Abstract
The Energy Charter Treaty (ECT), which provides for an investment protection regime in the energy sector, has been undergoing a modernisation process. The European Union (EU) submitted a proposal with a focus on aligning the ECT with the Paris Agreement. This article explores whether the EU proposal, which is largely reflected in the agreement in principle on the modernisation of the ECT, constitutes a model for a climate-friendly investment treaty. It analyses the aspired phase-out of protection for fossil fuels, the right to regulate, fair and equitable treatment and the sustainable development chapter together with its State-to-State dispute settlement mechanism. Given the phase-out of fossil fuel protection, the article argues that the proposal is too restrictive for climate-friendly investors. At the same time, its provisions on the right to regulate and sustainable development are not innovative enough for a climate-friendly investment treaty, although its State-to-State dispute settlement mechanism holds potential for inter-State climate litigation.
1 Introduction
The Energy Charter Treaty (ECT)1 is a multilateral treaty for the protection of foreign investments in the energy sector concluded by more than 50 mostly Eurasian States, including the European Union (EU) Member States (except Italy) and the EU itself. It has been undergoing a reform process aimed at its modernisation. Besides the objective to adapt the ECT to trends in modern investment agreements, there is a strong emphasis on climate change and to align the ECT with the Paris Agreement.2 Critics maintain that the modernisation process at best greenwashes the ECT because the investment protection regime purportedly protects fossil fuel investments from regulatory action taken in pursuit of the objectives of the Paris Agreement.3 Recently initiated arbitral proceedings against governmental coal phase-out plans4 have increased opposition against the ECT and the reform process.5 In addition, in June 2022 five young people reportedly lodged an application with the European Court of Human Rights against 12 European States arguing that membership in the ECT breaches the right to life and the right to private and family life as it prevents States from eliminating fossil fuel energy production.6 Nevertheless, most cases decided under the ECT have concerned investments in renewable energies and the revocation of incentives in that sector.7 Thus, the ECT also protects green investments and it may be argued that it facilitates climate change mitigation.8
Amid growing concerns about the future of the ECT, the EU released a comprehensive proposal9 for the modernisation of the ECT taking into account climate change and climate protection in May 2020. The Agreement in Principle on the Modernisation of the Energy Charter Treaty (AIP),10 which was adopted in June 2022, largely reflects the content of the EU proposal. This contribution aims to assess whether the EU proposal is a model for a climate-friendly investment treaty that can have a positive impact on clean energy transition and climate protection and whether it can generally serve as a model for climate-friendly investment agreements.
The article first establishes qualitative criteria for climate-friendly investment treaties (Section 2). For a better understanding of the role of the ECT and the modernisation process, the article then provides an overview of the history of the ECT and the modernisation negotiations (Section 3) before addressing the EU proposal (Section 4). The focus will be on provisions of the EU proposal directly referring to climate change or provisions that have been regularly invoked in investment disputes under the ECT and may be relied upon by States or investors in connection with reforms related to climate protection. First, the article analyses the redefinition of the ‘Economic Activity in the Energy Sector’ entailing a delimitation of the treaty’s scope of application (Section 4.1). Secondly, various provisions on the State’s right to regulate (Section 4.2). Thirdly, a clear-cut definition of the elements of the fair and equitable treatment (FET) standard (Section 4.3) and, lastly, the sustainable development provisions (Section 4.4).
Based on recent case law and a comparison with other investment treaties, the article concludes that the EU proposal, on the one hand, falls short of ensuring the necessary regulatory space to implement the goals of the Paris Agreement. On the other hand, it is too restrictive for a comprehensive protection of climate-friendly investments. The article finds in particular that the EU proposal is fraught with a paradox: it manages to exclude fossil fuel investments from the scope of protection of the ECT through phase-outs and generally lowers the FET standard, which will reduce the success of investment claims by fossil fuel investors. At the same time, climate-friendly investors, who play a crucial role in the energy transition, will be affected by the lower standards of treatment and, as a result, be less protected against regulatory changes in the energy sector. Nonetheless, a more innovative aspect for investment treaties is the inclusion of sustainable development provisions coupled with a State-to-State dispute settlement mechanism. Such a mechanism may provide an opportunity for ‘climate litigation’ between States.
2 Definition: Climate-Friendly Investment Treaty
To establish qualitative criteria for what constitutes a climate-friendly investment treaty, this article takes recourse to the goals of the Paris Agreement as well as language contained in investment treaties and recent treaty proposals by academics and other practitioners.11 Climate-friendly investment treaties need to shift the object and purpose of investment treaties from the sole protection of every kind of investment to the protection of investments consistent with the objectives of climate protection.12 These objectives of climate protection can be primarily found in the Paris Agreement, such as ‘[h]olding the increase in the global average temperature to well below 2° C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5° C above pre-industrial levels’13 and ‘[m]aking finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development’.14
Against this backdrop, for the purposes of this article an investment agreement constitutes a climate-friendly investment treaty if it provides regulatory autonomy to States for ‘pursuing efforts to limit the temperature increase’,15 which primarily implies that fossil fuel investors and investments should not be protected under the investment treaty. Excluding such investors from the scope of protection addresses concerns that the existence of investment agreements and arbitration may have a ‘chilling effect’ on regulation undertaken to combat climate change.16 In contrast to the position of some critics, this does not fully abandon the investment treaty regime but aligns it with the goals of the Paris Agreement. It does not seek to eliminate or prohibit fossil fuel energies but to deliberately end the protection for new investments in that sector and to shift the burden of regulatory changes for existing investments from the State to the investor. This shall incrementally redirect private capital towards green investments.
Moreover, a climate-friendly treaty shall encourage climate-friendly investments, ie investments that are in line with CO2 reduction goals and contribute to the energy transition, and provide a wide range of effective investment protection standards for those climate-friendly investments. With respect to such climate-friendly investments, the need for private capital in the renewable energy sector plays a crucial role in the energy transition. This is indirectly recognised by the Paris Agreement which follows a holistic approach comprising public sources and private capital.17 However, such private investments may also require the protection of an investment treaty since renewable energy investments typically have substantial costs before becoming profitable.18 States deploy various instruments to incentivise such investments by subsidies, tax reductions or by granting reasonable rates of return. Such schemes typically extend over longer periods and impose a burden on public funds, but sudden regulatory changes, such as a withdrawal of subsidies due to policy changes in the government, pose a risk to the operation of climate-friendly investments. A climate-friendly investment treaty militates against these risks and ensures access to remedies for climate-friendly investors.
The following criteria are considered particularly relevant for the assessment whether the EU proposal constitutes a climate-friendly investment treaty:
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Limitations of the scope of application of the treaty to climate- friendly investments, e.g. exclusion of investment protection for fossil fuel-based investments,19 investments lacking environmental clearance or in breach of domestic prerequisites;
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Increasing regulatory autonomy to implement climate mitigation and adaptation measures through the inclusion of provisions on the right to regulate specifically addressing climate change, mechanisms to delimit the scope of protection standards, and exception clauses and their effects;20
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Investor obligations requiring investment activities not to cause environmental damage and worsening climate change and the enforcement mechanisms for such obligations;21
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Investment protection standards protecting legitimate expectations created by States in relation to climate-friendly investment or commitments undertaken vis-à-vis those climate-friendly investments;
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Climate commitments of host States and home States and enforcement mechanisms available to investors and State parties to ensure observance of these commitments.22
Whether the EU proposal can be characterised as a model treaty in light of the benchmarks established above will be assessed against the backdrop of arbitral case law and the language of other investment agreements.
On 24 June 2022, the Contracting Parties reached an agreement in principle – the AIP23 – that is to be adopted at the Energy Charter Conference in November 2022. A detailed analysis of the AIP is beyond the scope of this article as the modernisation process has not concluded yet and it remains uncertain whether any changes to the ECT will eventually be adopted at all.24 In addition, the EU proposal deserves particular attention as it may serve as a potential template for future negotiations of investment treaties.25 More importantly, public information available on the AIP26 reveals that the EU proposal has greatly shaped the AIP in the various aspects, which are the focus of this analysis. However, it is fair to say that the AIP reflects compromise solutions between the EU and other Contracting Parties and is thus less ambitious with respect to climate change considerations. Due to the novel approaches that the EU’s proposal offers with respect to climate change and climate mitigation, we consider it as a more appropriate basis for our analysis. Nonetheless, the relevant provisions adopted in the AIP will be outlined where required and complement the findings on the EU proposal discussed below.
