Can Free Trade Agreements Be Consistent With Climate Change Mitigation?

Originally posted on huffingtonpost.com

Written by Community Solutions Fellow, Bob Brecha

Protecting society against the worst impacts of climate change necessarily means making difficult decisions for the future. One of the potential areas of conflict will be between the "owners" of the global environmental and atmospheric commons (that is, all of us), and owners of natural resources whose use can negatively impact the commons. The concern is that free trade agreements could elevate the rights of possession of fossil fuel resources above that of mitigating climate change.

One of the truly novel sections of the IPCC (Intergovernmental Panel on Climate Change) Fifth Assessment Report (AR5) was the discussion of a carbon budget in the volume on the Physical Science Basis of Climate Change. The carbon budget concept was first proposed several years ago (here and here and here) after it became clear that climate models gave a robust result that serves to simplify the discussion of climate change mitigation strategies: the amount of global average surface warming, relative to the late 19th century, is roughly proportional to the total amount of CO2 emitted into the atmosphere. That is, if you are given evidence that a certain temperature threshold should not be breached, then it is possible to read from a graph how much CO2 can be emitted over all time. 

As a first good estimate, cumulative CO2 emitted into the atmosphere maps directly onto temperature change. Having a 2/3 likelihood of remaining below 2°C by the end of the century (and beyond), total cumulative emissions can be about 3000 Gt CO2. We have already used up approximately 2000 Gt CO2 since the 19th century (80 percent of that in the past fifty years!), so our remaining budget is 1000 Gt CO2, or 25 to 30 years' worth at current consumption rates.

Why is this concept so important? To answer this question we can look at data for how much coal, natural gas and oil are in the ground. Just using up quantities declared as property by either private corporations or national energy companies would result in CO2 emissions of at least 3000 Gt (billion tonnes) of CO2.

There are many important practical questions to ask about how we as a global community will choose to deal with this question of leaving fossil fuels in the ground. An interesting impulse to this conversation has been given by Pope Francis in his encyclical Laudato Si, in which he speaks of the environment, the atmosphere and the earth's climate as parts of the global commons. While this language is not new, the encyclical (and here a particularly good commentary on its implications) discusses in strikingly clear language the competing views of how concepts of public and private property can come into conflict with one another. Instead, we must make trade-offs between how to use different resources, and, in the end, set frameworks for property rights that serve to keep us within the boundaries set by natural planetary systems.

This brings us to the issue of free-trade agreements. Currently dozens of nations are in the midst of negotiations to create additional regions of reduced trade barriers. In contrast to earlier free-trade agreements that often focused on tariffs, these new trade agreements (Trans-Pacific Partnership, or TPP, and Transatlantic Trade and Investment Partnership, or TTIP) are much more wide-ranging. A key question that arises is that of adjudication of property rights and the direct or indirect expropriation of property. The arbiter of any such disputes falls under the mandate of the "Investor-State Dispute Settlement" (ISDS) mechanism in which arbitration panels independent of any national judicial system can hear and make binding decisions. 

Proponents of TPP and TTIP claim that there are many safeguards for environmental regulations written into the agreements (here and here). Opponents say that there are too many loopholes in the agreements, and that the negotiations, as well as the ISDS mechanism, is too secretive and therefore undermines democratic principles (here and here). Two examples under existing agreements serve to illustrate the potential for future disputes about climate change policies. 

Under NAFTA's Article 1110 (Expropriation and Compensation)

"No Party may directly or indirectly nationalize or expropriate an investment of an investor of another Party in its territory or take a measure tantamount to nationalization or expropriation of such an investment ("expropriation"), except: (a) for a public purpose; (b) on a non-discriminatory basis; (c) in accordance with due process of law ...; and (d) on payment of compensation ..."

Note especially the first exception, "public purpose." In a case brought against the Canadian federal government, a U.S. Company, Lone Pine Resources, claims the National Assembly of Quebec violated NAFTA by passing a bill in 2011 that revoked mineral exploration permits near the St. Lawrence River. However the details of the case play out (it is still pending), it is the position of Lone Pine that the Assembly's decision to ban fracking and protect the watershed was "an uncompensated expropriation that lacks a public purpose." This case is being closely watched, and should Lone Pine's position prevail, it would be a deeply worrisome case of private fossil-fuel property rights trumping the protection of the global commons.

A second case involves the Swedish energy company Vattenfall and the German government. Vattenfall owns and operates lignite strip-mines and power plants, but also nuclear power plants. After the 2011 Fukushima tsunami and subsequent decision in Germany to remove nuclear power from its electricity mix over the next decade, two of the Vattenfall nuclear power plants were permanently closed, after having been periodically offline for extended periods prior to that time. Vattenfall is suing the German government for nearly four billion Euros, with the case being handled by the International Centre for Settlement of Investment Disputes (ICSID), not a German national court, which is where other utilities are bringing similar claims. 

In principle there are environmental (and labor) protections built into free-trade agreements. The question is whether the balance of power in tribunals with no democratic oversight or connections to civil society will be in favor of corporate entities able to name specific financial sums they believe have been "taken," or more vaguely-formulated promises to protect the environment. Most of the cases to date have been small potatoes, relatively speaking. The 2000 Gt of buried potential CO2 held as reserves on the books of companies and nations would have a value of over $100 trillion. Economists would like to see a price on carbon as a means of reducing emissions. Given the uncertainties of how free trade agreements might be enforced, would it even be possible to enact a carbon price or other policies that would indirectly devalue fossil-fuel resources? 

The best way to avoid this whole issue is for all of us to work quickly to stop using fossil fuels, decreasing demand and thereby reduce toward zero the value of this resource. That would help keep it in the ground, and even a free-trade agreement can't allow corporations to sue individuals for choosing not to use their product.