TNI | 21 September 2023
Energy Transition Mythbusters: Myth #6
Investment protection is necessary to encourage energy transition investment
by Lavinia Steinfort and James Angel
International investment treaties, are presented as necessary to encourage investments in renewable projects, which otherwise would be too risky for investors. However, treaties like the Energy Charter Treaty (ECT), have become powerful weapons for fossil fuel corporations and investment funds, since they can sue governments at international tribunals to challenge policies that reduce their profits, or that could do so in the future. So far, the Treaty has been signed by 53 member states in Europe and Asia, and they are trying to expand into Africa, the Middle East and Latin America. This article debunks the myth and points out how such treaties are undermining governments’ capacity to implement democratically agreed climate policies.
Key takeaways
- Investment protection measures are NOT necessary to encourage energy transition investment.
- ISDS enables corporations to sue governments for policies in the public interest that reduce their profits, including hypothetical future profits.
- ISDS is being used to block climate action and support the fossil fuel industry, who repeatedly sue governments for measures that seek to reduce fossil fuel production and consumption. Multiple countries including Denmark, France, Spain, Germany and the Netherlands are leaving the ECT because of the threat it poses to climate targets and energy transition.
- ISDS does not protect or encourage renewables investment: multiple studies show that investors do not take into account the presence of Investment Agreements in their decision-making. Investment Agreements and investment protection measures do not figure in the 167 criteria used by Bloomberg New Energy Finance to assess countries’ attractiveness for renewable energy investment.
- ISDS undermines domestic legal systems and government sovereignty. It creates a shadow legal system that is highly untransparent and unaccountable, further concentrating power in the hands of international investors and corporations.
- Promoting governments’ capacity to introduce ambitious energy transition policies means dismantling the ECT and ISDS schemes more broadly.
- Instead of international arbitration that favours energy multinationals and foreign investors, we need an international legally binding instrument to hold energy multinationals accountable for their human rights violations.