This article also refrains from addressing whether the EU proposal for a modernised ECT is compatible with EU law. A request for an opinion was submitted to the Court of Justice of the European Union (CJEU) to rule on the compatibility of the intra-EU investor-State dispute settlement (ISDS) mechanism of the EU proposal with EU law.27 In June 2022 the CJEU found the request to be premature and thus inadmissible due to the lack of sufficient information on the content of the envisaged final agreement.28 As far as intra-EU disputes under the current ECT are concerned, the CJEU has held that the reliance on ISDS in intra-EU disputes is contrary to EU law and thus the ISDS mechanism is inapplicable.29
3 Energy Charter Treaty Negotiations: History and Modernisation
3.1 History of the Energy Charter Treaty
At the beginning of the 1990s, the disintegration of the Soviet Union and the objective to incorporate the newly established States into the liberal energy market was the starting point for the ECT. While investors from Western States hoped for market opportunities in the Eastern European States, the latter expected access to capital, technology and innovation.30 After signing the European Energy Charter as a political declaration in 1991, negotiations over binding commitments on cross-border trade and investment aspects took off. Already in the initial process, the EU, by aligning divergent positions of the negotiating States,31 took a leading role and was eventually successful with the signature of the ECT in 1994. Some of the negotiating parties, such as the United States, ultimately refrained from signing and others, such as the Russian Federation, signed but never ratified the ECT and later withdrew from its provisional application.32 Currently, the ECT has 54 signatories, including the EU and European Atomic Energy Community (EURATOM), and is thus the most widely ratified multilateral investment agreement.33
The current version of the ECT already considers climate and environmental issues in various forms, but overall those issues take a back seat. The preamble inter alia recalls the United Nations Framework Convention on Climate Change (UNFCCC)34 adopted in 1992, the primary treaty on climate protection. Article 19(1) ECT on Environmental Aspects takes account of the precautionary principle, the ‘polluter pays’-principle and it rudimentarily promotes environmental impact assessments.35 Finally, the Protocol on Energy Efficiency and Related Environmental Aspects contains commitments to implement domestic policies and provides for cooperation in these matters.36 However, the economic objectives clearly take precedence in the preamble and all other provisions.37 Article 19 ECT and the Protocol do not ‘contain any substantive obligations binding the Contracting Parties to specific and enforceable environmental commitments’.38 Moreover, the dispute resolution mechanisms of Article 26 ECT (investor-State dispute settlement) and Article 27 ECT (State-to-State dispute settlement) do not apply to environmental matters.39
3.2 The Modernisation of the Energy Charter Treaty
The modernisation process of the ECT dates back to 2017 when the Energy Charter Conference launched discussions on a potential modernisation. In 2018, the Subgroup on Modernisation deliberated on all provisions and identified a list of 25 topics, which the Conference approved for modernisation in November 2018.40 The list comprises jurisdictional, substantive and institutional issues, guided by general developments in investment law. In 2019, the Conference received policy options from Contracting Parties41 and eventually established the Modernisation Group,42 which convened in fifteen negotiation rounds between July 2020 and June 2022. The modernisation process concluded with the AIP on 24 June 2022. The AIP will be formally adopted at the Energy Charter Conference on 22 November 202243 and the final text of the modernised ECT will only be officially published once it has been confirmed by the Energy Charter Conference,44 but a version of the AIP was leaked in October 2022.45
Notwithstanding the ambitious objective of overall amendments, the submitted policy options reveal that challenges imposed by climate change have been a driving force behind the modernisation process. This seems particularly true for the EU. In the document on policy options, the EU stresses that the ‘[m]odernised ECT should reflect climate change and clean energy transition goals and contribute to the achievement of the objectives of the Paris Agreement’46 and with respect to sustainable development the EU points out that its investment treaties, inter alia, ‘promote investment in a manner mindful of high levels of environmental (including climate) … protection’.47
On 27 May 2020, the EU released its proposal that served as a guiding document for the negotiations encompassing substantive amendments, regulatory leeway and the incorporation of international environmental law obligations. Before the fourth negotiation round, the EU put forward an additional proposal in May 2021 to indirectly confine the broad concept of investment by phasing-out fossil fuels from the treaty’s ambit, stating that ‘[i]n line with the Paris Agreement and its long term decarbonisation and energy transition policies, the EU is bound to discourage all further investments into fossil fuel-based energy infrastructure projects’.48 It appears that the EU’s proposal directed the negotiations and formed the basis for further compromise text proposals by the Energy Charter Secretariat.49 Successful modernisation of the ECT, shifting it to a climate-friendly treaty not only has the potential of a standard-setting for future treaties but – like the initial ECT process50 – would be a diplomatic success for the EU. At the same time, some EU member States consider withdrawing from the ECT if the modernised text is unsatisfactory in terms of climate protection51 or have already taken steps to withdraw from the ECT.52
4 The European Union Proposal for the Energy Charter Treaty – To Be, or Not To Be a Climate-Friendly Investment Treaty
On the basis of the model elaborated above (Section 2), this Section describes and analyses the EU modernisation proposal for the ECT. First, it addresses the redefinition of the ‘Economic Activity in the Energy Sector’, which includes changes to the meaning of ‘Energy Materials and Products’ limiting the scope of application of the ECT (Section 4.1). Secondly, the right to regulate in the EU proposal is analysed (Section 4.2), followed by changes to the FET standard (Section 4.3) and, lastly, the sustainable development provisions, which are linked with a new State-to-State dispute settlement mechanism (Section 4.4). In the Subsections, references will be made to the envisaged changes foreseen in the AIP insofar as they are relevant to the analysis.
4.1 The Economic Activity in the Energy Sector – Abandoning Neutrality to Protect the Climate?
The EU’s proposal to modify the ‘Economic Activity in the Energy Sector’ by altering the annex on ‘Energy Materials and Products’ is one of the core elements in the intersection of investment protection and climate change. It intends to exclude ‘climate unfriendly’ investments from protection and to include new and sustainable methods of energy production, which the ECT thus far does not cover. In Subsection 4.1.1 the neutral approach on investment in the current version of the ECT and the EU’s proposal for a modernised ECT will be outlined and contrasted to the compromise reached in the AIP. In Subsection 4.1.2. the article assesses whether these changes ought to be adopted in the investment law regime more generally.
4.1.1 The EU’s Redefinition of Investment Protection
The current version of the ECT follows a neutral approach on investments,53 which corresponds to other investment treaties that protect a wide range of economic activities. However, the ECT’s scope of application is limited to the energy sector, thus protecting only investments which are ‘associated with an Economic Activity in the Energy Sector’.54 These encompass inter alia the exploration, production or distribution55 of ‘Energy Materials and Products’.56 The annexes of the ECT list these materials and products and include nuclear energy, coal, natural gas, petroleum products, electrical energy and other energy.57
The EU presented its approach in an additional submission to its proposal in May 2021.58 The proposal intended to change the ‘Energy Materials and Products’ in the respective annex, thereby abandoning the neutral approach to ‘Economic Activity in the Energy Sector’. This concerned one of the most controversial issues in the modernisation process as such changes affect the scope of application of the ECT.59
The proposal sets out two general rules, qualified by provisions taking into account fossil fuel phase-out stages. Firstly, after the entry into force of the proposed amendment, the investment protection standards of the ECT shall cease to apply to new investments related to fossil energy materials and products, inter alia coal, peat, petroleum oil and petroleum gases as well as the production of energy thereof.60 Secondly, ten years after the entry into force but no later than the 31 December 2040, the investment protection standards of the ECT shall cease to apply to existing investments in these energy materials and products and electrical energy so produced.61 Thus, the proposal aims to exclude protection for new investments in fossil fuels but introduces a transitional period for existing investments until 2040 at the latest.
Moreover, the proposal includes a separate phase-out plan for the production of energy by petroleum gases and the transport of these via pipelines. These shall be protected until 31 December 2030 and, if in substitution for other fossil fuels, until the end of 2040. This is subject to the limit of 380g of CO2 per kWh in energy production, thus only encompassing power plants and infrastructure that fit the use of renewable and low-carbon gases.62 This proposal leaves the protection for energy production from nuclear power, a disputed form of energy production within the EU,63 untouched.
Simultaneously, the proposal adds materials to the annex related to technologies not yet enclosed but that become more relevant as renewable sources such as hydrogen and biomass, or other sources, which may gain significance for energy storage, such as formic acid. The inclusion is relevant to grant investors in these fields legal certainty that the ECT applies to their investments as well.
While six parties suggested a redefinition in their policy options, these mainly envisioned an extension to comprise new technologies.64 As withdrawal from the ECT triggers the sunset clause (Art 47(3) ECT), which extends the applicability of the ECT for another 20 years for investments already made, exclusion of fossil fuel investments through an amendment of the ECT is the sole option to preclude claims arising out of phase-out measures in the relative short term.
According to the AIP, a compromise solution was reached to redefine ‘Economic Activity in the Energy Sector’ by allowing Contracting Parties to individually exclude certain ‘Energy Materials and Products’ in Annex NI.65 This permits States to phase-out protection for fossil fuel investments via changes to Annex NI, which must be adopted by the Energy Charter Conference. In addition, new carbon neutral and low-carbon energy materials and products will be added to Annex NI and the Energy Charter Conference will regularly review the list of ‘Energy Materials and Products’ to react to technological and political developments.66 A publicly available proposal by the EU Commission on a Council Decision on the EU’s position to be taken at the Energy Charter Conference in November 2022 indicates that a separate Conference Decision will set out the modalities for the entry into force of these changes to Annex NI.67 According to the envisaged Conference Decision the parts of the Annex NI concerning the phase-out of protection for existing investments include a threshold for the entry into force identical to the amendments of the ECT,68 although provisional application is foreseen.69 Parts of Annex NI concerning the exclusion of protection for new fossil fuel investments will automatically ‘enter into force’ in August 2023 provided that the modernised ECT is adopted.70
4.1.2 A Redefinition for Investment Law?
Modern investment treaties in general protect a wide spectrum of economic activities.71 The proposal to exclude fossil fuel energy production can be seen as a pragmatic approach to adapt the ECT to the climate goals of the Paris Agreement. However, this entails a radical shift meaning that investment protection shall not serve as an end in itself but as a means for the overarching objective of climate protection. The effect of this redefinition draws from the particularities of the ECT as a sector-specific treaty. Nevertheless, subject to alignments, it may serve as a model for a climate-friendly approach in investment treaties.
