Fossil Fuel Industry Guide to Government Arm Twisting
The framework that gives rise to Carbon Bombs, and the Way Out
Oil & Gas Projects Take Decades
Oil and gas is a natural resource that is used to produce energy. It is a finite resource that needs to be explored, extracted, stored, refined and distributed. The exploration phase of the oil and gas business model starts with the discovery of an oil or gas field. The exploration phase can take years or even decades before it yields any results. Once an oil or gas field has been discovered, it needs to be extracted from the ground. This process can take months or years depending on how much oil or gas there is in the field. The extraction process also requires a lot of equipment such as drilling rigs, pipelines and storage tanks. Once the extraction process has been completed, the next step is refining which involves converting crude oil into usable products like gasoline and diesel fuel for cars and trucks. Refining also produces other products such as jet fuel for airplanes and asphalt for roads. Finally, once all these processes have been completed, it’s time to distribute these products to consumers.Since these processes take years or decades, oil and gas companies enter into long term investor friendly agreements with the respective governments.
The Framework that Facilitates Carbon Bombs
Any further expansion of oil and gas is directly in conflict with the climate goals, as per the Paris Agreement. However, we note in our earlier article on ‘Carbon Bombs’ that there are several oil and gas projects which are approved, or under approval process by the same signatories of the Paris Agreement. We identified that these investor-friendly agreements are a major reason for this trend emerging. Fossil-fuel investments can lead to legal conflict because they're central to many of the environmental regulations national or state governments want to do. The Dutch government has announced a plan to eliminate coal-fired power plants and these companies are demanding billions of euros. Last year, the Italian government decided to ban offshore oil drilling in the Adriatic Sea and Rockhopper sued as they would have been deprived of future profits.
A new study published in Science estimates that governments could be on the hook for $340 billion in legal claims, a sum so large that it could cripple the finances of developing countries that take climate action at a time when it is desperately needed. It's a concern that legal action could affect the switch to clean energy. Even if it doesn't happen, the mere threat of it might encourage people to invest more in fossil fuels for a number of years. , which would, in turn, make it more difficult to reduce the carbon pollution that causes climate change. The study was conducted by researchers at Stanford University and the University of Chicago. It focused on countries that are taking action to reduce their greenhouse gas emissions and using their markets to incentivize clean energy alternatives. The authors found that developing countries in particular could be impacted by these kinds of lawsuits, since they don't have a large enough market or government support for renewable energy projects.
It's not hard to imagine how this might happen. At issue are what are known as investor-state dispute settlement (ISDS) systems, which are basically a way for corporations to sue national governments over alleged infringement of so-called "free trade" rules. .Critics have long argued that these systems undermine democratic principles and give corporations too much power to bypass legitimate legal options.Recently, there has been a sharp increase in trade treaty litigation. In the past decade, global corporations have filed more than 50 cases each year- just in the last 10 years- according to Public Citizen.ISDS has expanded its scope and it now includes protecting investors from having assets expropriated. Critics argue that supra-national courts like ISDS are unfairly slanted towards multinational corporations and are overriding important protections for the environment and public health.
The International Court of Justice (ICJ) ruled that there is no justification for the continuation of ISDS in international trade. The Energy Charter Treaty is an international treaty allowing European companies to invest in countries from the former Soviet bloc. Recently, some European governments have rethought the treaty and started to reflect on whether it's still applicable considering recent global changes such as Russia's withdrawal from the agreement. The members of the ECT are currently negotiating reforms to the existing treaty, although it is unclear how far they will go to roll back some of the investor protections standing in the way of climate action. The United States has not typically been on the receiving end of ISDS cases, but after President Biden cancelled the Keystone XL pipeline at the beginning of his presidency, TC Energy filed a claim seeking $15 billion in compensation, citing investor protections in NAFTA. The Biden administration has vowed to oppose ISDS in future trade agreements. Opposition to ISDS now spans the political spectrum. Republicans are skeptical of international laws constraining US sovereignty, and Democrats are worried that corporations could use the agreements to subvert regulation.Republicans are beginning to turn against ISDS. They believe it undermines American sovereignty.
What is the Way Out of this Mess?
We would like to look at this from the following tenets:
Do you think oil & gas companies should be compensated for losses, due to a transition to cleaner fuels? This question will haunt us, when we look at every single policy, all the way to personal choices that we make.
Now, let’s turn that question around, if they should be compensated for their losses, should we be compensated for the enormous pollution they have caused?
We believe that the answers lie in, Carbon Dioxide Removal, through a market mechanism as per Article 6 of the Paris Agreement, and for that we need fossil fuel companies to be held financially accountable for their carbon removal obligations. What do you think?