Transatlantic trade & investment deal favors energy

Chevron fracks Europe: Transatlantic trade & investment agreement favors big energy companies and threatens the environment

Chevron fracks Europe: Transatlantic trade & investment agreement favors big energy companies and threatens the environment

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“Chevron has acquired exploration acreage in Eastern Europe offering prospects for production of natural gas located in shale beds.” —Chevron statement of support for Transatlantic Trade and Investment Partnership

“We can’t let little countries screw around with big companies like this – companies that have made big investments around the world.” – Unnamed Chevron lobbyist, quoted by Michael Isikoff in Newsweek

Chevron and other transnational corporations are lobbying for a trade deal between the United States and the European Union — the Transatlantic Trade and Investment Partnership (TTIP), also often referred to as the Trans Atlantic Free Trade Agreement (TAFTA).[i]  At bottom, the negotiating objectives for a TTIP agreement and its all-important investment chapter have little to do with free trade. Tariffs are already low between the United States and Europe, and the exchange of goods and services is robust. The United States already has free trade with Europe, and vice versa. But, the TTIP has everything to do with corporate power and confining the authority of democratic government and an independent judiciary — most prominently in the area of environmental policy.

The U.S. Trade Representative’s office has confirmed press reports that it will seek to include investor-state arbitration in the TTIP, presumably based on the template of the U.S. Model Bilateral Investment Treaty, which Friends of the Earth believes to be flawed. Under the U.S. model, investors may seek awards of money damages, of unlimited size, in compensation for the cost of complying with environmental and other public interest regulations, including climate change measures. A large portion of suits under existing trade agreement investment chapters and bilateral investment treaties that involve challenges to environmental policy are brought by oil and gas companies. Coal mining concerns have also sued.

Investment chapter is a corporate power tool

Chevron and other giant energy companies are demanding a TTIP investment chapter that will allow them to sue governments if environmental or other regulations interfere with their expected future profits by, for example, restricting oil and gas drilling, imposing pollution and oil spill controls or constraining the use of hydraulic fracking techniques to extract natural gas and oil from shale formations.

Chevron sees a TTIP investment chapter as necessary not only to protect its current activities across Europe, including Bulgaria, Denmark, France, Lithuania, the Netherlands, Norway, Poland, Romania and the United Kingdom, but also future activities. This is totally unnecessary given that the United States and Europe have well developed court systems providing generally fair – even corporate friendly – venues for resolving investment disputes.

Furthermore, Chevron hopes a TTIP investment agreement will be extended over time to set a global standard in future agreements.  In the interim, Chevron calls for the inclusion of an “umbrella clause[ii]  in the TTIP investment chapter, which along with standard U.S. model language on a “most favored nation[iii]  obligation could give the company “access” to litigate on oil concession contract and other disputes by way of 1,557 bilateral investment treaties concluded by European nations.  The United States, by contrast, has only 48 “BITs.” 

This is worrisome because Chevron and its peers have a record of using international investment agreements to retaliate against governments, particularly in the developing world,  that attempt to hold these companies accountable,  for example by ordering them to pay the cost of environmental cleanups and the public health measures resulting from their reckless drilling and  toxic waste dumping.

That said, an even more significant threat is posed to measures urgently needed to wind down the “carbon economy” and address the climate crisis. Dirty energy lobbyists, including those of Chevron, could effectively use hypothetical arguments of TTIP illegality to chill government action on both sides of the Atlantic to curtail hydraulic “fracking” for natural gas, deny permits for liquefied natural gas export terminals, close coal-fired power plants, and prohibit new coal mining, oil drilling, and oil/gas pipeline operations, among others.  The TTIP investment chapter could provide cover for U.S. and European officials who are indebted to Big Oil, Big Coal and the LNG lobby for political support or campaign contributions.  In light of the consequences that runaway global warming poses to human civilization and life in all forms on the planet, this is unconscionable.

The U.S. model for investment agreements & Chevron’s recommendations

It is not hard to see why the U.S. model for a TTIP investment chapter is in Chevron’s economic interest:

  • An investment chapter on the U.S. model creates a separate “court” for foreign capital. Foreign investors can bypass domestic courts and bring suit before special international tribunals designed to encourage international investment.
  • The tribunals are biased. An arbitrator serving on one of these tribunals is likely to be an international commercial lawyer who may alternately serve as “judge” one day and return as corporate counsel the next.
  • Corporate and individual investors are granted property and due process rights that are more broadly defined than in U.S. constitutional law or the practice of nations, generally.
  • Investors may seek awards of money damages, of unlimited size, in compensation for the cost of complying with environmental and other public interest regulations.  They may even seek compensation for lost future profits.
  • Damage awards can be large enough to severely stress the public budgets of both small and large countries. The fear of such ruinous judgments can force a country to settle unjust investor claims and to back away from protecting the environment and the public interest.

