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Energy & environment

Bilateral trade and investment agreements are responsible for some of the world’s most serious environmental crimes. They encourage and protect large-scale mining projects, fossil fuel exploration and extraction, dam construction and infrastructure developments that wreak havoc on our environment. From Alaska to Australia, local communities are facing issues of deforestation, water pollution, fisheries collapse and climate disruption that can be traced to investment projects or development programmes that were financed, framed or supported thanks to a “free trade” agreement (FTA) or a bilateral investment treaty (BIT) negotiated between two or more governments.

FTAs commonly include chapters that guarantee access to fossil fuels such as oil and gas, and to raw materials such as wood and wood pulp. For example, the energy chapter in the North American Free Trade Agreement (NAFTA), which applies to trade in energy goods between Canada, Mexico and the US, has facilitated trade in environmentally dangerous fossil fuels by obligating Canada to maintain a fixed share of energy goods exports, including oil and gas, to the United States. The proposed energy chapter in the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the European Union, which would serve as a template for future trade deals, explicitly calls for the automatic export of oil and gas from the United States to the European Union. Similarly, under the Trans-Pacific Partnership (TPP) between the United States and 11 other Pacific Rim countries, the US Department of Energy would be required to automatically approve liquefied natural gas (LNG) exports to all countries in the pact including Japan, the world’s largest LNG importer. These kinds of rules expand markets for dirty energy and promote extractivist projects that directly cause climate change.

Broad investor protections included in FTAs and BITs also present a grave threat to environmental justice. Investment rules in FTAs and BITs grant expansive rights to multinational corporations at the expense of the public welfare and the environment. These rights commonly include, for example, a guaranteed “minimum standard of treatment” and “fair and equitable treatment”—vague standards that have been interpreted by investment arbitration tribunals as requiring governments to pay foreign investors for policy changes that do not conform to their “expectations.” These policy changes are often directly aimed at environmental protection.

FTAs and BITs also commonly establish an investor-state dispute settlement (ISDS) mechanism that foreign investors can turn to if they believe a policy change, such as a new restriction on fossil fuel extraction or new regulations of a mine, violated one of their broad investor rights. With ISDS, a foreign investor can bypass domestic courts, bring its case to an arbitration tribunal of three private lawyers who are not bound by legal precedent or an appeal system, and demand taxpayer compensation for the profits it hypothetically would have earned without the policy change.

While the investor-state system has existed for decades, corporations’ use of ISDS has surged. To date, energy giants such as Exxon Mobil, Shell, Chevron, BP, and Occidental Petroleum have launched nearly 700 cases against over 100 governments using this provision of FTAs or BITs. Foreign investors have launched more ISDS cases in each of the last five years than in the first three decades of the ISDS system combined. And increasingly, corporations are using the ISDS system found in these trade and investment agreements to challenge environmental policies. Indeed, half of the new ISDS cases launched in 2014 stem from investments in power generation, mining, or oil or gas extraction. The targets of past ISDS cases have included a fracking moratorium in Quebec, a nuclear energy phase-out and new coal-fired power plant standards in Germany, a court order to pay for Amazon pollution in Ecuador, a requirement to remediate toxic metal smelter emissions in Peru, and an environmental panel’s decision to reject a mining project in Canada.

In addition, a long-standing tenet of the free trade paradigm is that governments cannot privilege local goods or producers over foreign ones. Recently there have been a string of cases at the World Trade Organization (WTO) challenging “buy-local” rules in renewable energy programmes. As a few examples, Japan and the EU have used WTO challenges to strike Ontario, Canada’s “buy-local” rule out of its landmark clean energy programme and the U.S. is challenging similar rules in India’s national solar program. These rules are also found in bilateral trade and investment deals, undermining local initiatives to build sustainable economies.

The neoliberal, corporate-driven model promoted by FTAs threatens our ability to revitalise local economies, ramp up clean energy and achieve food sovereignty. In order to address the climate and other environmental crises, no less than system change is necessary. This means producing and using products and services, from food to transportation to energy, sourced from and embedded in local economies. It means promoting renewable energy programs that encourage local production of green technologies. But none of that will occur unless we roll back the powers and privileges granted to corporations in domestic laws and international policies, starting with today’s current crops of trade and investment deals.

Contributed by Ilana Solomon, Director, Sierra Club Responsible Trade Program

last update: March 2016


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