Fossil Fuel Investors Block Climate Regulations

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Big oil companies and their investors are suing governments to thwart climate change policies, Rishika Pardikar reported for The Lever in June 2022. These fossil fuel stakeholders claim that laws designed to address climate change are undermining their profits—and, therefore, that they must be compensated for any resulting financial losses. According to Pardikar, “such moves could have a chilling effect on countries’ ability to take climate action” because of the fear and uncertainty they cause.

One case featuring Vermilion, a Canadian oil and gas company, demonstrates how investor threats are making it difficult for countries to act against climate change. As described in Pardikar’s article, in 2017, France’s environmental minister at the time, Nicolas Hulot, drafted a law to end fossil fuel extraction by 2040. In response, the Canadian oil company threatened to use an “investor-state dispute settlement” (ISDS) to sue the French government, thus taking advantage of a provision that allows investors to sue governments for treaty violations. Due to the ISDS, Hulot’s climate change bill was diluted, enabling oil and gas companies to continue extraction after the originally approved 2040 deadline.

Other reports citing ISDS actions indicated that these efforts consistently benefit fossil fuel companies and their investors. Lea Di Salvatore’s 2021 inquiry into climate-related ISDS reports for the International Institute for Sustainable Development found that fossil fuel investors won their settlements 72 percent of the time. This resulted in fossil fuel investors being awarded more than $600 million in compensation.

The situation has only gotten worse since fifty countries, most of them in Europe, enacted the Energy Charter Treaty (ECT). Pardikar cited specific articles from the ECT that call for “fair and equitable treatment” of investors and “payment of prompt, adequate and effective compensation.” Additionally, in instances where governments obtain investor assets, investors can invoke clauses in the ECT to threaten legal action against lawmakers for future climate proposals.

The European Union (EU) recently attempted to push back by “revising” the ECT to account for climate goals. However, as The Lever reported, European Parliament Chairman Pascal Canfin announced that mediation efforts failed, and the ECT will likely “continue to be used by investors to sue states taking climate action.” Consequently, the chairman called on all EU countries to exit the Energy Charter Treaty.

Many climate activists and lawmakers are concerned that the ISDS system will prompt future actions against climate progress. Laura Létourneau-Tremblay, an international investment law researcher at the University of Oslo, explained that ISDS provisions requiring states to compensate fossil fuel companies could “prevent governments from taking ambitious climate actions.” Létourneau-Tremblay told The Lever, there are “real concerns as to whether the ECT is compatible with the net-zero energy transition.”

Shortly after President Biden revoked the Keystone Pipeline permits in January 2021, the Canadian company TC Energy took legal action against the US government. The company filed a lawsuit, citing a “responsibility to our shareholders to seek recovery of the losses incurred due to the permit revocation.” TC Energy won and was awarded $15 billion in damages.

One of the most concerning aspects of the ISDS is that it offers foreign companies a loophole allowing them to avoid local courts––which frequently operate under stricter regulations. Instead, suits brought by companies against countries in which they have investments are decided by international arbitration tribunals, which are notoriously lacking in transparency. Moreover, under ISDS rules nations cannot file suits against foreign companies, they can only react to claims filed against them.

Grist published an article on the topic in January 2023, more than a year after Di Salvatore’s report for the International Institute for Sustainable Development. The Independent also reported on fossil fuel companies suing governments, mentioning the ISDS and specific countries that have faced lawsuits (such as Italy and Slovenia). However, it only briefly touched on the concern that these lawsuits could prevent climate action. Beyond this handful of reports, the topic has received little coverage from major news outlets.

Rishika Pardikar, “Big Oil Is Suing Countries to Block Climate Action,” The Lever, June 8, 2022.

Lois Parshley, “The Secretive Legal Weapon That Fossil Fuel Interests Use Against Climate-Conscious Countries,” Grist, January 17, 2023.

Kyla Tienhaara et al., “Investor-State Disputes Threaten the Global Green Energy Transition,” Science 376, no. 6594 (May 5, 2022): 701-03.

