In defence of ISDS, once again
Apparently there are 10 things that must be done to beat climate change. Lots of planning, organising, meeting and talking, obviously - where would activists be without occupations for activists? But this one seems a bad idea:
7. Governments must be free to govern
Investor-state dispute settlement is a legal mechanism contained in many trade agreements, which allows companies and financiers to sue governments in secret tribunals for their policies. It has been used by fossil fuel companies to sue governments that resolved to reduce dependency on coal, oil or gas, or enacted measures boosting renewables: companies have demanded and, in at least $100bn worth of cases, received compensation for loss of earnings.
Climate activists, experts, and many developing countries want an end to ISDS, which they say is a serious legal and financial obstacle to a cleaner world.
They’re not secret tribunals, the UN runs a reporting service. They’re an arbitration system. Say you have a contract with a government. The government then decides not to live up to the terms of that contract - just, say? Where do you go? Into a court system owned, operated and dominated by that government? Or to an independent system outside the control of the government being sued? Which is what ISDS is and that’s all it is. It’s worth noting that governments do, in fact, win a - slight perhaps - majority of cases.
But to the specific. Imagine that switch from fossil fuels to renewables. Renewables require very large upfront capital investments and then the operating costs are relatively trivial. This means the capital risks are greater than with fossil fuels of course. The money is made back over decades. Removing the system by which the investor can hold the government to account - over those decades - is going to lower or increase the risk, thus costs, of such investments? Clearly and obviously increase. Removing ISDS means going renewables becomes more expensive. We’d suggest this is not a good idea.
We are aware that ISDS produces spitting fury among varied leftist groupuscules. Presumably on the grounds that no one should be allowed to limit what governments can steal. But to move up from the specific about renewables and financing costs to the more general about society as a whole. Limiting how much governments can steal seems like a very good idea to us.
Tim Worstall