Trade Deals and the Paris Climate Agreement

By Ilana Solomon
October 6, 2016

The Paris Climate Agreement is now a reality. More than 55 countries representing over 55 percent of global greenhouse gas emissions have ratified the pact, which means the historic agreement is set to enter into force faster than was ever anticipated. As we celebrate this landmark and get ready to grapple with the next steps of how to implement it—a key topic of discussion at COP 22, the upcoming international climate conference in Marrakesh, Morocco—the U.S. Congress may soon vote on the massive Trans-Pacific Partnership (TPP) with 11 other countries, and the administration continues to negotiate the Transatlantic Trade and Investment Partnership (TTIP) with the European Union.

The key question, therefore, is do our trade and investment agreements—current and proposed—create the space, send the right signals, and clear the path for the U.S. and other countries to meet their Paris commitments? The answer, on all fronts, is a resounding “no.”

At the core of the Paris agreement is a commitment to keep global temperatures to “well below” 2 degrees Celsius, with a goal of keeping warming below 1.5 degrees. To meet that goal, each country in the agreement must submit an emissions reduction target, officially called a Nationally Determined Contribution, and construct a plan to meet that target.

The U.S., for example, set a target of reducing its emissions by 26-28 percent below 2005 levels by 2025. While the U.S. has a number of policies in place or proposed to help meet that goal, most notably the Clean Power Plan, it, like other countries, will need to do more than it is doing now in order to meet its target.

There are several ways, however, in which status quo trade deals make it more difficult for countries, including the U.S., to put in place the policies necessary to fulfill their Paris commitments.

First, trade and investment agreements commonly include rules that empower multinational corporations to directly challenge government policies in private tribunals. In these tribunals, corporate lawyers can order governments to pay unlimited cash compensation if a new climate or other policy cuts into corporate profits. This “investor-state dispute settlement” system has already empowered multinational corporations—including big polluters like Shell, BP and Chevron—to launch more than 700 cases against the policies of more than 100 governments.

While numerous public interest policies are at risk, environmental policies have been a favorite target of corporations. Half of the new investor-state cases in 2014 targeted policies affecting power generation, mining, or oil and gas extraction, for example.

If the TPP and TTIP were to go into effect, cases challenging environmental and climate policies are likely going to be even more common. The TPP and TTIP would more than double the number of fossil fuel corporations that could challenge U.S. climate and environmental safeguards in private tribunals. (The Sierra Club’s new map shows how the TPP and TTIP would grant extraordinary new protections to more than 400 polluting projects across 48 states.) And of course it’s not just U.S. policies at risk; the two pacts would newly empower the U.S. parent corporations of more than 70,000 firms to challenge the policies of TPP and TTIP governments.

One need not look back far in history to see how a vast expansion of the investor-state system could interfere with the new policies that will be necessary to implement the Paris agreement. In November 2015, after years of engagement from farmers, ranchers, indigenous people and millions of activists, the Obama Administration rejected TransCanada’s Keystone XL pipeline. The rejection was historic not only because helped avert 8.4 billion metric tons of carbon dioxideemissions, but also in that it marked the first time the U.S. denied a major fossil fuel project over climate change concerns. Just months after the rejection, however, TransCanada used the investor-state system in the North American Free Trade Agreement (NAFTA) to sue the United States, in a private tribunal, for more than $15 billion.

This is troubling for several reasons, but of utmost concern is that this investor-state case, like many others, sends a signal that countries which put in place policies to meet their climate goals are vulnerable to multi-billion dollar trade litigation before unaccountable and unpredictable tribunals. Losing an investor-state case over a new policy could cost a government well over a billion dollars, while there is no financial penalty for not meeting one’s Paris climate commitment. This creates a perverse incentive for governments to meet trade obligations over climate obligations that could undermine the Paris agreement by deterring countries from putting in place the new policies that are required to meet Nationally Determined Contributions. We cannot afford to create new stumbling blocks to climate action by dramatically expanding this corporate tribunal system through the TPP and TTIP.

Another way in which current and proposed trade agreements threaten the ability of governments to fulfill their Paris commitments is by deepening our reliance on dangerous fossil fuels such as fracked gas.

Meeting the U.S. Nationally Determined Contribution, for example, will require the U.S. to stop the enormous natural gas buildout that is underway. Yet the TPP and TTIP would put in place rules that would actually facilitate expanded gas exploration and infrastructure. The TPP, for example, would require the U.S. Department of Energy to automatically approve all exports of liquefied natural gas (LNG) to countries in the agreement, including Japan, the world’s biggest LNG importer. TTIP would require the U.S. to automatically approve exports of fracked gas to the EU, the world’s third-largest LNG importer.

To safeguard the Paris agreement, we urgently need to bring trade policy into alignment with climate policy. The first step to alignment is to stop Congress from approving the TPP this year. Now is the exact wrong time to lock in a new trade deal that would undermine our climate goals.

Second, we need to engage in a serious conversation about how to transform our trade policy so that it supports—not undermines—climate policy. This could include, for example, writing into trade agreements rules that prevent challenges to climate policies. It could include mandating that countries put in place and implement the policies necessary to fulfill their Paris climate commitments. It could include replacing the investor-state system with new rules that help protect investments in renewable energy. And it could include rules that not only protect the ability of governments to limit fossil fuels and encourage clean energy, but actually require such forward-thinking policies.

2016 is the best opportunity we have to move away from a high-emissions trade model and toward trade policies that support our climate goals. Let’s start by rejecting the TPP and then turn our focus to building a new, climate-friendly, model of trade that will help countries exceed their Paris commitments.

Ilana Solomon is director of the Sierra Club’s Responsible Trade Program. The views expressed here are hers and not of the Earth Institute. To learn more about these issues, join Solomon (@ilana_solomon1) at the 11th annual Columbia International Investment Conference: Climate Change and Sustainable Investment in Natural Resources: From Consensus to Action. For more information, see here.