Multinational companies will increasingly file massive cases against host countries when climate change policies affect their profits, Nobel Prize-winning economist Joseph Stiglitz said.
To stop governments from weakening their environmental laws to avoid such disputes, reform of a little-known international trade process — the investor state dispute settlement (ISDS) — is needed, he said.
Under ISDS, a nation that hurts a company’s profits by imposing new rules that add to the cost of building a natural gas pipeline, for example, could be sued by the company, Stiglitz said.
ISDS cases can “instill fear of environmental regulations, climate regulations because you know that it’s going to be costly” for governments, he said. “It’s litigation terrorism.”
With ISDS claims possible under more than 3,000 trade agreements worldwide, cases have proliferated in the last decade or so, according to the Columbia Center on Sustainable Investment (CCSI).
There are now nearly 950 ISDS suits on record, a United Nations Conference on Trade and Development database showed.
Typical claims seek an average of $300 million
Typical claims are brought against developing and middle-income nations by ultra-wealthy corporations or individuals and seek damages of nearly $300 million on average, CCSI said.
At least five cases have been filed in direct response to environmental regulations, the research center found.
Another four cases were related to the enforcement of environmental provisions, but environmental rules were not the only source of the dispute, it found.
In the latest such case, filed in November 2018, U.S. coal producer Westmoreland said a Canadian plan to phase out coal by 2030 in the province of Alberta treated the company’s coal mines in a “grossly unfair” way.
The company has claimed at least $470 million in damages in the case, which remains active.
Elliot Feldman, a counsel for Westmoreland, said the dispute concerned the company’s exclusion from a compensation plan for Canadian coal power firms affected by Alberta’s phase-out policy.
“Westmoreland is contesting the failure of the government of Alberta to accord it fair and equitable treatment,” he said.
Canada’s ministry of foreign affairs did not immediately respond to a request for comment.
ISDS cases risk having a “chilling effect” on implementing the stringent climate regulations required to fulfill a pact to curb global warming, Stiglitz said.
The 2015 Paris Agreement agreed to by nearly 200 nations aims to limit a rise in average world temperatures to “well below” 2 degrees Celsius (3.6 degrees Fahrenheit) above pre-industrial times.
An ongoing attempt at reforming the U.N.-administered ISDS rules that are embedded in thousands of bilateral trade treaties offer a rare opportunity to put an end to the “pernicious litigation,” Stiglitz said.
“Until we resolve this ... we (ought) not to have any more agreements” including ISDS clauses, he said.
More than 100 governments agreed to address ISDS shortcomings and look at developing alternatives at a U.N. meeting last month, including a European Union proposal for an investment court system, CCSI said.
Reform should include lifting the “secrecy” that clouds ISDS cases, limiting grounds for filing a case, making compulsory the use of domestic courts before the ISDS system, and excluding from damages the loss of expected profits, Stiglitz said.
“Until you resolve all these issues there should be a total moratorium,” he said.