To serve as a model in a multilateral context, a phase-out framework demands refinement and more clarity. The Paris Agreement builds on nationally determined contributions (NDCs). States have to outline their individual targets on climate change mitigation measures in NDCs every five years and submit it to the UNFCCC Secretariat. This is founded on the principle of common but differentiated responsibilities, recognising that all States are responsible to combat climate change yet not equally responsible concerning the measures to take.72 This principle is particularly relevant to the energy sectors as many States still depend on energy mixes including fossil fuels or rely on low-emission fuels for the energy transition. Thus, low-carbon gases remain pivotal for energy security in many States. Uniform phase-out timelines may run counter to the diverse needs of the Contracting Parties to the ECT. The Public Communications on the Negotiation Rounds revealed this as a contested issue with calls for options to take account of individual energy mixes and to provide for flexibility.73
The mechanism as adopted in the AIP seeks to establish such flexibility. However, the agreement seems to be an alleviated compromise solution. In contrast to the EU’s draft proposal, it does not automatically exclude investment protection for fossil fuels for all Contracting Parties but only if a State individually decides to carve-out investment protection and if this is approved by a Conference decision. The EU will make use of this carve out mechanism with the phase-outs outlined in the EU proposal.74 In addition, the UK and to some extent Switzerland will also use this option,75 but overall the effect may be limited since other States remain hesitant. Moreover, fossil fuel investors of Contracting Parties that choose to opt out from fossil fuel protection will remain protected in other Contracting Parties unless these States decide to apply the exclusion reciprocally.76 As flexibility is limited to an active ‘opt-out’ from the current regime, it falls short of the substantial change required to shift the ECT towards a ‘climate-friendly’ investment treaty.
The model Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation – despite an overall restrictive approach – may provide some orientation how to reconcile an effective phase-out for fossil fuels and flexibility.77 This draft treaty sharply distinguishes between sustainable and unsustainable investments. While sustainable investments significantly contribute to climate change mitigation and deserve protection, the draft aims at discouraging and eliminating unsustainable investments since they impede these objectives. The differentiation in the draft could, if adopted tentatively, meet the demands of States that yet depend on fossil fuels for the energy transition. The draft conveys on States the right to designate sectors as sustainable or unsustainable in a schedule to the Annex,78 obliges States to prohibit the establishment of unsustainable investments and does not confer substantive protection standards upon such designated investments. Thus, contrary to the AIP, a general phase-out of fossil fuels subject to individual and limited rules could be more effective.
Given the urgency of climate protection, full exclusion of new fossil fuel investments upon ratification and terminating protection for existing investments after a transitional period may constitute the outer-limits for flexibility mechanisms in climate friendly investment treaties. In between these boundaries, flexibility could relate to certain types of investments, i.e. only low-carbon fossil fuels or a determination of emission caps, differentiated levels of protection, i.e. only protection from expropriation for fossil fuels, or time-schedules taking into account domestic energy transition timelines. Combined with a high standard of transparency, it may be an integral part to further develop the approach in the EU’s proposal for it to become a model for climate friendly investment treaties. Such flexibility allows to take account of the framework of NDCs established by the Paris Agreement as well as the decision reached at COP 26 in the Glasgow Climate Pact that aims at ‘accelerating efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies … in line with national circumstances and recognising the need for support towards a just transition’.79
4.2 The Proposed Right to Regulate for the Energy Charter Treaty
The ‘right to regulate’ concerns the pursuance of public policy objectives and balancing the divergent interests of States and investors. In its utmost perception, it connotes the permission to take regulatory action in derogation of investors’ rights without compensation.80 Interpretative approaches on the delimitation of indirect expropriations and the protection of stability and legitimate expectations under the FET standard have evolved that take into account the right to regulate.81 Conversely, these have influenced treaty drafters and led to the inclusion of the right to regulate in new treaties and to modify existing ones accordingly.82 The recognition of the right to regulate in treaties ranges from declarative statements in the preamble, guarantees not to reduce social and environmental standards to stand-alone regulatory and exception provisions.83 Regulatory freedom forms an essential part of a climate-friendly investment agreement to provide the policy space needed to reach the objectives and goals set out by the Paris Agreement and NDCs without incurring liability. Simultaneously, it must strike a balance so as not to compromise the necessary protection for green investments. The EU’s proposal takes into account the right to regulate in its myriad forms, most notably by a stand-alone clause (Section 4.2.1), a definition of indirect expropriation (Section 4.2.2) and amendments to the ECT’s exception provision (Section 4.2.3).
4.2.1 A General Right to Regulate for the Treaty?
A new provision in the EU proposal termed ‘Regulatory Measures’ preceding the substantive standards reaffirms the right to regulate and non-exhaustively enumerates policy areas in its paragraph 1. The EU introduced this approach in the EU–Canada Comprehensive Economic and Trade Agreement (CETA) and its agreements with Vietnam and Singapore,84 only the objective of ‘combatting climate change’ is new. Due to the foundations of the right to regulate in customary international law, the character of the norm seems limited to a declaratory restatement.85 Nevertheless, Georgia, Luxembourg and Turkey explicitly endorsed the inclusion of a stand-alone provision to achieve interpretative leeway.86 Moreover, the subsequent paragraphs exert direct influence on the scope of substantive standards. Paragraph 2 aims to prevent interpretations of substantive protection standards as commitments that a State will not change regulatory frameworks. Paragraph 3 clarifies that, unless there are specific commitments, decisions not to issue, renew or maintain subsidies do not lead to a breach of the standards of treatment. The provision refers to specific commitments ‘under law or contract’, a disputed issue in a number of renewable energy cases under the ECT as to the determination of what constitutes a specific commitment.87 This is relevant for the concepts of stability and legitimate expectations under the FET standard88 and seems to have been influenced by EU member States experiences with treaty claims for revoking incentive schemes for renewable investments. On the one hand, subsidies for fossil fuels as a means to ensure energy security remain widespread but severely impede the transition towards a green economy.89 On the other hand, subsidies for solar and wind power have led to a vast expansion in renewable energies and remain vital to facilitate finance flows.90 Especially for States predominantly depending on fossil fuels, subsidies are pivotal economic instruments to foster investment in renewables. Legislative or general administrative acts often provide such subsidy schemes but do not contain ‘specific commitments’ of stabilization. An extensive exclusion of the protection for subsidy regimes narrows the protection for a stable regulatory framework for renewable energy investments. In light of the attempted phase-out mechanism for fossil fuels, this casts doubt on effective protection for green investments, making it an undesirable component for a climate-friendly treaty. Instead, clarifications on what constitutes ‘specific commitments’ and on parameters to limit regulatory discretion to alter financial incentives would entail a lesser decline in protection and provide more legal certainty.
The AIP does not adopt the structure of the provision proposed by the EU, but introduces paragraph 1 of the provision of the EU proposal as a stand-alone article.91 The right to regulate in the AIP explicitly refers to ‘legitimate policy objectives, such as the protection of the environment, including climate change mitigation and adaptation’,92 factors to determine an indirect expropriation93 and a new structure for the exception provisions.94 Paragraph 3 of the EU proposal has also found its way into the AIP as new Article 17bis on subsidies with a different wording as it lacks the reference to ‘specific commitments’.95 Paragraph 2, in contrast, was not included.
4.2.2 Legitimacy of Regulatory Activity
With respect to the renewable energy cases under the ECT, the relevance of the expropriation provision has decreased. Claims mostly failed on the requirement of a substantial deprivation96 and the assessment centred on the FET standard. However, rules on expropriation may have a comeback when it comes to fossil fuel phase-outs.97 This will raise the ubiquitous question of the boundaries between indirect expropriation and legitimate regulatory activity. Based on the Annexes in the US and Canada Model BITs, modern agreements include guidance to ascertain an indirect expropriation focusing on a public objective combined with a ‘regulatory exception’.98 The EU picked up this method and envisaged it for the ECT, welcomed by Albania, Azerbaijan, Georgia, Switzerland and Turkey.99 The AIP follows the EU proposal and incorporates ‘public health, safety and the environment (including with respect to climate change mitigation and adaptation)’ as legitimate policy objectives.100
Case law is still scarce, but tribunals relied on the police powers doctrine to scrutinise the individual elements of such a clause, taking into account the effect of a measure and the circumstances of its implementation. While codification provides a structure for consistency, new issues have emerged to customise it for a climate-friendly agreement. Namely, the relation to other defences101 and the characterization of the ‘regulatory exception’ either as an exception or a counter-exception from the general rule of non-compensable legitimate regulatory activity.102 The Tribunal in Bear Creek v Peru103 was the first to apply such a clause104 yet it grappled to exert its elements.105 It found an indirect expropriation in the revocation of a mining licence but without engaging into a more comprehensive discussion of the ‘regulatory exception’ paragraph.106 When examining a justification under the police powers doctrine, the Tribunal found that besides the ‘very detailed provisions … regarding expropriation’ and a general exception, other exceptions from general international law were unavailable.107
The Tribunal’s decision in Eco Oro v Colombia on a mining ban over a sensitive ecosystem shows a more accurate consideration of the elements in a similar provision. After having established that the measures were a non-discriminatory application of Colombia’s police powers,108 the Tribunal undertook a comprehensive investigation of whether these constituted a ‘rare circumstance’ envisaged by the ‘regulatory exception’. Eventually, the majority confirmed its initial finding after a proportionality analysis taking into account the precautionary principle.109 Although such a clause has been determined as an ‘exception’,110 the interpretation of the Eco Oro tribunal suggests its genuine character as a counter-exception or an interpretative note to the general rule that legitimate regulatory activity does not constitute an expropriation.111
Notwithstanding the relevance of the police powers approach in the absence of an indirect expropriation clause,112 guidelines in the treaty are to be preferred to meet expected future challenges for climate-related regulatory activity, especially in the energy sector. Thus, a written set to discern between indirect expropriation and legitimate regulatory activity forms an essential part of a climate-friendly investment treaty. However, existing practice reveals its weak points and calls for more elucidated language as to the ‘rare circumstances’ and the role of such provisions in contrast to other defences, most notably, exception provisions, as discussed next.
