Governments risk ‘trillions’ in fossil fuel climate litigation

Governments which enact climate legislation risk being sued for trillions of dollars by fossil fuel companies seeking compensation for lost revenue and stranded assets, according to data that campaigners warn threaten pledges made at COP26.

Energy experts predict that more ambitious climate action from world leaders will significantly increase companies’ use of a tribunal mechanism that has already awarded billions to heavy industry.

Trade agreements such as the Energy Charter Treaty and NAFTA contain investor arbitration clauses, known as investor-state dispute settlement (ISDS), that allow foreign companies to sue governments over actions they say hit profits or investments.

Campaigners say that energy companies are increasingly turning to this type of arbitration to recoup investments as governments accelerate the shift away from fossil fuels.

Jean Blaylock, trade campaigner at Global Justice Now, tells AFP these corporate courts -- “the global trade system’s dirty little secret” -- could “make a mockery” of commitments generated at the COP26 summit.

“We’re seeing the fossil fuel sector use investor-state dispute settlement to hold climate action to ransom,” she says.