates also fear these suits are being gamed by financial investors to extract cash from governments. Countries enacting strong labor standards for the technology metals needed to power electric vehicles, for instance, could come under threat, as could government procurement policies to buy more locally manufactured renewables and electric vehicles.

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