Chevron in its Federal Register comments to the U.S. Trade Representative elaborates on the advantages of this model and calls for even more stringent investor protections.  The company says it “was heartened by the April 2012 joint U.S.-E.U. announcement of “Shared Principles for International Investment.” These principles include “fair and binding dispute settlement, including investor-state dispute settlement.” The Chevron document explains that “[it] invest[s] billions of dollars each year at home and abroad, investments that require the strongest possible protections.” Michael Isikoff’s quote, from a Chevron lobbyist noted above, says the same thing in less euphemistic terms: “We can’t let little countries screw around with big companies like this — companies that have made big investments around the world.”

As just one example of its overreaching demands, Chevron calls for a definition of a “covered investment” that includes “both existing and future investments, which is critical to sectors, such as energy, with a long investment timeline and an enormous existing investment.” The company also calls for an obligation on “fair and equitable treatment’” including protection for “legitimate investment-backed expectations.” Translated from legalese to plain English, Chevron’s demands would operate as an insurance policy against evolving environmental and climate regulations.  It would be totally unreasonable for governments to have to freeze public policy in place or risk compensating Chevron or other investors for policy changes necessitated by new scientific findings or public expectations for reform.   Particularly with respect to climate policy, policy space for governments should be preserved in the TTIP investment chapter to allow bold action as the effects of global warming become more manifest.

The Rainforest Chernobyl

Chevron knows how to use this kind of investment agreement to serve its interests.

In the 1960s, Texaco, before it was bought out by Chevron, discovered oil under the rainforest of eastern Ecuador. The indigenous people who live in the Amazon region say that over a more than 20-year period, the oil giant intentionally dumped billions of gallons of poisonous waste onto the soil and surface waters and abandoned hundreds of unlined waste pits that leaked chemical toxins and heavy metals into the groundwater. The oil spill was almost twice as large of the 1989 Exxon Valdezincident in Alaska.

The indigenous people and poor settlers of Oriente suffered an epidemic of cancer and other illness that they say resulted from Texaco’s dumping. Death, miscarriages and birth defects cut a swath through communities, threatening some indigenous groups with extinction. The destruction of the rainforest environment, noted for its biodiversity, was similarly devastating. A court-appointed independent expert in Ecuador found that damages from the dumping amounted to $27 billion. Legal consultants to the indigenous community have called the destruction in an area the size of Rhode Island a “Rainforest Chernobyl.”

In January 2012, an Ecuadorian court found Chevron financially responsible for the environmental and public health costs of the dumping and ordered the company to pay $18 billion in damages in order to pay for a clean up and to attend to the people’s health care. Chevron responded by seeking the intervention of an international investment tribunal, claiming the Ecuadorian court decision violated the terms of the investment treaty between the United States and Ecuador. The next month, the tribunal accepted jurisdiction and ordered the government of Ecuador to suspend enforcement of the judgment against Chevron in any court in the world. This was a brazen act, but not a final disposition of the case. The tribunal continues to consider Chevron’s claims for an award of money damages against Ecuador.  (For more information on this case, watch the short Friends of the Earth film, Peril in the Pacific, available at this link: /news/archives/2013-03-new-video-peril-in-the-pacific )

Chevron cashes in

In an investment suit brought by Chevron against Ecuador that preceded the separate-but-related Rainforest Chernobyl litigation described above, an international investment tribunal in March of 2010 awarded the oil giant $700 million in compensation for delays by Ecuadorian courts in resolving claims that the government violated oil contract terms.  The award constitutes 1.3 percent of Ecuador’s gross domestic product.

Contracts between Chevron/Texaco and the Ecuadorian government, dating from the 1970s, stated that the state could buy oil at a reduced price if it was to be used in the domestic market. Chevron claimed that the oil was, then, diverted to the international market and resold at a higher price.  In the 1990s, Chevron/Texaco brought seven suits in Ecuadorian courts seeking $1.6 billion, but for a decade there was no resolution of the cases. Necessary reforms of the Ecuadorian court system had resulted in an avalanche of litigation, overwhelming the system. Six of the seven lawsuits were ultimately resolved and Chevron won only one case. But, the international investment tribunal meeting in the Netherlands, refused to take this into account on the technical grounds that the cases were resolved after the “notice of arbitration” was filed in the Permanent Court of Arbitration.  The tribunal made no finding that the Ecuadorian courts were biased or unfair.

