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07/11/2018

Bilateral treaties and corporate impunity: the recent developments of the Chevron Ecuador case before the Permanent Court of Arbitration

By Jonathan Verschuuren (TLS)

cuyabeno

By Anna Berti Suman (TLS)

In December 2016, we published a blog post on the Chevron’s Ecuador ‘saga’, presenting the case as an example of the failure of the global environmental justice system. We presented five different scenarios of the battle for justice that since 1993 the Ecuadorean indigenous plaintiffs fight against the Chevron oil giant. Among these fronts, we here zoom in on the scenario that sees Chevron Corporation and its subsidiary Texaco Petroleum Co. against the Republic of Ecuador, the so-called ‘Chevron III’ case [1]. The case was initiated in 2009 by the company under the U.S.-Ecuador Bilateral Investment Treaty (BIT) before the Permanent Court of Arbitration in The Hague [2]. Chevron requested the arbitral panel to declare the State of Ecuador (through Petroecuador, the oil public firm part of the Ecuadorean consortium in which Texaco operated) as the exclusively liable entity for any judgment issued in the Ecuadorean litigation, Chevron vs. Aguinda. Specifically, the arbitral panel was asked to invalidate the $ 9.5 billion dollars judgement rendered against Chevron in Ecuador in 2011 that found the company guilty for its oil dumping in the Ecuador’s Amazon region where Texaco (later acquired by Chevron) operated between 1964 and 1992. The judgement, issued in 2011 by the Ecuadorean Supreme Court, was recently confirmed by the Ecuadorean Constitutional Court [3]. Chevron’s argument is based on two grounds: first, the company lamented the violation of the U.S.-Ecuador BIT inasmuch as the State of Ecuador did not grant a fair trial to the company in the Ecuadorean judgment. In addition, Chevron defended that it was released from any liability by the Republic of Ecuador by signing an agreement with the State in 1998 absolving the company of any future responsibility for its past operations in Ecuador.

On August 30, 2018, the Permanent Court of Arbitration released an award in favour of Chevron, finding that the Republic of Ecuador violated its obligations to protect U.S. companies under the U.S.-Ecuador BIT and international law. The arbitral panel said that the 2011 Ecuador Supreme Court’s ruling had been obtained through fraud, bribery and corruption, thus violating Chevron’s right to a fair trial in Ecuador. The tribunal consequently held that the company is not obliged to comply with the $9.5 billion judgment [4]. In occasion of the Arbitration Court’s decision, Pablo Fajardo, lawyer of the Union of Affected People by ChevronTexaco (UDAPT) representing the 30.000 victims of the Chevron’s oil contamination, and Justino Piaguaje, President of the Secoya Indigenous people, visited Tilburg University. In a seminar organized by Professor Jonathan Verschuuren and Anna Berti Suman at Tilburg Law School on October 26, the guests discussed the Chevron-Ecuador case in light of the recent judgement, reflecting on the applicability of the award against the Ecuadorian plaintiffs and on the broader questions that such an award raises. Letty Fajardo Vera and Suzanne Hagemann, spokespersons of the UDAPT respectively in the Netherlands and in Switzerland, and Charlie Holt, legal counsel for Greenpeace International in Amsterdam, joined the seminar as discussants.

pic1 with blog_Annapic2 with blog_seminar overviewpic4 with blog_seminar

Mr. Piaguaje introduced the participants to the reality of life ‘on the side’ of the oil contamination left by Chevron and what this means not only for human health but also for the preservation of the unique indigenous culture and lifestyle. Mr. Fajardo continued the discussion with a focus on the legal questionability of the award. From a strictly legal point of view, Fajardo stressed that the allegedly violated U.S.-Ecuador BIT was signed on August 27, 1993, and entered into force on May 11, 1997, which is five years after the termination of Texaco’s operations in Ecuador. However, the arbitral panel applied the BIT retroactively to facts occurred prior to its entry into force. Secondly, it is pretentious that an arbitral panel can affect the Ecuadorean Aguinda ruling, because it cannot have any jurisdiction over the Aguinda plaintiffs that did not even appear in the arbitral trial. In addition, the alleged release from responsibility granted to the company by the Ecuadorean government when the company terminated its operations in Ecuador only regards government’s claims and not private parties’ claims like those of the Aguinda plaintiffs, as also stated in the 2011 Ecuadorean judgment [5].

pic3 with blog_Charlie_Justino-Pablo

The recent development of the case inspired a discussion on a number of aspects. First, the stand of the Permanent Court of Arbitration vis-à-vis victims of environmental crimes has been questioned.  As Fajardo stressed, it is inadmissible for an arbitral panel to order a State to invalidate a judgment issued in a judicial process between private individuals and ratified by all national judicial instances. The award puts the commercial interests of companies before the human rights of the affected communities. The risk that bilateral treaties may act as a shield protecting transnationals from accountability for human rights violations emerged. In addition, the ruling clearly undermines the sovereignty of the Ecuadorean State and its judicial independence. By asking Ecuador to invalidate the 2011 judgment, the arbitral tribunal is compelling the State to violate its constitutional norm, to disrespect the independence of functions, and to jeopardize the human rights of the Ecuadorian citizens. Overall, the dangerous precedent that this arbitral decision may set was manifested. As a matter of fact, the case risks to become a precedent for releasing from responsibility companies that, with the complicity of states, commit environmental crimes against human beings. The award represents a failure or lack of environmental justice in a system that appears rather dominated by corporate impunity.