4.2.3 Regulation by Exception?
An increasing number of investment agreements include general exception provisions to adopt measures necessary for a public objective without interfering with substantive rights. While exceptions generally aim to derogate from protection standards,113 divergent approaches by tribunals have recently induced inconsistency and leastwise question the value of exceptions for a modernised ECT and a climate-friendly treaty.
The current version of the ECT contains a general exception in Article 24(2) and a security exception in Article 24(3). Article 24(1) clarifies that the exceptions altogether do not apply to Article 12 (Compensation for losses) and Art 13 (Expropriation). According to Article 24(2)(b), the general exception for measures necessary to protect human, animal or plant life or health does not apply to investment protection standards.114 While limitations in scope are desirable for standards inherently requiring compensation, the entire exclusion of the substantive protection standards from the scope of the general exception leaves the clause in a vegetative state. Whereas a number of tribunals had to resolve disputes concerning regulatory measures, none has ever ruled on the ECT’s exceptions.115
The exception clause was not on the initial list of topics for modernisation116 but considered by the Modernisation Group in its discussions on the ‘right to regulate’.117 The EU’s proposal maintains the exclusion of the substantive standards from the scope of the general exception. Some States showed reluctance over an expansion of the clause arguing that this could entail a reduction of investment protection.118 The AIP, however, makes the general exception applicable to the chapter on investment protection and includes ‘public morals’ and ‘public order’ as well as ‘the safety and integrity of critical energy facilities and infrastructure’ as legitimate public policy objectives.119 This may be influenced by growing concerns over disruptive acts concerning critical infrastructures. Additionally, the AIP detaches the security exception from the existing provision in the ECT by adding a new “Article 24bis Security Exceptions”.120
While the ordinary meaning of the wording in general exception clauses ‘shall not preclude any Contracting Party’ suggests a derogation, critics question this effect of such clauses.121 In an effort of modernisation, Canada has largely equipped its BITs with general exception provisions that apply to the whole treaty.122 However, Canada has abandoned this approach in its new Model BIT.123 Hitherto rare arbitral practice indicates the motivation behind this departure: the Tribunal in Infinito Gold v Costa Rica found in a provision allowing for the adoption of environmental measures a mere restatement of the right to regulate.124 Moreover, other tribunals found that absent clear language, a measure in conformity with an exception, although not breaching the treaty, still entitles to compensation.125
A climate-friendly investment agreement should take into account these recent developments. To lavish an investment treaty with various clauses on the right to regulate might have a contrary effect to its targets, as the relation of exceptions to other defences seems yet unclear. Some clauses in the EU proposal seem inflated by wordy formulations straining the ordinary meaning of its terms. A more precise formulation of its effects, in particular the exclusion from compensation in limited and well-defined circumstances, would leverage the right to regulate in the ECT and a climate-friendly agreement.
4.3 Limiting Fair and Equitable Treatment Claims in the Interest of Combatting Climate Change?
The EU’s idea for the new ECT was to clarify and circumscribe the scope of FET126 contained in Article 10(1) ECT,127 which investors have relied upon in the large majority of energy disputes under the ECT.128 In accordance with the criteria for climate-friendly investment treaties established above, the proposal for changes to FET needs to ensure that the regulatory autonomy for taking regulatory action vis-à-vis fossil fuel investors is increased, whereas the investment protection standard remains strong for climate-friendly investors and their investments.
4.3.1 The European Union’s Redefinition of Fair and Equitable Treatment
As a starting point, it should be noted that there is no explicit reference to climate change or energy transition in any EU document in connection with its FET proposal. Similar to other investment treaties or free trade agreements (FTAs) with investment chapters concluded by the EU,129 the EU proposal contains a closed list of measures that breach FET, such as ‘manifest arbitrariness’ or ‘denial of justice’.130 The closed list shall offer guidance and limit the discretion of tribunals with respect to finding a breach of FET. Additionally, the inclusion of qualifiers such as ‘fundamental’ or ‘manifest’ indicates that a certain threshold must be met for a breach of FET.131 Notably, the list does not include the criteria of stability of the domestic legal framework and the concept of legitimate expectations, both playing a major role in FET cases.132 Legitimate expectations still appear in the EU proposal outside this exhaustive list as the EU proposes that ‘a tribunal may take into account whether’ a ‘specific representation’ has been made to an investor to induce investment and whether that led to legitimate expectations that have been subsequently frustrated.133 According to established arbitral case law, a State breaches FET if it disregards legitimate expectations that it created eg through contractual commitments or assurances or possibly even the domestic legal framework, provided that the foreign investor invested in reliance on those expectations.134 In the EU proposal, however, legitimate expectations are no stand-alone element of FET and only play a complementary role.135 Thus, a tribunal is precluded from finding a breach of FET merely because an investor’s legitimate expectations were breached. Moreover, the EU proposal’s reference to specific representation in connection with legitimate expectations attempts to prevent tribunals from holding that legitimate expectations may arise from regulatory acts.136 Whether this clarification indeed precludes investment tribunals from taking into account general regulatory acts within the concept of legitimate expectations is uncertain.137
The EU’s proposal on FET explicitly received support from Georgia and Turkey and it was a common view among the Contracting Parties that FET should be limited. However, there was some disagreement whether a closed or open list of elements would be most suitable.138 The FET provision in the AIP includes an apparently closed list of elements largely based on the list proposed by the EU.139 In contrast to the EU proposal, the AIP includes legitimate expectations in the list of elements.140 A footnote explains that legitimate expectations do not cover expectations that there will be no changes to the regulatory framework absent ‘clear and specific representations or commitments’141 and another footnote states that the determination whether there is such a representation or commitment ‘requires a case-by-case, fact-based inquiry that considers, among other factors, laws and regulations and the Contracting Party’s relevant publicly known policies and their objectives’.142
4.3.2 A Redefinition Protecting Climate-Friendly Investors?
The clarifying and more restrictive language of the scope of FET in the EU proposal primarily stems from an interest to counter inconsistent case law with respect to legitimate expectations, stability and predictability143 – particularly in the renewable energy cases against Spain, Italy and the Czech Republic144 – and to increase regulatory autonomy of States. These changes to FET can prevent fossil fuel investors from winning investment cases as they need to prove that the challenged measure(s) falls within an element of the closed list in Article 10(1)(i) of the EU proposal and will not be able to advance a claim solely based on legitimate expectations or the need for stability in the domestic legal framework. However, climate-friendly investors are equally affected by those changes since no exceptions to these restrictions are included for their investments. Against the backdrop of a gradual exclusion of protection for fossil-fuel investments,145 under the EU proposal the limitation of the FET provision will at some point in the future exclusively affect climate-friendly investors. Regulatory changes to current or future financial support schemes, tariff regulations or other incentives will thus be measured against a lower FET standard, yet such governmental support measures are crucial for climate-friendly investors and a robust FET standard would provide assurances against risks associated with regulatory changes in that sector.146
Moreover, the limitations included in the FET provision also impact the possibility of climate-friendly investors acting as ‘incidental’ enforcers of climate policies and multilateral environmental agreements (MEAs).147 By itself, the argument that an investor formed legitimate expectations in connection with the ratification of an MEA148 or domestic environmental law,149 is fairly uncommon in investment practice. Still, it is in principle conceivable that investors reasonably relied on a State’s commitment undertaken in the Paris Agreement or the NDCs when investing. Non-compliance with a State’s commitments may then lead to a breach of legitimate expectations. However, under the EU proposal, there is little room for such investment claims since a breach of legitimate expectations cannot by itself result in a breach of FET and legitimate expectations could only emerge if there had been a specific representation. The ratification of the Paris Agreement and the NDCs are not directed at investors and by themselves cannot be characterised as specific representations.150 In the absence of any specific representations by State officials, however, the breach of any commitments undertaken in the Paris Agreement could never result in a breach of the FET provision because the EU proposal clarifies that ‘a breach of another provision of this Treaty, or of any other international agreement, does not constitute a breach of [FET]’.151
In contrast, an ambitious climate-friendly investment treaty would harness the potential of investors acting as incidental enforcers of climate protection through investor-State arbitration and even explicitly stipulate that legitimate expectations may emerge in relation to a State’s commitments undertaken in MEAs. While the EU proposal does not pursue this path, it arguably includes the option to enforce compliance with commitments undertaken in MEAs through State-to-State dispute settlement.152
4.4 Climate Change and Clean Energy in the Sustainable Development Provisions
Sustainable development (SD) provisions are incorporated in various newer investment treaties and the SD provisions proposed by the EU are identical or similar to the ones included in FTAs concluded by the EU.153 For purposes of determining whether the EU proposal is a climate-friendly model in that respect the SD provisions are assessed against the backdrop of three questions: do SD provisions include obligations binding upon States and investors with respect to climate protection? Are these provisions buttressed by an enforcement mechanism against States and investors? Do these provisions establish additional exception clauses or other justifications increasing regulatory autonomy in the interest of climate protection? This section first outlines the content of the SD provisions (Section 4.4.1) before addressing these questions in connection with their role in investment disputes (Section 4.4.2) and their role outside investment disputes (Section 4.4.3).
