Big Oil Will Exploit This Trillion-Dollar Loophole Until Someone Closes It

In 2012, the Dutch village of Huizinge, near the country’s northern coast, was shaken by a 3.6 magnitude earthquake. This is not, generally speaking, a seismically active area, but this was one of more than a thousand relatively small quakes recorded in the region over the last few decades. The culprit behind these shakes is the largest fossil gas field in Europe.

Since its discovery in 1959, an ExxonMobil and Shell partnership has pulled gas and dollars out of the Groningen gas field. As a result, this little corner of a place already called the Low Countries has sunk by a foot or more, and the earthquakes have weakened buildings and turned the public against the industry. The Dutch government decided enough was enough in the 2010s, and forced a reduction in gas extraction beginning in 2013; in 2019, it said the end of Groningen gas production would come in 2022.

They missed that deadline by only a bit, halting most production by late 2023 and all of it in April of this year, just after the Dutch Senate approved a law to permanently close the gas field. This was, in general, a popular move — a 2020 survey from Pew found the Netherlands had the lowest public support for expansion of natural gas drilling out of 20 countries, at only 38 percent against a median of 69 percent. Even in the face of the supposed fossil gas crunch thanks to Russia’s invasion of Ukraine, few want to restart the earthquake machine in one of the more climate change-vulnerable places around.

Among that few who do: the oil companies themselves. Or, if they won’t be allowed to restart the gas spigot, they at least want to be paid for the trouble.

This month the Exxon-Shell consortium (technically a company called NAM) filed a lawsuit against the Dutch government known as an investor-state dispute settlement, or ISDS. They claim that the government under former prime minister Mark Rutte took “unilateral measures that arbitrarily disadvantaged ExxonMobil as an investor” — they closed the gas field, and we don’t get to make money anymore.

These arcane, boring ISDS claims, which land in a specially designed arbitration court system, represent an enormous under-the-radar loophole for the oil industry as countries conduct their halting, too-slow dance away from fossil fuels. The suits — which are used across industries, not just relegated to energy and oil — allow companies to be compensated, often to the tune of billions of dollars or Euros, for policy changes that strand their investments. They are filed under a wide array of international agreements and treaties — in the case of the new suit, the pact in question is the Energy Charter Treaty, an oft-abused agreement between more than 50 nations around the world. Its provisions are considered so outdated, in fact, that the European Union finalized its plans this summer to exit the ECT, saying that it is “not compatible with the EU’s climate and energy goals under the European Green Deal and the Paris Agreement.”

Luckily for Exxon and Shell, that exit will take some time to complete — 20 years, actually, stretching the limits of something named a “sunset period.” Because the ECT is still in force in Europe, this ISDS claim will move forward; and while this particular one will likely just add to the Dutch government’s already huge bill from Groningen gas extraction — in 2023 they agreed to pay out 22 billion Euros (about $24 billion) to compensate residents of the area for their earthquake-ravaged houses — the industry also can wield even the threat of similar claims to try and influence policy.

“Even just the threat of such a suit is enough to halt or roll back such efforts by host states,” one expert in ISDS claims told me a couple of years ago, when I wrote about an analysis of their use. “The threats can be very effective even if they lack legal merit.”

That analysis, published in 2022 in Science, found that countries could be on the hook for $340 billion in ISDS claims if they actually enacted energy policies that match international climate change goals. The study’s lead author told me then that the number was a conservative estimate; the real number might be in the trillions.

For rich countries like the Netherlands, these won’t necessarily be unbearable costs, but they won’t be easy either. And for developing countries trying to limit fossil fuel extraction, the potential exposure can eclipse their entire GDP. The Energy Charter Treaty happens to be structured in such a way that lends itself to these cases, but even if that goes away entirely there are plenty of other agreements out there fossil fuel companies have used and will continue to use.

The sheer existence of this sort of claim is contrary to global climate goals — “if you change policy to limit fossil fuel extraction, fossil fuel companies deserve money.” It is another reason that, at a time when we should collectively be showing these companies the door, the oil and gas industry continues to prosper to a remarkable extent. They won’t stop doing this sort of thing unless they are made to.

“Gas production in Groningen has ruined the lives of thousands of people and contributed massively to climate change,” said Paul de Clerck, a trade expert with the non-profit Friends of the Earth Europe, in a statement. “ExxonMobil knew this for over a decade. Claiming massive compensation from the Dutch government shows how ruthless the company is.”

According to the International Centre for the Settlement of Investment Disputes, the Washington, D.C.-based body that administers most of the ISDS cases, fiscal year 2024 saw the second-highest number of new cases brought in its history, at 58. Oil, gas, and mining was the biggest sector, covering 28 percent of the cases.

Exxon and Shell have not specified just how many billions of Euros they are seeking in their suit, but the Groningen field still contains 450 billion cubic meters of gas (with some estimates putting the number much higher); quite a bit of profit still in the ground, earthquakes be damned.

“For years, Exxon made a profit of billions of euros at the expense of people in Groningen. It is shameless to see that the fossil giant is now making a claim to the Dutch government,” said Donald Pols, the director of Friends of the Earth Netherlands. “It shows clearly that big polluters don’t care about citizens and the climate. In times of climate disasters, like hurricanes and floods, Exxon is doing exactly the opposite from what it should be doing.”

That’s the thing about Big Oil — they don’t really do “should.”