How Big Oil Companies Can Slow The Green Transition By Suing Governments That Ban Fossil Fuels

(MENAFN- The Conversation) The UN's climate summit in Brazil did not produce a fossil fuel roadmap last November, as had been expected. Now the closure of the Strait of Hormuz has exposed the fragility of global dependence on fossil fuels.

The push and pull of nations with respect to coal, oil and gas was once again in the limelight during the first Conference for the Just Transition Away from Fossil Fuels in Santa Marta, Colombia. Representatives from more than 50 countries gathered to explore possible ways to accelerate the fossil fuel phaseout.

In Santa Marta, one solution stood out - the need to eliminate a process known as the investor-state dispute settlement (ISDS).

Read more: 'Much-needed fresh air': 5 outcomes from the world's first summit on ending fossil fuels

Simply put, this rule lets big oil companies sue sovereign states and demand exorbitant amounts of money if they are prohibited from digging up fossil fuels. In 2022, the UN's climate science advisory group, the Intergovernmental Panel on Climate Change, documented ISDS as one major challenge for fossil fuel phaseout.

In 2025, the International Court of Justice's advisory opinion clarified that states must phase out fossil fuels. Yet thousands of investment treaties still contain ISDS provisions that let fossil fuel industries sue governments for doing exactly that. For instance, one fossil fuel company sued the Dutch government for committing to phasing out coal by 2030. Another sued the Italian government for banning fossil fuel exploration.

As a result of tribunals, fossil fuel companies have been paid over US$87 billion (£64 billion) by countries since 1998. As of December 31 2025, a total of 1,463 ISDS cases had been initiated – of which more than 30% involve environmental issues.

Many of these cases challenge fossil fuel phaseouts. Despite this, transparency remains limited, with 54% of fossil fuel ISDS cases being kept confidential.

Read more: How young people have taken climate justice to the world's international courts

Young people have been particularly vocal about the need to stop ISDS. But although the call to go ISDS-free has resonated at annual climate conferences before, Santa Marta is the first diplomatic space that has sought a coordinated political agenda to abolish ISDS altogether.

During the conference, more than 340 organisations called for ISDS elimination. A ministerial meeting discussed binding treaty provisions that will discuss the legal risks of ISDS. Host country Colombia committed to exit the ISDS system. That decision is part of a growing trend - other countries to have withdrawn include Brazil, South Africa, India, Indonesia, Ecuador, Bolivia, the UK and several European countries.

Read more: Here's what to expect from the first Conference on Transitioning Away from Fossil Fuels

The puzzle for international lawyers

For young international lawyers like us, this presents a challenging conundrum. While one body of international law requires governments to phase out fossil fuels (something we campaign for ), another punishes governments for trying.

This instils fear about taking positive climate action – a so-called regulatory chill. With the priorities of governments and the fossil fuel industry constantly clashing, a political tug-of-war develops.

The UN's Commission on International Trade Law (Uncitral ) has been working to reform ISDS rather than dismantle it since 2017. In contrast, nations attending the conference at Santa Marta made a call for freeing states from ISDS rather than reforming it.

This dichotomy highlights the broken nature of the ISDS reforms still being pursued by nations at the Uncitral. Future discussions need to focus on finding common ground to avoid losing more than eight years of momentum built at Uncitral around ISDS reforms and to avoid compromising progress towards the green transition.

Big oil companies slow the green transition by suing governments that ban fossil fuels. But governments are partly responsible too. They decide whether treaties that permit ISDS mechanisms need to be reformed, eliminated or substituted by something better.

Political push and pull

When young lawyers, including us, pushed governments to take the climate cause to the International Court of Justice, we were calling for political action and legal clarity. Our resolve remains strong - states must act quickly.

On May 20, the nation of Vanuatu is set to table a resolution to the upcoming UN general assembly, responding to last year's climate advisory opinion from the International Court of Justice. The resolution seeks to turn that opinion into action - officially confirming that every country has a legal duty to protect the climate, and that failing to do so is a violation of international law, with real consequences.

Countries need to stop producing harmful greenhouse gas emissions, promise not to extract more fossil fuels, and pay compensation to those they've harmed.

Vanuatu's resolution will ask the UN secretary-general to report back about how countries are progressing by the time of the 82nd UN general assembly, expected in September 2027. This encourages actionable measures for climate justice and is a rare, timely and important opportunity for countries to vote in favour of it.

While the International Court of Justice's advisory opinion set out legal guidance on transitioning away from fossil fuels, Santa Marta has provided political coordination efforts for such transition among willing nations.

Even as ISDS remains a challenge, Vanuatu's resolution could lead to steps that free the green transition from the current global tug of war - by ensuring legal clarity and political action.

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