Photo credits: seminar photos by Letty Fajardo Vera & UDAPT (bottom photo showing Pablo Fajardo, Charlie Holt, and Justino Piaguaje); Cuyabeno rainforest photo by Jonathan Verschuuren

[1] PCA Case No.2009-23, Chevron Corp. and Texaco petroleum Co. vs. the Republic of Ecuador.

[2] See Chevron’s Notice of International Arbitration Against Government of Ecuador.

[3] Case No. 174-2012, verbal proceeding No. 174-2012, Maria Aguinda Salazar y otros v. Chevron Corporation, Quito, November 12, 2013.

[4] For more information on the case see A universal obligation of enforcing environmental justice? The Chevron-Texaco case as an example of the actual system’s failure.

[5] Ruling of Presiding Judge Nicolas Zambrano Lozada, Provincial Court of Sucumbíos, 14 February 2011, pp.34, 176.


05/03/2015

Unconventional natural gas in South Africa: regulating the nexus between energy security and water security – Aspects of a research proposal

By Hennie Coetzee

South Africa faces the challenge of meeting the needs of its (still) growing human population, and of doing it in a sustainable way, namely without affecting the ability of future generations to meet their needs. Energy plays a central role in this challenge, both because of its significance to economic development and because of the number interfaces and impacts it has on other critical sustainability issues – such as water security, among others.[1] In its quest for energy security, the South African government has identified unconventional gas (shale gas and coal bed methane) as a potential alternative energy resource.[2]

Coal bed methane is already being extracted in the Waterberg area of South Africa and the country is also looking to extract shale gas from the Karoo area.[3] The development of unconventional gas, however, poses a number of new challenges to existing regulatory regimes worldwide, including South Africa. These challenges are particularly pertinent to water resources.[4] The development of unconventional gas is (like most other fossil and some renewable energy sources) heavily dependent on water access and use.[5] This is mainly due to the extraction method of hydraulic fracturing whereby large amounts of water is mixed with chemical additives and pumped down a horizontal well under high pressure to enable the extraction of the trapped gas.[6] Studies indicate that the use of horizontal wells during a typical hydraulic fracturing process can require up to five times the water used by vertical wells.[7] The withdrawal of large amounts of groundwater can lead to the depletion of aquifers, and the hydraulic fracturing fluids known as flowback water, poses risks to water quality.[8] Issues of water security relating to water quality, quantity and availability are therefore at stake.[9] Because of the interdependence between the energy and water sector, an increase or decrease in one sector (energy or water) will immediately affect the other. South Africa is already struggling to maintain security of both water and energy supply and hence the energy-water nexus is very much related to its goal of achieving energy and water security.[10]

A report by the World Economic Forum highlights the interrelated risks between energy and water security as a security problem.[11] In addition other nexus frameworks include the notion of security as a normative goal complementing or even replacing the notion of sustainability.[12] The “nexus approach” is a new way to frame the interconnected challenges in water and energy governance, including within sustainable development policy goals. What is new about the nexus approach is that it considers multiple sectors as equally important.[13] Common features of existing energy-water nexus frameworks are interdependency between policy sectors, the need for integrated management across sectors and scales, and a focus on promoting security.[14]

While large amounts of water is needed for producing almost all varieties/types of energy – for example, cooling, storage, biofuels, hydropower – it is the process of hydraulic fracturing within unconventional gas development that poses the biggest risk to water quality in South Africa.[15] Concomitantly large amounts of energy are needed for pumping, storing, transporting and treating (for example, desalination) of wastewater – such as wastewater created from the hydraulic fracturing process during unconventional gas development.[16] An increase or decrease in one sector (energy or water) will immediately affect the other – if water is in short supply during droughts it may well lead to energy crises.[17] As per the World Energy Council:[18] “freshwater is required for each step – energy extraction and production, refining and processing, transportation and storage, and electric-power generation itself.” Without water and energy it will neither be possible to satisfy basic human needs nor achieve economic growth.[19] Notably, energy and water security risks depend upon the balance between economic, social and environmental consequences.[20] The cost of attaining energy and water security could be economic (eg) building new or replacing old energy and water infrastructure), social (eg closing energy and water allocations to restrict demand) or environmental (the pollution and deterioration of freshwater systems to reduce the risk of water shortage etc).[21]

