Environmentalists who fought the controversial Keystone XL oil pipeline thought the project’s cancellation was a “major victory,” but BU research suggests there could be a sting in the tail—thanks to a little-known legal mechanism and a $15 billion lawsuit by the company behind the project. Photo by Bryant Park/AP Photos

Climate Change

How High-Level Lawsuits Are Disrupting Climate Change Policies

BU researchers are pushing for changes to international treaties to better protect the planet after finding fossil fuel companies are increasingly suing countries for billions over climate policies

For over a decade, the highly controversial Keystone XL oil pipeline between Canada and the United States was on-again, off-again. After getting kicked around like a political football as it passed between three different presidential administrations—blocked by Barack Obama, restarted by Donald Trump, called off by Joe Biden—its final demise in 2021 was heralded as a “major victory” for the climate activists and Indigenous people groups who fought against it.

But Boston University researchers are warning that the continued legal fallout from canceling the pipeline could actually stall climate action. That’s because the Canadian company behind Keystone XL, TC Energy, is suing the United States government for $15 billion in an attempt to regain lost profits. To do it, they’re using a contentious legal mechanism called an investor-state dispute settlement, or ISDS—a clause in bilateral investment treaties and free trade agreements that allows a private entity to sue foreign governments outside of its home court system in order to protect their investments. BU research has shown ISDS cases are increasingly being used to target and take down climate-friendly policies.

“This case is the largest ISDS ever brought by a fossil fuel investor, and definitely the largest claim initiated against climate-related policy,” says Kevin P. Gallagher, a BU Frederick S. Pardee School of Global Studies professor of global development policy and director of the BU Global Development Policy (GDP) Center. Experts at the center found that ISDS cases brought by fossil fuel companies could result in more than $340 billion worth of suits in countries around the world. The findings were published in Science.

“That’s about as much as climate finance in a given year,” says Gallagher. He worries that if passing regulations—like suspending drilling or rejecting pipelines—comes with the threat of costly lawsuits from private industry, governments could be less inclined to pass new climate policies. This presents a huge problem as the climate crisis accelerates, Gallagher says, and the need to transition away from fossil fuels grows more urgent than ever.

“We need strong treaties to make sure that the economic system flows properly—and, within [the treaties], fair rules,” Gallagher says. “But we’ve given too much power to a private sector that we need to transform.”

His team has been using its findings to advocate for changing international trade deals to better protect countries passing laws that safeguard the environment, such as banning offshore drilling and conserving public lands. It’s an argument they’ve also taken to the United Nations to build international momentum for change.

Keeping Fossil Fuels in the Ground? It’s Not So Simple

If ever completed, the Keystone XL pipeline would have been an extension of an already operational pipeline system that delivers tar sands oil—an “expensive and dirty source of oil,” according to the Union of Concerned Scientists—from Alberta, Canada, to the US. Extracting, processing, and burning fossil fuels is by far the largest contributor of planet-heating greenhouse gas emissions. But the Intergovernmental Panel on Climate Change (IPCC) has warned that strong climate action is being threatened by ISDS cases leveraged by oil and gas companies—a position the GDP Center says its research supports. Gallagher argues that the risks posed from existing ISDS mechanisms need to be addressed swiftly.

In another study, published in Climate Policy, GDP Center researchers found that the majority of the financial risk of ISDS falls on countries in the Global South, undermining climate justice commitments set by the United Nations. Under the Paris Agreement, climate finance needs to be flowing from the Global North to the Global South, not in the opposite direction, says Rachel Thrasher (LAW’07, Pardee’08), a coauthor on the papers and a researcher with the center’s Global Economic Governance Initiative.

“Much of the conversation around climate action and climate change is oriented around the high costs of climate action and the need for rapid, enormous amounts of climate finance,” Thrasher says. “All except perhaps the most wealthy countries are struggling to keep up and pull together enough public investment to support the energy transition. These legal claims and processes, and the risk of them, put unnecessary strain on already fiscally strapped countries.”

After publishing the findings, the researchers filed written testimony to the United Nations Office of the High Commissioner for Human Rights, which was then presented to the UN’s General Assembly last October. One of their key recommendations was to reform the world’s largest international energy agreement, called the Energy Charter Treaty (ECT)—which was created at the end of the Cold War to facilitate trade and investment in oil, gas, and coal around the world. The treaty, they argue, has become an obstacle for climate policy, and is being used to protect fossil fuel companies raising investor-state disputes.

For example, after Italy banned offshore drilling in 2015, a UK-based oil firm called Rockhopper Exploration filed an ISDS against the European nation using the ECT, and won the case in 2022. Italy was directed to pay over $200 million (190.7 million euros) to the firm.

But according to Thrasher, momentum has been building for change, with countries withdrawing from the ECT, and calling for updating the language to lessen the legal risks to countries that do withdraw.

“I am hoping to inform policymakers that investment treaties, especially with ISDS mechanisms, cause more harm than good for their national populations,” Thrasher says. She noted in a recent GDP Center article that the pressure is still building “for European Union member states to execute a coordinated withdrawal from the Energy Charter Treaty.” Despite research supporting a coordinated withdrawal, the future of the treaty is still uncertain.

Still, Gallagher believes that his center’s work informing and quantifying the risks of ISDS played a small part in getting the ball rolling.

“I’d like to see treaties reformed so that they can encourage and accelerate transition for clean energy,” Gallagher says. “And, at the high political level, make sure that these pieces are removed entirely from existing treaties.”