When cli­mate lead­ers pro­tect dirty in­vest­ments

Financial Mirror (Cyprus) - - FRONT PAGE -

So­lu­tions to the cli­mate cri­sis are of­ten as­so­ci­ated with big con­fer­ences, and the next two weeks will no doubt bring many “an­swers.” Some 20,000 del­e­gates have now de­scended on Bonn, Ger­many, for the lat­est round of United Na­tions cli­mate change talks.

The talks in Bonn should focus on the im­ple­men­ta­tion of the Paris cli­mate agree­ment. And the path for­ward is clear. The only way to keep the rise in global tem­per­a­tures within the limit set in Paris – “well be­low 2C” higher than prein­dus­trial lev­els – is to shift cap­i­tal away from fos­sil fu­els and to­ward zero-car­bon pro­jects. To do that, we must change how global en­ergy in­vest­ments are gov­erned.

At the mo­ment, the very gov­ern­ments lead­ing the fight against cli­mate change con­tinue to sup­port and pro­tect in­vest­ment in fos­sil-fuel ex­plo­ration, ex­trac­tion, and trans­porta­tion. Rather than in­vest­ing in ef­fi­cient hous­ing, zero-car­bon mo­bil­ity, re­new­able en­ergy, and bet­ter land-use sys­tems, these gov­ern­ments say one thing but still do an­other.

Ac­cord­ing to the most re­cent World En­ergy In­vest­ment re­port from the In­ter­na­tional En­ergy Agency, global ex­pen­di­ture in the oil and gas sec­tor to­taled $649 bln in 2016. That was more than dou­ble the $297 bln in­vested in re­new­able elec­tric­ity gen­er­a­tion, even though achiev­ing the Paris agree­ment’s tar­get im­plies leav­ing at least three quar­ters of known fos­sil-fuel re­serves in the ground. As these num­bers sug­gest, in­sti­tu­tional in­er­tia and en­trenched in­dus­try in­ter­ests con­tinue to stand in the way of shift­ing in­vest­ment into sus­tain­able en­ergy.

Much of the prob­lem can be traced to bi­lat­eral in­vest­ment treaties and in­vest­ment rules em­bed­ded within broader trade pacts, such as the North Amer­i­can Free Trade Agree­ment (NAFTA), the En­ergy Char­ter Treaty, and the EU-Canada Com­pre­hen­sive Eco­nomic and Trade Agree­ment (CETA). Be­cause these treaties were de­signed to shield for­eign in­vestors from ex­pro­pri­a­tion, they in­clude in­vestor-state dis­pute set­tle­ment (ISDS) mech­a­nisms that al­low in­vestors to seek com­pen­sa­tion from gov­ern­ments, via in­ter­na­tional ar­bi­tra­tion tri­bunals, if pol­icy changes af­fect their busi­ness.

This has hand­cuffed gov­ern­ments seek­ing to limit fos­sil- fuel ex­trac­tion. Com­pen­sa­tion from ISDS cases can be stag­ger­ing. In 2012, an Amer­i­can in­vestor filed a law­suit against the Que­bec gov­ern­ment’s de­ci­sion to deny a per­mit for hy­draulic frac­tur­ing un­der the Saint Lawrence River. Ar­gu­ing that the de­nial was “ar­bi­trary, capri­cious, and il­le­gal” un­der NAFTA, the Delaware-based en­ergy firm sought $250 mln in dam­ages.

In Jan­uary 2016, the Tran­sCanada en­ergy com­pany used NAFTA to sue the United States, claim­ing $15 bln in losses after Pres­i­dent Barack Obama de­nied a per­mit for the Key­stone XL oil pipe­line. (The com­pany sus­pended its suit after Pres­i­dent Don­ald Trump ap­proved the project in Jan­uary 2017).

And in July 2017, Que­bec agreed to pay nearly $50 mln in com­pen­sa­tion to com­pa­nies after can­celling oil and gas ex­plo­ration con­tracts on An­ti­costi Is­land in the Gulf of Saint Lawrence. These and other pay­ments are in ad­di­tion to the hun­dreds of bil­lions of dol­lars in sub­si­dies that con­tinue to flow to the fos­sil-fuel in­dus­try.

Big pay­outs do more than drain pub­lic cof­fers; the mere threat of them dis­cour­ages gov­ern­ments from pur­su­ing more am­bi­tious cli­mate poli­cies, owing to fear that car­bon­de­pen­dent in­dus­tries could chal­lenge them in in­ter­na­tional tri­bunals.

For­tu­nately, this state of af­fairs is not set in stone. Many gov­ern­ments now see re­form of the in­vest­ment regime not just as a pos­si­bil­ity, but as a ne­ces­sity. Last month, the UN Con­fer­ence on Trade and De­vel­op­ment con­vened a high-level meet­ing in Geneva, with the goal of de­vel­op­ing op­tions for com­pre­hen­sive re­form of the in­vest­ment regime, in­clud­ing the rene­go­ti­a­tion or ter­mi­na­tion of some 3,000 out­dated treaties.

Gov­ern­ments should start by over­haul­ing or ex­it­ing the En­ergy Char­ter Treaty, the world’s only en­ergy-spe­cific in­vest­ment pact. The ECT’s in­vest­ment pro­tec­tions and lack of cli­mate pro­vi­sions are no longer ap­pro­pri­ate. Since its in­cep­tion, the ECT has served as the ba­sis for more than 100 claims by en­ergy firms against host coun­tries, with some chal­leng­ing na­tional en­vi­ron­men­tal poli­cies, such as the nu­clear phase-out in Ger­many. Rus­sia and Italy have al­ready with­drawn from the ECT; other coun­tries should do the same or com­mit to rene­go­ti­at­ing it.

More­over, coun­tries should put cli­mate con­cerns at the cen­ter of their trade and in­vest­ment ne­go­ti­a­tions, such as by carv­ing out fos­sil-fuel pro­jects from in­vest­ment clauses. That is es­sen­tially what France re­cently pro­posed, when ecol­ogy min­is­ter Ni­co­las Hu­lot an­nounced his coun­try’s in­ten­tion to

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