Investor-state dispute settlement risks undermining global fossil fuel phase out
‘Raising the cost of climate action? Investor-state dispute settlement and compensation for stranded fossil fuel assets’ has been published today as the United Nations Commission on International Trade Law’s working group on investor-state dispute settlement reform meets (5-9 October).
The study is the first to quantify the proportion and value of the fossil fuel industry and associated infrastructure that is protected by international treaties which include provisions for investor-state dispute settlement (ISDS).
ISDS could require governments — effectively the taxpayers ― to pay large amounts of compensation to fossil fuel companies. The cost could be substantial. Previous research shows that the value of potential stranded assets in the power sector alone is nearly US$2 trillion, and those for oil and gas reserves are valued at US$3-7 trillion.
‘Raising the cost of climate action?’ includes a focus on coal-fired power stations. ISDS protects most of the 257 foreign-owned coal plants around the world, which need to be retired early in order to put the planet on track to keep temperature rise below 1.5°C above pre-industrial levels, in line with the Paris Agreement objectives. One example is Indonesia where the estimated value of 12 coal-fired power stations protected by ISDS could be up to US$7.9 billion. The cost of ISDS compensation could be even greater.
The report urges a range of measures to address ISDS, including terminating old treaties, developing innovative drafting approaches for any new treaties, and radically modernising the Energy Charter Treaty, which plays a significant role in protecting foreign-owned coal power plant assets.
Download the report now.
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