When Nicolas Hulot became Minister of the Environment in France in 2017, he gained not only political power but also public support. As a renowned environmentalist, French people believed he could be a much-needed climate champion, who could follow through and deliver on the promise of the Paris Climate Agreement. But this hope was quickly confronted with a huge obstacle: France is a signatory to various investment treaties, and oil and gas companies are prepared to use investor-state dispute settlement (ISDS) to challenge any action on climate change.
It was supposed to be “the” French law on fossil fuels. In the summer of 2017, the French Environment Minister was feeling the heat of the climate crisis and the need for urgent action. He drafted a law to put an end to fossil fuel extraction on all French territory, including those overseas, by 2040 – no more oil or gas was to be extracted from the ground after that year.1 France was making steps towards transforming the words of the Paris Agreement into a reality.
The first draft of the law would have allowed a progressive phase-out of fossil fuel extraction as it banned the renewal of exploitation permits: some oil and gas projects would have ended as soon as 2021, and only a few projects would have still existed by 2030.
Juliette Renaud, Friends of the Earth France2
But Hulot was not the only power-broker to work hard over the summer of 2017. The “Hulot law”, as it was later called, went through the benches of the French Council of State – a procedure to ensure that the law is coherent with the French Constitution. However, private law firms who make money when investors sue states under ISDS also closely examined the law, but through a very different lens.
Corporate damages or climate change: the choice politicians have to make
In August 2017, the Council of State received several lobby letters on the Hulot law.3 One came from a private law firm, Piwnica et Molinié, on behalf of Canadian oil and gas company Vermilion. With 26 fossil fuel extraction sites in France, including many oil projects in the Paris region,4 Vermilion is the most important fossil fuel producer on French territory, producing almost 75 per cent of national oil. The company and its lawyers threatened to sue France under ISDS if it pushed ahead with the Hulot law.
The letter argued that Hulot’s proposed ban on renewing oil exploitation permits violated the Energy Charter Treaty, an international agreement from the 1990s, which includes far-reaching rights for foreign investors. It explicitly says that the Hulot law breaches France’s international commitments under the Energy Charter Treaty (ECT), and refers to six investors rights in the Treaty, such as “fair and equitable treatment of investors” or the fact that signatories “cannot expropriate investments without respecting certain conditions such as the prompt payment of adequate and effective compensation”.5
Vermilion’s lawyers knew that a billion dollar ISDS threat could not be ignored. As Pulitzer Prize-winning journalist Chris Hamby wrote after an 18-month investigation on the issue: “ISDS is so tilted and unpredictable, and the fines the arbitrators can impose are so catastrophically large, that bowing to a company’s demands, however extreme they may be, can look like the prudent choice.”6 And indeed, the French government seems to have reluctantly bowed to Big Oil’s demands.
Governments will fail to regulate in the public interest in a timely and effective manner because of concerns about ISDS.
Kyla Tienhaara, Queens University Canada7
The law to restrict fossil fuels ends up facilitating their expansion
After the summer holidays, both a refreshed Hulot, and a transformed Hulot law, returned for discussion. The September 2017 version allowed for the renewal of oil exploitation permits until 2040, meaning that all current exploration and exploitation projects would continue being developed without any constraints for more than 20 years. Under certain conditions, the final version of the law even allowed exploitation permits to be renewed after the 2040 deadline. Thus the new law would in fact now have the opposite effect to its original aim. And worse, once the new law8 was passed, Hulot signed more fossil fuels permits than his predecessor in the Environment Ministry.9
No one will ever know precisely what level of influence the ISDS threat had in emptying the Hulot law of all its ambitious measures – Vermilion was not the only company active on the issue, with a significant amount of big business lobbying aimed at watering down the regulation taking place. Nevertheless, the ambition of France’s much-respected Environment Minister was clearly killed by well-resourced corporate interests that used ISDS as one powerful secret weapon against an urgent and popular goal: combat climate change. A year after the September 2017 version of his fossil fuels law, Hulot resigned. In his resignation interview, he stated that corporate lobbies had too much influence on environmental policy-making10.
ISDS cases risk having a “chilling effect” on implementing the stringent climate regulations required to fulfill a pact to curb global warming.
Joseph Stiglitz, Nobel laureate11