When cli­mate lead­ers pro­tect dirty in­vest­ments

Philippine Daily Inquirer - - OPINION -

GENEVA— 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 UN 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 2°C” 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 bil­lion in 2016. That was more than dou­ble the $297 bil­lion 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 (ECT), and the EU-Canada Com­pre­hen­sive Eco­nomic and Trade Agree­ment (Ceta). Be­cause these treaties were de­signed to shield for­eign in­vestors from ex­pro­pri­a­tion, they in­cluded in­vestor-state dis­pute set­tle­ment (ISDS) mech­a­nisms that al­lowed in­vestors to seek com­pen­sa­tion from gov­ern­ments, via international ar­bi­tra­tion tri­bunals, if pol­icy changes af­fected their business.

This has hand­cuffed gov­ern­ments seek­ing to limit fos­sil fuel ex­trac­tion as 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 St. Lawrence River. Ar­gu­ing that the de­nial was “ar­bi­trary, capri­cious and il­le­gal” un­der Nafta, the Delaware-based en­ergy firm sought $250 mil­lion in dam­ages.

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 car­bon-de­pen­dent 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 UNCon­fer­ence 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 some3,000 out­dat- ed treaties.

Gov­ern­ments should start by over­haul­ing or ex­it­ing the ECT, 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 phase­out 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 en­act a “cli­mate veto” to Ceta.

Re­bal­anc­ing the global in­vest­ment regime is only the first step to­ward a ze­ro­car­bon econ­omy. To shift cap­i­tal from fos­sil-fuel heavy ini­tia­tives to green en­ergy projects, coun­tries will need new le­gal and pol­icy frame­works at the re­gional, national and international lev­els. These agree­ments should pro­mote and fa­cil­i­tate zero-car­bon in­vest­ments. Big meet­ings like the one get­ting un­der­way this week and the Paris Cli­mate Sum­mit next month can kick-start these con­ver­sa­tions. Project Syn­di­cate

———— Nathalie Ber­nasconi-Oster­walder is di­rec­tor of the Eco­nomic Law and Pol­icy Pro­gram at the International In­sti­tute for Sus­tain­able De­vel­op­ment. Jörg Haas is depart­ment head of international pol­i­tics at the Hein­rich Böll Foun­da­tion.

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