Nonetheless, “[t]he tribunal regrettably did not afford the traditional deference one expects to be given to the decisions of domestic courts,” says Eric Bloom, Ecuador’s lawyer. The tribunal even failed to give weight to Chevron’s submissions in U.S. courts attesting to the fairness of Ecuador’s courts when the indigenous people of the Amazon sued Chevron in the United States, in a precursor suit related to the Rainforest Chernobyl case described above.[iv].

Fossil fuel corporations pile on

Chevron is not alone in cashing in.  A report of the Institute for Policy Studies shows that of 169 cases pending before the International Center for Settlement of Investment Disputes at the World Bank, 23 related to oil, 13 related to natural gas, and 5 related to combined oil and gas projects.  For example:

  • Lone Pine Resources v. Canada:  Lone Pine has filed a “notice of intent” to sue Canada under NAFTA’s investment chapter for a reported $250 million in compensation for action by the Quebec National Assembly to place a moratorium on hydraulic fracking for shale gas and allegedly for revoking permits for oil and gas drilling under the St. Laurence River.
  • Occidental Petroleum v. Ecuador: In October 2012, Occidental Petroleum was granted a $2.5 billion award in compensation for Ecuador’s cancelation of its oil concession for violation of contract terms (plus interest). This outrageous award has created a firestorm in Ecuador where Occidental has been said to be responsible for environmental destruction and implicated in human rights abuses.[v]

The threat to rule of law

Environmental protection depends on the rule of law: it establishes the legal principles, unbiased courts and enforcement mechanisms that make pollution and climate regulation work. Many jurists and legal scholars have been dismayed by the advent of investor-state arbitration, which is intended to circumvent and, in some cases, trump domestic law and domestic courts. For example, a statement signed by a long list of eminent jurists objecting to investor-state arbitration has been transmitted to Trans Pacific Partnership trade negotiators.

Chevron takes the opposite view: “A strong investment protection regime within the TTIP would allow us and other U.S. businesses to better mitigate the risks associated with large-scale, capital intensive, and long-term projects overseas… Investments, such as developing shale gas and tight resources in the United States and Europe, involve long-term commitments and substantial private capital. Robust investment protections enable Chevron, and companies like us, to put our capital at risk in order to provide the energy required to fuel economic growth and energy security.”

Stuart Trew of the Council of Canadians has accurately interpreted the Chevron comments to mean that: “Chevron doesn’t want to take any risk when it invests in fracking or controversial offshore energy projects in Europe. Providing for the world’s fossil fuel needs (or perpetuating our reliance on dirty oil and gas, depending on your perspective) is a public service, according to… [Chevron]. If a community, including countries that are banning fracking for environmental or public health reasons, wants to get in the way of Chevron’s projects, it should have to pay the company for lost business opportunities.”

Sir Edmund Thomas, a former New Zealand Court of Appeal judge sums up the issue in more general terms.  Investor-state dispute arbitration provisions, he says, “… have been used to override the jurisdiction of domestic legal systems; have failed to meet accepted perceptions of the rule of law and the separation of powers; have undermined the basic principle of judicial independence; and have created a significant inequality or imbalance between foreign investors and domestic investors and producers. No sovereign, self-respecting state should accept the dispute arbitration provision in its present form.”

[i] Generally, we prefer to call the agreement TAFTA, but because this blog post quotes from documents that refer to it as TTIP, we will refer to it here as TTIP to avoid confusion.

[ii] An “umbrella clause” typically requires a country that is party to an investment agreement to honor any obligation related to other investment commitments.

[iii] A “most favored nation” obligation, in this context, entitles a plaintiff bringing an international investment suit to be accorded the same treatment by the defendant country as it would accord to a national of a third country, with which the defendant country has concluded an international investment agreement.

[iv] The indigenous people of the Amazon initially brought their claim for damages resulting from toxic dumping in Oriente province in U.S. federal courts: a case that was dismissed on the grounds that the Ecuadorian courts were the appropriate forum and led eventually to the $17 billion judgment by an Ecuadorian court against Chevron.

[v] Ecuador believes it was within its rights to cancel the contract because Oxy: (1) was fined six times for exceeding extraction limits; (2) invested less in the project than contract terms required; (3) failed to provide information on new wells and transfers of crude oil as required by law; and (4) failed to submit required reports on its investments and inventory.

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