4.4.1 The European Union’s Sustainable Development Provisions
The EU proposal’s section on ‘Sustainable Development Corporate Social Responsibility’ includes several provisions, which directly address environmental protection and in particular climate protection.154 As a starting point, the provision on context and objectives is formulated like a preambular clause and refers to various instruments, such as the Rio Declaration of 1992. In connection with the right to regulate the proposal provides that the Contracting Parties shall not induce investments by lowering environmental standards (non-regression clause). In addition, the proposal provides that each State Party ‘shall effectively implement … the multilateral environmental agreements (MEAs), protocols and amendments that it has ratified.’ Specifically, with respect to climate change and the clean energy transition, it provides that ‘each Contracting Party shall: a.) effectively implement the UNFCCC and the Paris Agreement adopted thereunder, including its commitments with regard to its Nationally Determined Contribution’. It also requires the promotion of corporate social responsibility (CSR) by the Contracting Parties and requires them to implement in domestic law environmental impact assessments (EIAs) before certain projects ‘which may have a significant impact on the environment’ are authorised.
These envisaged provisions are complemented by a proposal to include State-to-State dispute settlement for all SD provisions.155 In essence, the current State-to-State dispute settlement mechanism, including State-to-State arbitration, shall become applicable to disputes concerning the interpretation or application of these provisions, with a few exceptions and a few additions. The arbitral tribunal cannot render a final and binding award,156 but rather issue a report with recommendations, which shall be made publicly available.157 Before issuing the report, the tribunal may obtain information from any source it deems appropriate, including organisations and bodies established under MEAs.158 As far as the implementation of the report and recommendations is concerned, the parties to the dispute must decide on their implementation, which will be monitored by the ECT secretariat.159
The EU’s proposal received support from Switzerland and Georgia, which endorsed such provisions either in the preamble or as separate provisions.160 In the document on policy options, Azerbaijan also referred to climate change and the Paris Agreement in relation to sustainable development. Nevertheless, it noted that the ‘modernized ECT should aim not to repeat the provisions of other documents and initiatives but to give them added value’.161 The AIP reflects the EU’s proposal to a large extent. Like the EU proposal, the AIP includes a separate provision on climate change reaffirming the commitment to effectively implement the obligations under the UNFCCC and the Paris Agreement.162 Moreover, it refers to other MEAs163 and CSR164 and includes a non-regression clause165 as well as a provision on EIAs.166 Finally, a dispute settlement mechanism for inter-State disputes on the new SD provisions will form part of the agreement, but in contrast to the EU proposal State-to-State arbitration is off the table. Rather, the AIP foresees a conciliation mechanism.167 Thus, if a dispute arises on the SD provisions, which cannot be settled through diplomatic channels, the Secretary General of the ECT shall appoint a conciliator,168 who shall assist in settling the dispute and propose a compromise.169 If the proposed compromise is not accepted, the conciliator shall issue a non-legally-binding report, including recommendations, to a subsidiary body of the Energy Charter Conference,170 which shall monitor the implementation of the report.171 In addition, the report will be made publicly available.172
4.4.2 Relevant in Investment Disputes?
The SD provisions of the EU proposal do not form part of the sections addressing investment standards in the ECT. Moreover, all SD provisions, including the ones on CSR, are directed at States and not at investors. Accordingly, no investor obligations are incorporated in the proposal.173 Not only does the EU proposal ignore investors as duty bearers, but the SD provisions also do not offer any additional basis for the creation of legitimate expectations that States will comply with any commitments undertaken in this chapter as these provisions cannot be characterised as specific representations vis-à-vis investors.
In addition, the SD provisions do not provide for any further exception clauses to investment standards and cannot directly serve as a justification for interfering with the rights of investors.174 Nonetheless, investment tribunals may have recourse to SD provisions in the course of a contextual reading of other provisions of the ECT,175 in particular the right to regulate, and thus these provisions may help fine-tune the right to regulate and harmonise conflicting international obligations.176 However, since investment tribunals have already been able to take into account States’ obligations under environmental treaties,177 by explicitly or implicitly relying on contextual interpretation, one may argue that these provisions are not necessary for taking into account public interests such as combatting climate change. In contrast, it can also be argued that including SD provisions directly in the ECT provides a short-cut for a contextual interpretations taking into account environmental obligations and moreover, counter-balances other objectives of the ECT.178
4.4.3 Relevant Outside Investment Disputes?
Outside of investment disputes, SD provisions may provide a more tangible contribution to climate protection. The specific obligations in the EU proposal (and the AIP) to implement environmental agreements, such as the Paris Agreement including the NDCs, constitute legally binding commitments for States (‘shall … effectively implement’). While such SD provisions are often formulated as ‘best endeavour clauses’ or ‘mere declarations of intent’,179 the wording of the particular provision in the EU proposal denotes a legal commitment (‘shall’).180 Even if an effective implementation of the Paris Agreement and the NDC may be debatable in an individual case, that does not imply that the phrase ‘effectively implement’ could not form a basis for examining a State’s non-compliance with its commitments under the Paris Agreement and the NDC. For some provisions of the Paris Agreement it is relatively easy to determine whether they have been effectively implemented, for instance, the transparency obligations requiring States to regularly provide information on sources of emissions and information to assess the progress on achieving their NDCs.181
The EU proposal couples the SD provisions with State-to-State dispute settlement that includes an arbitral-like mechanism, which may help guarantee observance of the commitments undertaken by the Contracting Parties, in particular under the UNFCCC and the Paris Agreement. It should be noted that the UNFCCC and the Paris Agreement also provide for dispute settlement mechanisms, even adjudication by the International Court of Justice (ICJ) or arbitration.182 However, only three States have made declarations accepting these forms of dispute settlement,183 including only one Contracting Party to the ECT, namely the Netherlands. In addition, reliance on a State’s recognition of the ICJ’s compulsory jurisdiction184 with respect to any questions of international law – thus including the UNFCCC and Paris Agreement185 – may fail due to the relatively small number of States having made such declarations186 as well as limitations and exceptions in these declarations. For instance some declarations exclude (certain) disputes arising out of multilateral treaties187 or matters concerning environmental protection.188 Additionally, the fallback conciliation mechanism under the UNFCCC189 and the Paris Agreement is not yet operable because procedural rules for it have not been adopted.190 Accordingly, the inclusion of a State-to-State arbitration mechanism in the ECT provides a new avenue for States to hold each other accountable with respect to the commitments under the Paris Agreement. A recent dispute between the EU and Korea, in which the EU argued before a panel of experts that Korea’s labour laws were inconsistent with the commitments undertaken in the SD provision in the EU–Korea FTA,191 proves that such a mechanism can be successfully used.192
One may of course criticise that the arbitration mechanism in the EU proposal does not result in a final binding award and there is also no sanction mechanisms for non-compliance with any issued report.193 However, the mere publication of a report by an arbitral tribunal with recommendations as foreseen in the EU proposal may by itself already induce compliance or lead to pressure from civil society, political actors and domestic judicial organs.194
Overall, the arbitration mechanism in the EU proposal gives teeth to MEAs – even without any sanction mechanism – as it can help settle both factual and legal disagreements about the (non-)implementation of the UNFCCC and the Paris Agreement, whose dispute settlement mechanism is dormant at best. If it had been included in the AIP, it would have provided an option for inter-State climate litigation in a regional context at least and indeed become a model for other investment agreements. In the AIP this potential for climate litigation will only be realised in a limited form with a conciliation mechanism rather than an arbitration mechanism. Still, given that the particular State-to-State arbitration mechanism would have only resulted in non-binding reports, the conciliation mechanism, which can also lead to the publication of a non-binding report containing recommendations, might lead to similar results in practice as the proposed arbitration mechanism.
5 Conclusion
The EU proposal for a modernised ECT aspires to facilitate the clean energy transition in line with the goals of the Paris Agreement. The purpose of this article was to assess whether the EU proposal can be characterised as a model for a climate-friendly investment treaty based on certain benchmarks. A climate-friendly investment treaty should – at best – remove or – at least – reduce investment protection for fossil fuel investors given their contribution to climate change and address concerns about ‘regulatory chill’, while at the same time maintaining access to investment protection for climate-friendly investors and their investments. This entails a divergence from investment neutrality, necessitated by the challenge of climate change. The importance of having a comprehensive investment treaty for climate-friendly investors in the energy sector primarily lies in the fact that renewable investments have substantial up-front investment costs and are only profitable at a much later stage. Thus, they may be vulnerable to regulatory action, in particular if a State withdraws financial support. Moreover, access to investment protection provides remedies on the international level if regulatory activity unlawfully encroaches on their investments producing ‘green’ energy.
