Menu Menu

Thousands of fossil fuel projects are still protected by treaties

Over the past 50 years, countries have signed thousands of treaties worth billions that may scupper global efforts to phase out fossil fuels. These agreements allow investors to sue governments for compensation if projects are axed.

Fully transitioning to a renewable world, unfortunately, may not be simple as merely cancelling all outstanding fossil fuel leases.

That’s because the conglomerates that once stood to profit massively from these projects, will not just walk away without compensation – and reportedly, they’re entitled to it.

Over the last half-century, thousands of treaties have been signed to protect foreign investors and their assets against sweeping government actions. These contracts are all tied to fossil fuel endeavours which are either in production now, or slated for the future.

A study published back in May in the journal Science, estimates that the total in settlements required to cancel present and future developments could amount to a $340bn pay out. That’s more than the entire planet put into climate adaption and mitigation in the fiscal year of 2019.

Each of these oil and gas investors have clauses that would entitle them to sue national authorities for ludicrous amounts. As we sit here today, a Canadian firm called TC Energy is seeking more than $15bn after President Joe Biden cancelled the Keystone CL Pipeline.

Now, obviously, with April’s IPCC report warning that the climate is facing irreversible changes in the next decade, this spells financial danger for countries clambering to limit their respective emissions.

There has already been at least 230 separate legal disputes that have emerged, and as we ramp up the pressure on fossil fuel proprietors you can guarantee that number will grow exponentially.

The very worst case scenario, is that the threat of large pay outs could lead to apprehension and eventually nihilism from governments who need to accelerate mitigation efforts now. It doesn’t help that the existence of climate change has been disputed again as recently as this week either.

Speaking of financial risk, both Denmark and New Zealand continue to raise suspicion that they’ve specifically designed their fossil fuel phaseout plans to minimise the possibility of investor retaliation.

Some climate policy experts are adamant that Denmark chose 2050 as its target for net zero to satisfy exploration licence holders, while a New Zealand climate minister openly stated that aggressive plans to axe coal and oil would ‘run afoul of investor-state settlements.’

These findings are equally alarming and frustrating, granted, but there are measures countries can take to negate extreme legal and financial risks.

A straightforward approach would be for countries to either terminate or withdraw from these treaties entirely. In some cases, this has proven effective already with few or no economic consequences, though officials continue to express concern at the potential knock-on effects of terminating treaties en masse.

Additional challenges stem from what’s known as ‘sunset clauses.’ These bind national governments to a treaty for a decade or more and prevent them for leaving under any circumstances, bar one.

Tied to such constraints, Italy attempted to leave the Energy Charter Treaty in 2016 and is still embroiled in an ongoing legal case. Other EU countries wanting to veto the contract have long pushed for a collective mutual agreement to sidestep the clause.

Truth be told, when it comes to our perilous climate situation, awkward legalities are the last thing we want to be considering or wasting our breath talking about.

Securing record levels of public and private funding is essential to make any success of slowing global warming, and yet along the way even more finances will be diverted into the pockets of fossil fuel investors.

Who caused this issue in the first place again? That’s what you call a vicious cycle.