ISDS does not support renewables investment
There is no evidence to support the claim that ISDS and the ECT help to attract and protect investment in clean energy technologies. Investment Agreements and investment protection measures do not figure in the 167 criteria used by Bloomberg New Energy Finance to assess countries’ attractiveness for renewable energy investment.14 Indeed, countries that have not signed or have recently terminated Investment Agreements are ranked by Bloomberg New Energy Finance as providing the best opportunities for renewable energy investors.15
These findings are congruent with a broader evidence base that suggests that Investment Agreements like the ECT do not contribute to investors’ decision-making. Multiple recent studies have demonstrated that investment protection measures have little to no effect on Foreign Direct Investment to a country.16
The case of Spain further debunks the myth that investment protection supports the clean energy transition. Spain is the most sued country under the ECT, largely because of changes to its renewable subsidy schemes. The Spanish government’s Feed-in-Tariff scheme created a highly lucrative environment for investment in solar energy, attracting capital from international investors and financial institutions.
However, the government cut the Feed-in-Tariff in 2008 due to the financial crisis. A torrent of ISDS cases have ensued under the ECT: Spain received 51 claims, of which 27 have already been resolved, 21 of them in favour of the investor.17
An estimated €8 billion is being claimed by foreign investors, with €1.2 billion paid out so far by the government in cases it has already lost – a figure that equals Spain’s commitment for spending on climate change, and five times its 2021 spending on measures to alleviate energy poverty.18 The beneficiaries of these claims are not renewable energy companies. On the contrary, 89 per cent of the claimants are financial institutions and investment funds, for whom the energy transition is little more than a source of profit.19 Indeed, in half of the cases, the companies suing Spain also had investments in the coal, oil, gas, and nuclear energy sectors.20
As such, while at face value the case of Spain looks like an example of ISDS being used to defend renewables investment, this turns out to be far from the truth. In fact, what we see here is ISDS being used to line the pockets of investors that have no particular interest in renewable energy. Meanwhile, government funds that could have been used to spearhead ambitious climate policy and clean energy investment are depleted. Some domestic investors even registered a shell company in an ECT member country to sue the Spanish government.21