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How International Trade Agreements Could Decimate Carbon Emission Targets


Since the demise of American involvement in the Trans Pacific Partnership, we haven’t talked a ton around here about the problems with Investor State Dispute Settlement courts. In short, this is a legal regime that adjudicates issues between states or between corporations and states around trade agreements. While an international system does need international governance, at their worst, these ISDS courts have allowed corporations to override democratic will and national laws in order to protect profits. What needs to happen is that regular people also have to have access to these courts. Until then, we have no real chance of taming corporate misbehavior in a globalized world.

It’s also entirely possible that these courts could be used to blow up national efforts to reduce carbon emissions if said efforts hurt corporate profits after companies invested on certain terms in trade agreements.

When governments around the world finally get serious about addressing the climate crisis, they will inevitably need to begin restricting oil and gas production. As the International Energy Agency concluded last year, any further expansion of the fossil fuel is incompatible with reaching net-zero greenhouse gas emissions by mid-century. But when governments do finally take that warning seriously and begin to put tougher restrictions on new fossil fuel projects, they may confront an often-overlooked obstacle: Obscure trade agreements and treaties that could allow the fossil fuel industry and its investors to file legal claims to win hundreds of billions of dollars in compensation from cash-strapped governments.

A new study published in Science estimates that governments could be on the hook for $340 billion in legal claims, a sum so large that it could cripple the finances of developing countries that take climate action at a time when it is desperately needed. Worryingly, the mere threat of legal claims could dramatically slow the clean energy transition by encouraging fossil fuel investments for many more years, according to the study.

“In terms of talking about a just transition, the finance should be flowing from the Global North to the Global South to help them transition,” Kyla Tienhaara, Canada Research Chair in economy and environment at Ontario-based Queen’s University and one of the authors of the new study, told Sierra. “And instead, what could be happening is that if [countries] take the action that is necessary to address climate change, finance could be flowing from [governments in the Global South] to companies that are based in the Global North. That’s the part of the story for me that is most concerning.

How could this possibly happen? At issue are what are known as investor-state dispute settlement (ISDS) systems, which are basically a way for corporations to sue national governments over alleged infringement of so-called “free trade” rules. In recent decades, investor-state dispute settlement provisions have proliferated via trade regimes like the North American Free Trade Agreement (NAFTA). Today, ISDS systems are a ubiquitous, almost unavoidable part of international relations, since they have been written into more than 3,000 investment treaties and trade agreements.

In recent years, free-trade-regime legal claims against governments have exploded. Fewer than 50 cases were filed in the first three decades of the ISDS system. In the past decade, global corporations filed more than 50 cases each year, according to Public Citizen.ISDS goes far beyond their original intent of protecting investors from having their assets expropriated. Critics of these supra-national courts have long said the investor-state dispute systems stack the deck in favor of multinational corporations and elevate corporate rights over national sovereignty, while undermining much needed protections for health and the environment.

This is…not OK. And it needs to be part of any left-liberal foreign policy to fix these problems.

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