An oil well. Image: BLM Wyoming/Bureau of Land Management/Flickr

As governments try to phase out coal and leave fossil fuels in the ground, lawsuits from industry investors are starting to pile up around them.

Critics of international trade deals have long been warning that the investor-state dispute settlement (ISDS) mechanism in these deals will hinder government action on climate change, and now, that is indeed what’s happening.

The ISDS mechanism in trade deals allows foreign companies and investors to sue countries over policies and regulations that hinder their future profits — including moves to restrict fossil fuel use under the Paris climate agreement.

Hamstrung by trade agreements such as The Energy Charter, NAFTA and CUSMA, and bilateral investment treaties, European, North American, and South American governments are being hit with ISDS lawsuits which, as The Guardian columnist George Monbiot argues, make “effective action against climate breakdown almost impossible.”

Monbiot nailed it when he wrote on Aug. 19, “government lawyers should be all over this issue, looking for a way out. Otherwise, future corporate profits remain officially more important than life on Earth.”

The sad truth is that “a way out” of this dilemma was proposed back in 2015, but was scuttled on the road to the Paris climate agreement.

The carve-out clause

On September 20, 2015 Canadian legal scholar and professor Gus Van Harten released a report warning that trade and investment deals could threaten implementation of a Paris climate agreement through their investor-state dispute settlement (ISDS) mechanisms.

Van Harten, an internationally-recognized authority on investment law and trade, offered a legal “carve-out” (several paragraphs in length) that climate negotiators could include in a Paris agreement in order to protect signatory countries.

For existing treaties that contain the ISDS clause, “a carve-out in a multilateral climate change agreement should be designed as a subsequent legal agreement that would take precedence over the existing ISDS treaty,” he wrote. The signatory states to a Paris climate accord would be agreeing that ISDS claims against them “simply do not apply to climate change measures.”

In a foreword to Van Harten’s report, Council of Canadians chair Maude Barlow explained  that countries are in “a Catch-22”; if they try to regulate against greenhouse-gas emissions in order to fulfill their Paris pledges, they could be sued for billions of dollars.

In advance of the COP21 Paris negotiations (Nov. 30-Dec. 11, 2015), this proposed legal carve-out got a fair amount of press exposure in Europe, and in mid-October of 2015 the European Parliament adopted a resolution asking the European Commission and national governments to protect the upcoming Paris agreement from all adverse affects (including ISDS) of trade agreements.

The resolution:

“calls on the [European] Commission and the Member States to ensure that any measure adopted by a Party to the Paris Agreement relating to the objective of stabilizing greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous anthropogenic interference with the climate system, or relating to any of the principles or commitments contained in Articles 3 and 4 of the United Nations Framework Convention on Climate Change will not be subject to any existing or future treaty of a Party to the extent that it allows for investor-state dispute settlement.”

It was a Dutch Green/Left Member of the European Parliament that put forward this motion, and he acknowledged the important contribution made by Van Harten’s proposed carve-out.

Van Harten told the Council of Canadians (Oct. 16, 2015):

“I am delighted to see the European Parliament acting responsibly and proactively to address the risks posed by ISDS to climate change action. Given the urgency of such action, concerns about the protection of foreign-owned fossil fuel reserves are more appropriately addressed in state-to-state adjudication and in the [public] courts, not via a lopsided and costly process of foreign investor claims against countries that is based on generous entitlements to public compensation without any actionable responsibilities for major resource companies.”

But something happened to the carve-out when the actual Paris COP 21 negotiations got underway in December.

Scuttling the carve-out

As Van Harten later told me by email, “The carve-out was adopted by a vote of the European Parliament and thus formed part of the EU’s negotiating team, but was not incorporated into the Paris Agreement.”

Subsequently, Van Harten has not responded to requests for more information. Similarly, I have recently been unable to find anyone in Canada or Europe able and willing to provide information about the scuttling of the legal carve-out during the 2015 Paris negotiations.

For now, we’ll have to rely on other information about COP 21 in Paris.

As Nick Fillmore recently wrote for “Developed countries failed to come together over 25 years to create a meaningful response to the growing crisis” of climate change. “The United Nations climate program, infiltrated and funded in part by corporations, has not been able to provide the leadership needed.”

When contacted, Fillmore responded by email that at the 2015 Paris negotiations, the corporate sector was so powerful that it appeared to be “the proverbial tail wagging the dog.” He also cited the November 2015 report by Corporate Europe Observatory (CEO), The Corporate Cookbook: How Climate Criminals have captured COP21.

CEO’s report detailed the many special events being planned by the corporate sector for government officials, stating, “At this winter’s UN climate talks in Paris approach, the lobbying and public relations push from the world’s biggest climate criminals has gone into over-drive.”

The climate lawsuits begin

It’s possible that various governments assumed in late 2015 that they would be protected from ISDS lawsuits because of the European Parliament’s resolution.

For example, in November 2015 Alberta’s NDP government adopted an ambitious climate plan that included a carbon price as well as a phase-out of coal-fired power by 2030.

The NDP government agreed to pay $1.95 billion in compensation to major utility companies as “transition payments” — Capital Power Corp., TransAlta Corp. and ATCO Ltd. between 2016 and 2030. The money would help them move away from coal.

No such compensation was offered to coal companies.

By 2018, Denver-based Westmoreland Coal Co. was launching an ISDS lawsuit against Canada under NAFTA, demanding $500 million in compensation for financial losses at five Alberta coal mines. Under NAFTA, the federal government is responsible for any ISDS arbitration award.

Dr. Kyla Tienhaara, Canada Research Chair in Economy and Environment at Queen’s University, has called the Westmoreland Coal Co. ISDS claim against Canada “the first brought in relation to a policy explicitly designed to combat climate change.”

In an article first published in The Conversation in 2018, Tienhaara stated that in order to combat climate change, “efforts to phase out fossil fuels will have to ramp up considerably — and quickly. We should expect the [fossil fuel] industry to fight these efforts through a variety of means. ISDS may become a key battleground.”

Rather than curtail and rethink Canada’s participation in such trade deals, readers will recall that Canada’s International Trade Minister at the time, Chrystia Freeland, vociferously pushed for more, including CETA (the Canada-European Union Comprehensive Economic and Trade Agreement) — which will greatly expand the number of ISDS lawsuits.

Tienhaara further warned that the threat of such lawsuits will promote a “regulatory chill,” in which governments decline to take action on climate change because they don’t want to be sued for hundreds of millions of dollars.

An October 2020 report by the International Institute for Environment and Development states that even “removing fossil fuel subsidies” is a government action that is “likely to be challenged through ISDS”.

With life on Earth placing second in importance to future corporate profits, it’s difficult to see any hope from the upcoming United Nations climate conference — COP26 — in Glasgow.

Canadian freelance writer Joyce Nelson is the author of seven books. She can be reached via

Image: BLM Wyoming/Bureau of Land Management/Flickr

Joyce Nelson

Canadian freelance writer Joyce Nelson is the author of seven books and many hundreds of articles and essays published by a variety of magazines and websites. During more than 30 years as a full-time writer,...