Coal Company Sues UK After Environmentalists Win Major Climate Case in British Court – Inside Climate News

A coal company is pushing back against the United Kingdom after a British court canceled a proposed mine due to a flawed accounting of its potential climate impacts.

On Friday, the mine’s Singaporean and U.K. investors initiated arbitration proceedings against the British government based on a 1975 treaty between the U.K. and Singapore that allows foreign companies to bypass national courts and challenge governmental policies before panels of arbitrators, part of a little-known but powerful system embedded in thousands of international investment agreements and contracts. 

Last September, a British court struck down a planning permit for the underground mine, agreeing with environmentalists that the government had failed to consider the project’s climate impact, as required by U.K. law. West Cumbria Mining had argued that its mine would not increase greenhouse gas emissions because, among other reasons, the company would purchase carbon credits.

The project would have been the U.K.’s first new coal mine in 30 years. According to court documents, burning the coal extracted from the mine over its lifetime would have pumped about 220 million tons of carbon dioxide into the atmosphere, an amount roughly equivalent to the annual emissions of Spain. 

Neither West Cumbria Mining nor its lawyer responded to requests for comment, and the legal document initiating the arbitration is not publicly available as of Monday. Earlier this year, the company abandoned its permit application for the mine.

A U.K. government spokesperson said in a written statement, “We don’t comment on ongoing legal proceedings.” 

The arbitration claim was brought in a system known as investor-state dispute settlement, or ISDS. It comes as a growing number of mining and oil and gas companies are using ISDS to seek hundreds of millions to billions of dollars in response to governments’ policies aimed at protecting the environment and human rights, including plans to phase out fossil fuels. 

It’s unclear how much in damages West Cumbria Mining is seeking in the new arbitration. Unlike in most court cases, public participation and access to information in ISDS is limited: The amount some companies seek or win in awards and the very existence of some cases is kept private. A 2023 report from a former United Nations special rapporteur on the human right to a healthy environment said close to one-third of fossil fuel ISDS cases are settled, with settlement documents kept confidential from the public. 

The way that ISDS is built into investment treaties and contracts gives foreign businesses expansive rights. They can seek huge amounts of compensation from governments—including unearned future profits—if they believe the value of their investment has been harmed. When foreign companies prevail, taxpayers foot the bill. 

Supporters of ISDS say it protects foreign investors from biased national courts and encourages investment in developing countries, though there is no conclusive evidence supporting that assertion. 

Critics say ISDS itself is biased, with a thumb on the scale for companies: Only companies can initiate claims against governments, not the other way around. Most arbitrators are corporate lawyers, and they’re not barred from also representing investors before the system or acting as paid expert witnesses.

Last year, a multipart investigation by Inside Climate News showed that oil, gas and mining companies turning to ISDS have won billions of dollars in compensation from governments, with developing countries most impacted. The series noted that cases targeting climate action represented the newest wave of suits.

West Cumbria Mining’s arbitration claim against the U.K. is the latest indicator that the system is a major hurdle to efforts combating climate change, according to Tom Wills, director of Trade Justice Movement, a U.K.-based coalition of charities working on trade issues. 

“Unless we have government action to move against the ISDS system, climate policies will be completely unaffordable because governments will be forced to factor in huge amounts of compensation paid into fossil fuel companies,” Wills said. 

Researchers have estimated that the value of oil and gas projects covered by ISDS treaties could cost governments as much as $340 billion. The assessment does not include an estimate for coal mining investments. 

While not all ISDS claims are made public, there have already been several high-profile arbitrations over governments’ climate policies, including a $15 billion claim filed by a Canadian pipeline developer against the U.S. government over cancellation of a permit for the Keystone XL pipeline; a $20 billion claim filed by a U.S. energy company over Canada’s quashing of a liquified natural gas project; and a claim, damage amount redacted, brought by a Swiss investor against Germany over its coal phaseout. 

In that case, the Swiss company, Azienda Elettrica Ticinese, said in the filing that the case is about “the very basic question of who should bear the consequences after a fundamental change of policy.” The company argues that the early shutdown of the coal plant means shareholders will not recoup their investment or make a profit. “If a State forces an investor to sacrifice its lawful investment for the public benefit, then the State has to pay compensation,” the company said in its request for arbitration. 

Azienda Elettrica Ticinese did not immediately respond to a request for comment. 

Legal experts and activists say costly claims are why the mere threat of an ISDS arbitration can create “regulatory chill,” meaning governments might avoid enacting environmental protections out of fear they could face expensive judgments. 

That’s a major problem, according to two recent international court opinions. In July, both the International Court of Justice and the Inter-American Court of Human Rights issued advisory opinions affirming that governments have binding legal obligations to urgently address climate change. Both rulings, either in the main opinion or in a judge’s individual statement, indicate that ISDS treaties can have a chilling effect on governments’ climate actions. 

The Intergovernmental Panel on Climate Change, a body of hundreds of scientists charged with advising governments on climate change, has also identified ISDS as a hurdle to necessary climate action. 

Wills compared the growing number of climate-related ISDS claims to a similar wave of earlier arbitrations filed by tobacco companies over governments’ health regulations, like warning labels on cigarettes. 

“As we start to have more policies to respond to the urgency of climate change, fossil fuel companies will reach for whatever tools are available to them,” Wills said.

His organization, other advocacy groups and legal experts have been calling on governments to more speedily reform the ISDS system. “They are moving at glacial pace,” Wills said of those efforts. 

The United States, Canada and several European countries have moved to limit their exposure to ISDS in recent years. Last year, the U.K. became the 10th country to withdraw from the Energy Charter Treaty, a pan-European pact often used by energy companies to sue governments. But such withdrawals do nothing to abolish the “sunset clauses” in many ISDS treaties that allow companies to bring claims for decades after withdrawal. 

Many of the wealthy nations limiting their own exposure to ISDS have sought to maintain their ISDS treaties with developing countries, which are often sued by companies from North America, Europe and Australia. U.K. companies, Wills said, are the third most-active users of ISDS.