Hidden Climate Policy Obstruction: How Investor State Dispute Settlement Shifts Fossil Fuel Project Risk from Export Credit Agencies to Host Countries

This study examines the interconnected roles of investor-state dispute settlement (ISDS) mechanisms and export credit agencies (ECAs) in obstructing climate action and delaying the transition away from fossil fuels. While both ISDS and ECAs independently protect foreign direct investments (FDIs) in fossil fuel projects, their combined impact on perpetuating carbon lock-in remains underexplored. The study focuses on fossil fuel projects in Sub-Saharan and North Africa, exploring how ISDS protections and export finance provisions contribute to the persistence of high-carbon development pathways and hinder energy transitions in the region. The research investigates how path dependencies are created when fossil fuel projects are enabled by ECA financial support and maintained through ISDS provisions embedded in national law, international investment agreements, and energy project contracts. Focusing on projects supported by ECAs between 2013 and 2024, the study explores how investment protection and ISDS clauses safeguard investments throughout the lifespan of energy projects, which can extend from 55 to 75 years for oil, gas, and coal. This extended protection locks in fossil fuel infrastructure well beyond the 2050 net-zero emissions target. In this context, the study analyzes how investors and fossil fuel companies are shielded from energy transition risks through the overlapping support of ECA-backed export finance and ISDS provisions, transferring these risks to public finance institutions in the Global North and ultimately to the African countries hosting the fossil fuel projects. The findings aim to offer insights into how these mechanisms collectively enable and reinforce fossil fuel projects, contributing to the broader challenge of achieving global climate goals.