While the drivers of energy and water security risk include socio-economic factors (such as population growth and economic activity) and natural phenomena (such as natural disaster, climate change impacts) it is the policies of each sector that are the biggest cause of risk.[22] This is the result of spill over effects – for example, the creation of incentives to meet energy security objectives results in the distortion of the demand for water.[23] Managing energy and water security risks necessitates the managing of trade-offs between separate or sector policy instruments.[24] Uncoordinated policy aimed at security in one area may result in less security in another: for example, less water security may be at the cost of greater energy security through unconventional gas development. Law as a social regulatory instrument is used to change human behaviour – and to achieve certain outcomes. Although a number of instruments within any regulatory framework could be used to meet energy and water security target(s) it is direct regulatory instruments such as laws or regulations stipulating, for example, quality standards, bans on certain products or practices, requirements for the application of best available techniques, obligations to obtain authorisations that are representing the bulk of instruments used.[25]

The nexus between energy and water related security objectives are not routinely addressed nor fully understood.[26] While the existence of the interdependence between energy and water is acknowledged in energy and water security terms[27] it is not certain whether the nexus (between energy and water security) is reflected in the South African regulatory framework generally, and specifically with regard to the development of unconventional gas. Regulatory frameworks that do not reflect the nexus between energy and water security, could, instead of ensuring energy and water security, achieve the opposite, namely energy and water insecurity.[28] This is applicable to regulatory regimes worldwide, including that of South Africa. Therefore it may be necessary to determine how other countries regulate and facilitate unconventional gas development and production within an energy and water security nexus.

A focus on the environmental impact(s) that pollution and depletion of water resources from the process of hydraulic fracturing within unconventional gas development may have on energy security (being an essential element of the energy/water security nexus) may provide a reference point for a comparative study on how other countries manage the energy and water security nexus in their respective regulatory frameworks.

[1] Bierbaum and Matson “Energy in the context of sustainability” 2013 Dædalus, the Journal of the American Academy of Arts & Science 142-1.

2] Gulati “Understanding the food energy water nexus: Through the energy and water lens” WWF-SA (South Africa 2004) 14 (henceforth Gulati).

[3] Esterhuyse, Kemp and Redelinghuys “Assessing the existing knowledge base and opinions of decision makers on the regulation and monitoring of unconventional gas mining in South Africa” International Water Resources Association (2013) (henceforth Esterhuyse).

[4] Reins “The shale gas extraction process and its impacts on water resources” 2011 20(3) Review of the European Community and International Environmental Law 300 (henceforth Reins).

[5] Vairavamoorthy et al “Water and Energy in the Urban Setting” in Jägerskog et al (eds) Energy and Water: The Vital Link for a Sustainable Future (Report Nr 33 SIWI Stockholm 2014) (henceforth Vairavamoorthy).

[6] Ross and Darby “Unconventional Gas: Coal Seam Gas, Shale Gas and Tight Gas” Research Paper for Parliament of Victoria (December 2013) (henceforth Ross and Darby).

[7] Polzin “Under Pressure – How our material consumption threatens the planet’s water resources” Global 2000 (Vienna 2011).

[8] Freyman “Ceres Report Hydraulic Fracturing & Water Stress: Water Demand by the Numbers” (February 2014).

[9] Freyman, Martin and Fisher The energy-water nexus: Energy demands on water resources (2012) http://www.groundwork.org.za/ClimateHealthRoundtables/water-energy-nexus.pdf [date of use 20 October 2014].

[10] World Energy Council 2013 World Energy Issues Monitor” 28 (henceforth World Energy Council 2013).

[11] Waughray (ed) Water Security: the water-food-energy-climate nexus (Washington 2011).

[12] Stein, Barron and Moss Governance of the nexus: from buzz words to a strategic action perspective” Nexus Network Think Piece Series Paper 3, (Economic & Social Research Council 2014) (henceforth Stein et al).

[13] Stein et al.

[14] Stein et al.

[15] Gulati; Vairavamoorthy.

[16] OECD Studies on Water “Water Security for Better Lives”, (2013 OECD Publishing DOI: 10.1787/9789264202405 115 (henceforth OECD 2013).

[17] Clausen et al “Energy and Water: The Vital Link for a Sustainable Future” (2014) 7 (henceforth Clausen); OECD 2013.

[18] World Energy Council 2010 “Water for Energy” (henceforth World Energy Council 2010).

[19] Clausen.

[20] OECD 2013.

[21] OECD 2013.

[22] Grafton et al “Global Insights into Water Resources, Climate Change and Governance” 2013 (3) Nature Climate Change 315-321.

[23] OECD 2013.

[24] OECD 2013.

[25] OECD 2013.

[26] OECD 2013.

[27] World Energy Council 2010.

[28] OECD 2013.

Category: Africa, Shale gas, water

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