In many ways, the EU proposal serves as a model for a climate-friendly investment treaty. The exclusion of fossil materials and products from the scope of investment protection and a timely phase-out from protection for existing ones as pursued in the proposal has the potential to shift capital flows for new investments into renewable energies. At the same time it provides legal certainty as to the duration of protection for existing investments in fossil fuels and thereby preserves energy security for States in the transitional period. Upon expiration of the phase-out timelines, the burden of regulatory changes for such investments shifts to the investor. Moreover, the clarifications on FET will prevent claims by fossil fuel investors. Varying forms of the right to regulate provide guidance to arbitral tribunals in applying substantive standards. Additionally, the State-to-State dispute settlement mechanism contained in the EU proposal may permit enforcement of environmental obligations contained in other treaties, including the Paris Agreement. Here the EU proposal provides an important tool of dispute settlement lacking in environmental treaties, which permits States to hold each other to account for failing to live up to the commitments undertaken under international climate law.
Nonetheless, in other respects, the EU proposal falls short of its objectives and would not lead to a fundamental shift in arbitral case law even if adopted as a model for new climate friendly investment treaties. The proposal lacks investor obligations related to climate change, limits FET protection for clean energy investors in the same manner as for fossil fuel-based investors and thus diminishes the level of investment protection for renewable investments. Furthermore, it fails to adopt a clear and effective approach to the right to regulate.
Overall, the EU proposal is a step in the right direction when it comes to facilitating a shift of private capital from fossil fuels to renewable energy investments. Hence, it can be argued that the EU proposal addresses concerns raised by civil society in light of recent investment cases initiated against the backdrop of coal-phase outs. However, the limitations of the FET provision may come to haunt climate-friendly investors when States are unwilling to further support renewable investments.
The fate of the ECT is uncertain at the time of writing and the AIP on the modernised ECT may face a long ratification process. Nonetheless, the EU’s proposal has in significant parts shaped the AIP. While the EU had to compromise on several issues, new principles and concepts have for the first time found its way into the draft text of an investment treaty. Some of these concepts, such as a phase-out mechanism for fossil fuel investments, have the potential to transform the investment law regime to a mechanism promoting the transition towards a ‘green economy’. This may even have the potential to tackle the widespread backlash against investment law and address societal concerns. Therefore, the EU proposal may serve as a starting point for a new generation of more climate-friendly investment treaties. It might not only guide future investment treaty negotiations of the EU, but also other States which intend to preserve the investment law regime but at the same time want to render it fit for the era of climate emergency.
Energy Charter Treaty (Annex I of the Final Act of the European Energy Charter Conference) (signed 17 December 1994, entered into force 16 April 1998) (ECT) 2080 UNTS 95.
Paris Agreement (signed 12 December 2015, entered into force 4 November 2016) UNTS Reg no 54113.
See eg Kyla Tienhaara and Lorenzo Cotula, ‘Raising the Cost of Climate action? Investor- State Dispute Settlement and Compensation for Stranded Fossil Fuel Assets’ (IIED, 2020) <https://pubs.iied.org/sites/default/files/pdfs/migrate/17660IIED.pdf> accessed 17 October 2022.
Lisa Bohmer, ‘The Netherlands is Facing Its First ICSID Arbitration, as German Energy Giant RWE Makes Good on Earlier Threats’ (IAReporter, 3 February 2021); Lisa Bohmer, ‘Uniper Lodges Treaty-Based Claim Against the Netherlands’ (IAReporter, 27 April 2021). However, the Uniper arbitration against the Netherlands will not be continued as the company is required to withdraw its arbitration claim as part of a bailout package by the German government, see Lisa Bohmer, ‘Uniper is Required to Withdraw Its Intra-EU ECT Claim Against the Netherlands as Part of German Bailout Package’ (IAReporter, 22 July 2022).
Climate Action Network Europe, ‘8 Reasons Why the Energy Charter Treaty Reform Process Is Doomed to Failure’ (CAN, 9 December 2021) <https://caneurope.org/8-reasons-ect-reform-is-doomed-to-failure/> accessed 17 October 2022.
Jennifer Rankin and Arthur Neslen, ‘Young People Go to European Court to Stop Treaty that Aids Fossil Fuel Investors’ (The Guardian, 21 June 2022).
Energy Charter Treaty Case Statistics <www.energychartertreaty.org/cases/statistics/> accessed 17 October 2022.
Edna Sussman, ‘The Energy Charter Treaty’s Investor Protection Provisions: Potential to Foster Solutions to Global Warming and Promote Sustainable Development’ in Marie- Claire Cordonier Segger, Markus W Gehring and Andrew Newcombe (eds), Sustainable Development in World Investment Law (Wolters Kluwer 2011) 513, 523 ff.
European Union, ‘Text Proposal for the Modernisation of the Energy Charter Treaty’ (May 2020) <https://trade.ec.europa.eu/doclib/docs/2020/may/tradoc_158754.pdf> accessed 17 October 2022.
Agreement in Principle on the Modernisation of the Energy Charter Treaty (24 June 2022) (AIP) <www.bilaterals.org/IMG/pdf/reformed_ect_text.pdf> accessed 17 October 2022.
See eg Nathalie Bernasconi-Osterwalder and others, ‘Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation: Aligning International Investment Law with the Urgent Need for Climate Change Action’ (2019) 36 J Intl Arb 7; Paula Henin and others, ‘Innovating International Investment Agreements: A Proposed Green Investment Protocol for Climate Change Mitigation and Adaptation’ (2019) 36 J Intl Arb 37; Daniel Magraw and others, ‘Model Green Investment Treaty: International Investment and Climate Change’ (2019) 36 J Intl Arb 95; Silke Noa Elrifai and others, ‘A Model Multilateral Treaty for the Encouragement of Investment in Climate Change Mitigation and Adaptation’ (2019) 36 J Intl Arb 71; Treaty on Sustainable Investment for Climate Change and Adaptation <https://stockholmtreatylab.org/wp-content/uploads/2018/07/Treaty-on-Sustainable-Investment-for-Climate-Change-Mitigation-and-Adaptation-1.pdf> accessed 17 October 2022.
David Gaukrodger, ‘The Future of Investment Treaties: Background Note on Potential Avenues for Future Policies’ (2021) OECD Working Papers on International Investment 2021/03, 19 <https://doi.org/10.1787/946c3970-en> accessed 17 October 2022.
Paris Agreement (n 2) art 2(1)(a).
ibid art 2(1)(c); Halldór Thorgeirsson, ‘Objective (Article 2.1)’ in Daniel Klein and others (eds), The Paris Agreement on Climate Change: Analysis and Commentary (OUP 2017) 123, 128.
Paris Agreement (n 2) art 2(1)(a).
See eg Kyla Tienhaara, ‘Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement’ (2018) 7 TEL 229.
Paris Agreement (n 2) art 9(3); Jorge Gastelumendi and Inka Gnittke, ‘Climate Finance (Article 9)’ in Daniel Klein and others (n 14) 239, 244–45.
See eg RREEF Infrastructure (GP) Limited and RREEF Pan-European Infrastructure Two Lux Sàrl v Kingdom of Spain, ICSID Case No ARB/13/30, Decision on Responsibility and on the Principles of Quantum (30 November 2018) paras 89–90.
Cf Henin and others (n 11) 48–50, 53–55. In the Morocco–Nigeria BIT (signed 3 December 2016) art 1 contribution to the sustainable development of the host State is part of the investment definition, which arguably excludes unsustainable investments from the scope of application.
Cf Henin and others (n 11) 63, fn 132; Magraw and others (n 11) 104; Elrifai and others (n 11) 89; see also Okechukwu Ejims, ‘The 2016 Morocco-Nigeria Bilateral Investment Treaty: More Practical Reality in Providing a Balanced Investment Treaty?’ (2019) 34 ICSID Rev 62, 78–80; Stephan W Schill and Vladislav Djanic, ‘Wherefore Art Thou? Towards a Public Interest-Based Justification of International Investment Law’ (2018) 33 ICSID Rev 29, 39–42.
Cf Henin and others (n 11) 64–68; Ejims (n 20) 74–78; Daniel Magraw and others (n 11) 124, see also Elisa Morgera, ‘From Corporate Social Responsibility to Accountability Mechanisms’ in Pierre-Marie Dupuy and Jorge E Viñuales (eds), Harnessing Foreign Investments to Promote Environmental Protection (CUP 2013) 321; Netherlands Model BIT (22 March 2019) arts 7(1), 7(4) and 23.
Cf Zachary Douglas, ‘The Enforcement of Environmental Norms in Investment Treaty Arbitration’ in Dupuy and Viñuales (n 21) 415, 424–27; Jorge E Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’ (2009) 80 BYBIL 244, 254–57.
See supra n 10.
At the time of writing, the AIP was concluded, but it is still possible that the modernised text for the ECT will not receive sufficient support from Contracting Parties and will never enter into force. Any amendment of the ECT requires unanimity in the Energy Charter Conference (ECT (n 1) arts 42(2) and 36(1)(a)) and subsequent ratification by at least three-fourths of the Contracting Parties (ibid art 42(4)).
