There is growing concern that provisions in international investment treaties are being used to delay the critically needed transition away from fossil fuels. Although various procedural and substantive reforms have been pursued in recent years, these reforms have thus far failed to tackle the fundamental problems with investment treaties and the investor-state dispute settlement (ISDS) system associated with them. By way of an alternative approach, this article assesses the potential for “climate clubs” to act as a forum for the development of initiatives that range from providing a waiver agreement for ISDS related to fossil fuel assets, to a general ISDS waiver agreement, to a mutual agreement to terminate investment treaties. These initiatives could be implemented in an existing climate club, or a new club could be formed for this purpose.
Policy implications
- Climate clubs focused on the phase-out of fossil fuels (e.g., Beyond Oil and Gas Alliance) and/or fossil fuel subsidies (e.g., Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies) should develop an initiative among members to modify or terminate investment treaties.
- Modification could involve a carve-out of investment treaty protection for the sector covered by the club, a carve-out of investment treaty protection for all fossil fuels, or the complete removal of investor-state dispute settlement (ISDS) from the relevant treaties.
- Governments concerned about the impacts of investment treaties on ambitious climate policymaking could also form a new climate and investment treaty club specifically focused on this issue.
- Collective action to reform the investment treaty regime is preferable, but if these recommendations are not adopted in a timely manner, governments should unilaterally terminate their investment treaties to protect their policy space.
Photo by Johann Knorst