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International investment governance and achieving a just zero-carbon future

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CCSI | November 2022

International investment governance and achieving a just zero-carbon future


The Intergovernmental Panel on Climate Change (IPCC) has estimated that the world has
less than 30 years to fully decarbonize the global economy and avoid catastrophic and
irreversible climate change.1 Global decarbonization will require tremendous effort and will
have implications for each individual country. As part of the Paris Agreement, states have
committed to limiting global warming to 1.5°C compared to pre-industrial levels. The
International Energy Agency (IEA) has supported the conclusion that the world must achieve
net-zero greenhouse gas emissions by 2050, with significant advances by 2030, to have a
chance of reaching this goal.2

To realize a zero-carbon future, 80% of all remaining fossil fuel assets must remain in the
ground,3 and according to the IEA, no new gas or oil fields should be approved, nor should
any new coal mines be developed.4 A rapid phase-out of fossil fuel energy must occur—little
or no fossil fuel energy infrastructure can be built, and much of the existing infrastructure
may need to prematurely retire.

The shipping and transportation sectors—from air travel and cargo shipping to public
transportation systems in cities around the globe—must also be rapidly decarbonized.
Energy effic ienc y standards for automobiles, buildings, and applianc es will need to
tighten. Other c ontributors to industrial emissions, such as the produc tion and
refinement of crucial substances and materials such as cement, steel, and fertilizer must
also be reduced or replaced.5

At the same time that the vast majority of fossil fuel reserves must be left in the ground and
existing infrastructure retired, trillions of dollars will need to be invested for the world to scale

up access to affordable renewable energy.6 The zero-carbon energy transition will require
an unprecedented mobilization of financial resources towards investment in renewable
energy generation, transmission, distribution, and storage; retrofitting of existing
infrastructure; the development of new technologies; and carbon capture as needed.
The Paris Agreement acknowledges the need to Investment will be needed to “expand
infrastructure and upgrade technology for supplying modern and sustainable energy
services for all in developing countries, in particular least developed countries, small
island developing States and landlocked developing countries.”7 Fortunately,
many developing countries have tremendous renewable energy potential, particularly in
wind, solar, geothermal, and hydro power.8 Many also have the minerals necessary to
produce renewable energy technology—minerals which the rest of the world will
depend upon.9

Many regions depend on fossil fuel extraction for revenue as well, and the majority of fossil
fuel assets that must be stranded to achieve climate commitments are located within their
borders. For example, nine countries in Africa are represented in the top 40 countries with
the highest share of GDP coming from oil and gas revenues—dependence ranges from
12% to 81% of government revenues over a three year period.10 Lower income oil-
producing countries will be hit especially hard as oil prices decrease, since the cost of
production will not be globally competitive as demand decreases.

Although they have contributed least to historic emissions, developing countries will be
the most impacted by climate change and the energy transition. Developing and emerging
economies in Africa, Asia, and the Americas are the most vulnerable to the physical and
financial impacts of climate change. They have the lowest levels of electrification and
the highest dependency on fossil fuels for energy. According to the most recent IPCC
report, at least 3.5 billion people live in places that already desperately need to adapt to
the impacts of climate change; the report estimates that developing countries alone will
require USD 127 billion per year for adaptation costs.12

It is crucial that these countries receive the foreign direct investment (FDI) and financial
support required to mitigate and adapt to climate change and to address climate-related
impacts and damages.13 The financing gap in developing countries is compounded by
poor sovereign risk ratings, due to ill-designed rating systems.14

Until recently, international investment law and policy has been largely overlooked
by negotiators at international climate change convenings such as the Conference of
the Parties (COPs) to the United Nations Framework Convention on Climate Change
(UNFCCC), despite the important role it plays in either advancing or undermining efforts
to address climate change.

The most recent IPCC report recognizes that while investment treaties have the potential
to play a role in advancing necessary investments, the treaties as drafted risk delaying
or preventing necessary climate action.15 As recognized by the IPCC report, investor
protections granted through international investment law allow fossil fuel corporations,
other high-emitting investors, and their shareholders to sue governments over actions
and regulations—including those taken to comply with climate commitments—that
negatively impact their investments’ bottom lines.

However, a wholly new international investment regime designed with climate and other
global goals in mind could be used as a tool to accelerate the investments needed to
address the climate crisis and to facilitate international cooperation to achieve global
climate and other development goals

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 source: CCSI