See also the recent brief analyses on the EU proposal: Paul V Thiessen, ‘Reforming the Energy Charter Treaty for Sustainability?’ (2022) 40 Journal of Energy & Natural Resources Law 465; Marta Vicente, ‘The European Union’s Proposal for the Modernization of the Energy Charter Treaty’ (2022) 31 European Energy and Environmental Law Review 124.
Energy Charter Conference, ‘Public Communication Explaining the Main Changes Contained in the Agreement in Principle’ (24 June 2022) <https://www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2022/CCDEC202210.pdf> accessed 17 October 2022. See further the leaked version of the AIP (n 10).
Request for an opinion submitted by the Kingdom of Belgium pursuant to Article 218(11) of the Treaty on the Functioning of the European Union (TFEU) (Opinion 1/20) [2021] OJ C53/15.
CJEU, Opinion 1/20 (16 June 2022), ECLI:EU:C:2022:485.
CJEU, Case C‑741/19, Republic of Moldova v Komstroy LLC, ECLI:EU:C:2021:655, paras 41–66. The AIP (n 10) art 24(3) excludes intra-EU dispute settlement.
Julia Doré, ‘Negotiating the Energy Charter Treaty’ in Thomas Wälde (ed), The Energy Charter Treaty: An East-West Gateway for Investment and Trade (Kluwer Law International 1996) 137, 138–39; Kaj Hobér, The Energy Charter Treaty: A Commentary (OUP 2020) 14.
Doré (n 30) 143–45.
International Energy Charter, ‘Russian Federation’ <www.energycharter.org/who-we-are/members-observers/countries/russian-federation/> accessed 17 October 2022.
However, Australia, Belarus, Norway and the Russian Federation have never ratified the ECT, with Belarus having suspended its provisional application on 24 June 2022.
United Nations Framework Convention on Climate Change (signed 9 May 1992, entered into force 21 March 1994) (UNFCCC).
ECT (n 1) art 19.
Energy Charter Protocol on Energy Efficiency and Related Environmental Aspects (signed 18 December 1994, entered into force 16 April 1998) 2081 UNTS 3.
Clare Shine, ‘Environmental Protection Under the Energy Charter Treaty’ in Wälde (n 30) 520, 522.
ibid 544.
See ECT (n 1) arts 26(1) and 27(2).
Energy Charter Secretariat, ‘Decision – Report by the Chair of the Subgroup on Modernisation’ (27 November 2018) <www.energychartertreaty.org/fileadmin/DocumentsMedia /CCDECS/CCDEC201821_-_NOT_Report_by_the_Chair_of_Subgroup_on_Modernisation.pdf> accessed 17 October 2022.
Energy Charter Secretariat, ‘Decision – Policy Options for the Modernisation of the ECT’ (6 October 2019) <www.energycharter.org/fileadmin/DocumentsMedia/CCDECS/2019/CCDEC201908.pdf> accessed 17 October 2022.
Energy Charter Secretariat, ‘Decision – Modernisation of the Energy Charter Treaty: Mandate, Procedural Issues and Timelines for Negotiations’ (6 November 2019) <www.energychartertreaty.org/fileadmin/DocumentsMedia/CCDECS/CCDEC201910_-_STR_Modernisation_Mandate__Procedural_Issues_and_Timeline_for_Negotiations .pdf> accessed 17 October 2022.
Energy Charter Secretariat, ‘Progress Report of the Modernisation Group 2021’ (14 December 2021) <www.energychartertreaty.org/fileadmin/DocumentsMedia/CCDECS/CCDEC202121_-_NOT_-_Progress_Report_of_the_Modernisation_Group_2021.pdf> accessed 17 October 2022; see also the press release on the agreement in principle (n 26).
ibid.
See supra n 10.
Energy Charter Secretariat (n 41) 2.
ibid 38; Luxembourg submitted a separate, more detailed policy option, highlighting climate change and commitments undertaken in the Paris Agreement, see ibid 39.
European Union, ‘Text Proposal for the Modernisation of the Energy Charter Treaty, Additional Submission’ (19 May 2021) 1 <https://trade.ec.europa.eu/doclib/docs/2021/february/tradoc_159436.pdf> accessed 17 October 2022.
Energy Charter Secretariat (n 43).
Doré (n 30) 148 ff.
See Maxence Peigné, Harald Schumann and Nico Schmidt, ‘Energy Charter Treaty: Stalled Reform Fuels EU Fears for Climate’ (Investigate Europe, 14 December 2021) <www.investigate-europe.eu/en/2021/energy-charter-treaty-stalled-reform-fuels-eu-fears-for-climate/>; Maxence Peigné, ‘ECT: “Ecocide” Treaty Puts Member States and EU Commission at Odds’ (Investigate Europe, 25 July 2022) <www.investigate-europe.eu/en/2022/ect-ecocide-treaty-puts-member-states-and-eu-commission-at-odds/> both accessed 17 October 2022.
Lisa Bohmer, ‘Deeming the ECT’s Modernization Process Insufficient, Poland Drafts a Law Denouncing the Treaty’ (IAReporter, 2 September 2022); Lisa Bohmer, ‘Spain is Set to Withdraw From the Energy Charter Treaty, Following in Poland’s Footsteps’ (IAReporter, 13 October 2022).
Elena Cima, ‘Retooling the Energy Charter Treaty for Climate Change Mitigation: Lessons from Investment Law and Arbitration’ (2021) 14 J World Energy Law & Bus 75, 80.
ECT (n 1) art 1(6).
ibid art 1(5).
ibid art 1(4).
The items listed in the Annexes EM I and EM II are based on the Harmonised System of the World Customs Union: International Convention on the Harmonized Commodity Description and Coding System (with annex) as Amended by the Protocol of Amendment of 24 June 1986 (signed 14 June 1963, entered into force 1 January 1988) 1503 UNTS 3.
This followed the Council of the EU, ‘Climate and Energy Diplomacy – Delivering on the External Dimension of the European Green Deal’ (25 January 2021); EU Additional Submission (n 48).
See the Energy Charter Secretariat, ‘Public Communications on the Negotiation Rounds of the Modernisation of the ECT’ <www.energychartertreaty.org/modernisa tion-of-the-treaty/> accessed 17 October 2022.
EU Additional Submission (n 48) art 1(4) subpara 1 refers to the fossil energy materials and products under the subheadings 27.01 to 27.15 of Annex EM I and electrical energy under subheading 27.16 of Annex EM I if produced by these materials.
EU Additional Submission (n 48) art 1(4) subpara 4.
ibid art 1(4) subpara 2.
The labelling of nuclear power in the EU taxonomy for sustainable activities has prompted criticism amongst some member States; see for instance Kira Taylor, ‘“Misunderstanding” Could Block Nuclear from Claiming Green EU Label, Industry Warns’ (Euractiv, 14 January 2022) <www.euractiv.com/section/energy-environment/news/misunderstanding-could-block-nuclear-from-claiming-green-eu-label-industry-warns/> accessed 17 October 2022.
Albania, Azerbaijan, the EU, Luxembourg, Switzerland and Turkey; Energy Charter Secretariat (n 41) 8–9.
AIP (n 10) art 1(5); Annex NI sec B, sec C.
Press release on the agreement in principle (n 26).
Commission, ‘Proposal for a Council Decision on the Position to Be Taken on Behalf of the European Union in the 33rd Meeting of the Energy Charter Conference’ (5 October 2022) COM (2022) 521 final.
See supra n 24.
Commission (n 67).
ibid.
In general see Jan A Bischoff and Richard Happ, ‘The Notion of Investment’ in Marc Bungenberg and others (eds), Investment Law – A Handbook (CH Beck, Hart, Nomos 2015) 495, paras 1 ff.
Paris Agreement (n 2) art 4(4), (5); Anna Huggins and Rowena Maguire, ‘The Implementation of the Principle of Common but Differentiated Responsibilities Within the Paris Agreement – A Governance Values Analysis’ in Vesselin Popovski (ed), The Implementation of the Paris Agreement on Climate Change (Routledge 2019) 164.
See eg Energy Charter Secretariat, ‘Public Communication on the Seventh Negotiation Round of the Modernisation Process of the ECT’ <www.energychartertreaty.org/fileadmin/user_upload/2021.09-10_ENG.pdf> accessed 17 October 2022.
AIP (n 10) Annex NI, ss B and C. For the EU this implies an exclusion of protection for all new investments in fossil fuels in the EU as of 15 August 2023, with certain transition periods for low-carbon gas, as outlined in the EU proposal. In addition, the annex sets out an exclusion of protection under the ECT for all existing investments in fossil fuels ten years after the entry into force or provisional application of the Annex NI and by 31 December 2040 at the latest.
ibid Annex NI, ss B and C. The UK pursues similar phase-out timelines for new and existing investments in fossil fuels, although existing investments in the coal sector and energy produced from coal will already lose protection under the ECT from 1 October 2024. Switzerland only excludes protection for new investments in hydrogen and certain synthetic fuels.
Press release on the agreement in principle (n 26).
See supra n 11.
Bernasconi-Osterwalder and others (n 11) 17–18. The United States and Canada follow this technique to exclude sensitive business sectors and industries from pre-establishment rights: Armand de Mestral, ‘Pre-Entry Obligations under Investment Law’ in Bungenberg and others (n 71) 685.
