Santa Marta process can confront trade protection for fossil fuels, experts say
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Just as Colombia – a coal-producing country that has halted new exploration licenses for hydrocarbons – was set to host the first fossil fuel phase-out summit in late April, the government received notice from a foreign energy firm operating on its soil. It was being sued for millions of dollars.
One day before Colombia hosted representatives from around 60 countries for the first Global Conference on Transitioning Away from Fossil Fuels, Spain-based firm Termocandelaria Power, which operates two of the country’s diesel- and gas-fired power plants, sued the government for $198 million alleging a breach of investor protection rules under a bilateral agreement.
Termocandelaria said government measures since 2024 have prevented its Colombian subsidiaries from receiving full payment for the power they supplied to a public utility, while the Colombian government justified its actions as needed to guarantee financial solvency and deliver electricity to rural communities.
While Termocandelaria declined to comment for this article, the company said in a press release last month that investment protection treaties “are designed to provide a stable and predictable legal framework for long-term investments in strategic sectors”.
The timing shows how trade agreements that offer investors protection when government decisions are seen as causing harm to their business – a system known as investor-state dispute settlement (ISDS) – can hamper the transition away from fossil fuels even when countries are pushing for it. Governments in the Global South are particularly exposed, experts told Climate Home News.
Just as Colombia – a coal-producing country that has halted new exploration licenses for hydrocarbons – was set to host the first fossil fuel phase-out summit in late April, the government received notice from a foreign energy firm operating on its soil. It was being sued for millions of dollars.
One day before Colombia hosted representatives from around 60 countries for the first Global Conference on Transitioning Away from Fossil Fuels, Spain-based firm Termocandelaria Power, which operates two of the country’s diesel- and gas-fired power plants, sued the government for $198 million alleging a breach of investor protection rules under a bilateral agreement.
Termocandelaria said government measures since 2024 have prevented its Colombian subsidiaries from receiving full payment for the power they supplied to a public utility, while the Colombian government justified its actions as needed to guarantee financial solvency and deliver electricity to rural communities.
While Termocandelaria declined to comment for this article, the company said in a press release last month that investment protection treaties “are designed to provide a stable and predictable legal framework for long-term investments in strategic sectors”.
The timing shows how trade agreements that offer investors protection when government decisions are seen as causing harm to their business – a system known as investor-state dispute settlement (ISDS) – can hamper the transition away from fossil fuels even when countries are pushing for it. Governments in the Global South are particularly exposed, experts told Climate Home News.
As part of the official academic contribution to the Santa Marta conference, researchers recommended that governments should “recognise” ISDS as a barrier to the energy transition, and called for negotiations on an international initiative to dismantle ISDS protection for fossil fuel investments, either through “a new standalone” international agreement or as part of a broader treaty.
Mario Osorio, a research fellow at the Center for Economic and Policy Research (CEPR), said Termocandelaria’s claim against Colombia “puts in perspective how serious, concrete and real these threats are” for developing countries.
Osorio said the second fossil fuel transition conference – to be held next year in Tuvalu – presents an opportunity for advancing ISDS reform from discussion to “something more concrete”.
Plenary of the first conference on the Transition Away from Fossil Fuels in Santa Marta. (Photo: Ministry of Environment of Colombia)
Colombia pledges to exit ISDS
ISDS is a mechanism in international trade that allows foreign corporations – many of them linked to fossil fuel interests – to sue governments in international arbitration courts. One 2022 study estimated that possible legal claims from fossil fuel investors could reach $340 billion.
In the lead-up to the Santa Marta conference, Colombian President Gustavo Petro pledged to exit the ISDS system by reviewing Colombia’s 129 investment protection agreements. This came after more than 200 economists sent Petro an open letter urging Colombia to abandon the ISDS system.
Eunjung Lee, a senior policy advisor at UK-based think-tank E3G, said the Santa Marta conference had helped elevate ISDS reform as a key element of the transition away from fossil fuels, despite the issue remaining relatively little-known, even among climate negotiators.
She added that governments tend to be cautious about discussing ISDS at climate summits, as these treaties also implicate trade and economy ministries. “If it is not your file, then you can’t really say much about it and taking action is not necessarily up to you,” she explained.
Kyla Tienhaara, Canada Research Chair in Economy and Environment and a professor at Queen’s University who has worked on the issue for two decades, said the conference in Santa Marta marked a new approach, and that Colombia had placed ISDS “prominently in the agenda”.
The next transition conference presents an opportunity for governments to land on something more practical, particularly under the agreed work stream on “macroeconomic dependence and financial architecture”, but it will depend on the co-chairs Tuvalu and Ireland, she said.
Ireland was sued in May by oil company Lansdowne for failing to award a lease in the Barryroe offshore field. The claim was made under the Energy Charter Treaty (ECT), which fossil fuel companies have used to sue several governments over the consequences of enacting their climate policies.
Following a similar move by some other European states, Ireland left the ECT in April while the Santa Marta conference was ongoing, but existing fossil fuel investments are still protected for 20 years under a “sunset clause”.
“Disappointing” conference report
Despite the prominence of the issue in the conference rooms, experts told Climate Home that the chairs’ takeaways report was “disappointing”, as it did not explicitly mention ISDS as a key obstacle to the energy transition.
The Netherlands, which co-hosted the summit, may have faced conflicting interests, said Tienhaara, as it is second only to the US as a “home state” for the investors bringing the most ISDS cases, including foreign companies structuring their investments through the country.
The Dutch government also withdrew from the ECT last year, which means it understands and has acted on the threat of investment treaties to climate action, the researcher said. “Unfortunately, they seem unwilling to extend their concern to the harm that these treaties cause in other countries, particularly in the Global South,” she added.
Lee of E3G said Global North countries like the Netherlands tend to export capital to developing countries, which is why they seek to protect their investors’ interests and are unlikely to drive a dismantling of the ISDS system themselves.
Developing countries like Colombia, which have been negatively affected by ISDS claims, have an incentive in “voicing their concerns” and forming a bloc around this topic. “Uniting Global South countries can make a stronger case,” Lee said.