Student Researcher: Reagan Haynie (Loyola Marymount University)

Faculty Evaluator: Mickey Huff (Diablo Valley College

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Big oil companies and their investors are suing governments to thwart climate change policies, Rishika Pardikar reported for The Lever in June 2022. These fossil fuel stakeholders claim that laws designed to address climate change are undermining their profits—and, therefore, that they must be compensated for any resulting financial losses. According to Pardikar, “such moves could have a chilling effect on countries’ ability to take climate action” because of the fear and uncertainty they cause.

One case featuring Vermilion, a Canadian oil and gas company, demonstrates how investor threats are making it difficult for countries to act against climate change. As described in Pardikar’s article, in 2017, France’s environmental minister at the time, Nicolas Hulot, drafted a law to end fossil fuel extraction by 2040. In response, the Canadian oil company threatened to use an “investor-state dispute settlement” (ISDS) to sue the French government, thus taking advantage of a provision that allows investors to sue governments for treaty violations. Due to the ISDS, Hulot’s climate change bill was diluted, enabling oil and gas companies to continue extraction after the originally approved 2040 deadline.

Other reports citing ISDS actions indicated that these efforts consistently benefit fossil fuel companies and their investors. Lea Di Salvatore’s 2021 inquiry into climate-related ISDS reports for the International Institute for Sustainable Development found that fossil fuel investors won their settlements 72 percent of the time. This resulted in fossil fuel investors being awarded more than $600 million in compensation.

The situation has only gotten worse since fifty countries, most of them in Europe, enacted the Energy Charter Treaty (ECT). Pardikar cited specific articles from the ECT that call for “fair and equitable treatment” of investors and “payment of prompt, adequate and effective compensation.” Additionally, in instances where governments obtain investor assets, investors can invoke clauses in the ECT to threaten legal action against lawmakers for future climate proposals.

The European Union (EU) recently attempted to push back by “revising” the ECT to account for climate goals. However, as The Lever reported, European Parliament Chairman Pascal Canfin announced that mediation efforts failed, and the ECT will likely “continue to be used by investors to sue states taking climate action.” Consequently, the chairman called on all EU countries to exit the Energy Charter Treaty.

Many climate activists and lawmakers are concerned that the ISDS system will prompt future actions against climate progress. Laura Létourneau-Tremblay, an international investment law researcher at the University of Oslo, explained that ISDS provisions requiring states to compensate fossil fuel companies could “prevent governments from taking ambitious climate actions.” Létourneau-Tremblay told The Lever, there are “real concerns as to whether the ECT is compatible with the net-zero energy transition.”

Shortly after President Biden revoked the Keystone Pipeline permits in January 2021, the Canadian company TC Energy took legal action against the US government. The company filed a lawsuit, citing a “responsibility to our shareholders to seek recovery of the losses incurred due to the permit revocation.” TC Energy won and was awarded $15 billion in damages.

One of the most concerning aspects of the ISDS is that it offers foreign companies a loophole allowing them to avoid local courts––which frequently operate under stricter regulations. Instead, suits brought by companies against countries in which they have investments are decided by international arbitration tribunals, which are notoriously lacking in transparency. Moreover, under ISDS rules nations cannot file suits against foreign companies, they can only react to claims filed against them.

Grist published an article on the topic in January 2023, more than a year after Di Salvatore’s report for the International Institute for Sustainable Development. The Independent also reported on fossil fuel companies suing governments, mentioning the ISDS and specific countries that have faced lawsuits (such as Italy and Slovenia). However, it only briefly touched on the concern that these lawsuits could prevent climate action. Beyond this handful of reports, the topic has received little coverage from major news outlets.

Rishika Pardikar, “Big Oil Is Suing Countries to Block Climate Action,” The Lever, June 8, 2022.

Lois Parshley, “The Secretive Legal Weapon That Fossil Fuel Interests Use Against Climate-Conscious Countries,” Grist, January 17, 2023.

Kyla Tienhaara et al., “Investor-State Disputes Threaten the Global Green Energy Transition,” Science 376, no. 6594 (May 5, 2022): 701-03.

Student Researcher: Reagan Haynie (Loyola Marymount University)

Faculty Evaluator: Mickey Huff (Diablo Valley College