UNFCCC, ‘Decision -/CP.26 Glasgow Climate Pact’ (12 November 2021) IV (Mitigation) para 20 <https://unfccc.int/sites/default/files/resource/cop26_auv_2f_cover_deciion.pdf> accessed 17 October 2022.
Catharine Titi, The Right to Regulate in International Investment Law (Nomos 2014) 33.
ibid 143–48 and 148 ff.
ibid 123 ff.
ibid 32 ff.
See eg Comprehensive Economic and Trade Agreement Between Canada, of the One Part, and the European Union and Its Member States, of the Other Part (signed 30 October 2016, provisionally entered into force 21 September 2017, with most of the investment chapter being excluded from provisional application) (CETA) art 8.9; Investment Protection Agreement Between the European Union and Its Member States, of the One Part, and the Republic of Singapore of the Other Part (signed 15 October 2018) (EU–Singapore IPA) art 2.2.
Catharine Titi, ‘The Right to Regulate’ in Makane Mbengue and Stefanie Schacherer (eds), Foreign Investment Under the Comprehensive Economic and Trade Agreement (CETA)(Springer 2019) 159, 171.
Energy Charter Secretariat (n 41) 15–16.
For a discussion of approaches taken by tribunals, see Jack Biggs, ‘The Scope of Investors’ Legitimate Expectations Under the FET Standard in the European Renewable Energy Cases’ (2021) 36 ICSID Rev 99, 108–12, 114–16.
On the FET standard in the EU’s proposal, see infra Section 4.3.
Ian Parry, Simon Black and Nate Vernon, ‘Still Not Getting Energy Prices Right: A Global and Country Update of Fossil Fuel Subsidies’ (2021) IMF Working Paper WP/21/236 <www.imf.org/en/Publications/WP/Issues/2021/09/23/Still-Not-Getting-Energy-Prices-Right-A-Global-and-Country-Update-of-Fossil-Fuel-Subsidies-466004>; ‘As Energy Prices Spike, Governments Reach for the Dirtiest Tool in the Box – A New IMF Study Shows That Fossil-Fuel Subsidies Are a Climate Nightmare’ (The Economist, 30 October 2021).
See Paris Agreement (n 2) art 2(1)(c); IEA, ‘Renewable Energy Market Update’ (IEA, 2021) <www.iea.org/reports/renewable-energy-market-update-2021/renewable-electricity> accessed 17 October 2022.
AIP (n 10) New Article: Right to Regulate.
ibid.
ibid art 13(3).
ibid art 24.
ibid art 17bis: Subsidies.
See eg BayWa re Renewable Energy GmbH and BayWa re Asset Holding GmbH v Spain, ICSID Case No ARB/15/16, Decision on Jurisdiction, Liability and Directions on Quantum (2 December 2019) paras 429–32; Cavalum SGPS, SA v Kingdom of Spain, ICSID Case No ARB/15/34, Decision on Jurisdiction, Liability and Directions on Quantum (31 August 2020) para 652–53. Although most ECT cases have dealt with an alleged expropriation, only two tribunals found an expropriation, see Hobér (n 30) 287.
See eg the cases in (n 4).
See Ursula Kriebaum, ‘Article 8.12 Expropriation’ in Marc Bungenberg and August Reinisch (eds), CETA Investment Law: Article by Article Commentary (Nomos 2022) 297, paras 73–93 uses the term ‘regulation exception’; Arnaud de Nanteuil, ‘Expropriation’ in Mbengue and Schacherer (n 85) 127, 150 ‘police powers exception’. For an example of such a provision see Annex 8-A (Expropriation) (3) of the CETA (n 84): ‘For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations’.
Energy Charter Secretariat (n 41) 22–23.
AIP (n 10) art 13(4).
Bear Creek Mining Corporation v Republic of Peru, ICSID Case No ARB/14/21, Award (30 November 2017) para 473.
Eco Oro Minerals Corp v Republic of Colombia, ICSID Case No ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum (9 September 2021) paras 642, 681–99.
Bear Creek v Peru (n 101) para 371.
Free Trade Agreement Between Canada and Peru (signed 29 May 2008, entered into force 1 August 2009) art 812 (Expropriation) and Annex 812.1 (Indirect Expropriation).
See the critique by Joshua Paine, ‘Bear Creek Mining Corporation v Republic of Peru Judging the Social License of Foreign Investments and Applying New Style Investment Treaties’ (2018) 33 ICSID Rev 340, 346 ff.
Bear Creek v Peru (n 101) para 375, 376, 444–46, 449.
ibid para 473.
Eco Oro v Colombia (n 102) para 642.
ibid paras 655, 699. This assessment also included Colombia’s administrative seesaw 657–80, and Eco Oro’s investment-backed expectations 681–98.
de Nanteuil (n 98) 150; Kriebaum (n 98).
Such a reading appears also more adequate where a treaty provides for a general exception provision applicable to investment protection standards: Understood as an exception, a tribunal would have to apply two different exceptions notwithstanding similar conditions successively.
The Eco Oro tribunal distinguished the various ways in which tribunals approached the police powers doctrine: Eco Oro v Colombia (n 102) paras 626–28.
Levent Sabanogullari, Exceptions Clauses in International Investment Law – The Recalibration of Investment Agreements via WTO-Based Flexibilities (Nomos 2018) 40.
This split depicts a compromise between States seeking GATT-like exceptions and those which considered exceptions inappropriate in the investment law context: Craig S Bamberger, ‘An Overview of the Energy Charter Treaty’ in Wälde (n 30) 1, 22. The exclusion of Part III in Article 24(1)(b) only appears as of the seventh draft version: ‘Draft ECT – Seventh Version’ (17 March 1994) <www.energycharter.org/fileadmin/DocumentsMedia/ECT_Drafts/21_-_ECT_7__17.03.94_.pdf> accessed 17 October 2022.
Hobér (n 30) 390.
Energy Charter Secretariat (n 40).
Energy Charter Secretariat, ‘Report of the Modernisation Group on Progress Made in Fulfilling the Negotiations Mandate’ (euractiv, 25 November 2020) 27–30 <www.euractiv.com/wp-content/uploads/sites/2/2020/12/ECT-report-on-progress-made_FS.pdf> accessed 17 October 2022.
ibid 30.
AIP (n 10) art 24.
ibid art 24bis.
Barton Legum and Ioana Petculescu, ‘GATT Art XX and International Investment Law’ in Roberto Enchandi and Pierre Sauvé (eds), Prospects in International Investment Law and Policy (CUP 2013) 340; Céline Levesque, ‘The Inclusion of GATT Article XX Exceptions in IIAs: A Potentially Risky Policy’ in ibid 363, 368.
Sabanogullari (n 113) 70.
Canada Model Foreign Investment Promotion and Protection Agreement (2021) (Canada Model BIT (2021)).
Infinito Gold Ltd v Costa Rica, ICSID Case No ARB/14/5, Award (3 June 2021) paras 777– 78, 781.
Bear Creek v Peru (n 101) para 477; Eco Oro v Colombia (n 102) para 829.
EU proposal (n 9).
ECT (n 1) art 10(1) (‘Each Contracting Party shall, in accordance with the provisions of this Treaty, encourage and create stable, equitable, favourable and transparent conditions for Investors of other Contracting Parties to make Investments in its Area. Such conditions shall include a commitment to accord at all times to Investments of Investors of other Contracting Parties fair and equitable treatment …’).
See eg Hobér (n 30) 191–226.
See eg CETA (n 84) art 8.10(2), (4), (6); EU–Singapore IPA (n 84) art 2.4(2)–(3), (7). This approach can be contrasted with US and Canadian treaty practice linking FET with the minimum standard of treatment under customary international law, see eg US Model BIT (2012) art 5; see, however, the new Canada Model BIT (2021) (n 123) art 8.
EU proposal (n 9) art 10(1)(i): ‘(a) denial of justice in criminal, civil or administrative proceedings; or (b) fundamental breach of due process, including a fundamental breach of transparency in judicial and administrative proceedings; or (c) manifest arbitrariness; or (d) targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; or (e) abusive treatment such as harassment, duress or coercion’.
See cf Frank Hoffmeister, ‘The Contribution of EU Trade Agreements to the Development of International Investment Law’ in Steffen Hindelang and Markus Krajewski (eds), Shifting Paradigms in International Investment Law: More Balanced, Less Isolated, Increasingly Diversified (OUP 2016) 357, 366–67 (‘a certain threshold of gravity must be met’); see however Ursula Kriebaum, ‘FET and Expropriation in the (Invisible) EU Model BIT’ (2014) 15 JWIT 454, 474 (‘[manifest] relates not to the gravity or seriousness of the arbitrariness but rather to the ease to perceive/recognize/identify the arbitrariness’).
See eg Cavalum Spain (n 96) paras 404–05 (‘the protection of legitimate expectations can be considered the dominant or most important component of the investor-State FET treaty standard that is reflected in Article 10(1) [of] the ECT … [S]tability and transparency are included in the express obligation in Article 10(1) ECT for the State to “create stable … and transparent conditions” and are also implicit in the obligation to accord FET, and stability is also part of the legitimate expectation of the investor.’).
EU proposal (n 9) art 10(1)(ii).
For an overview of the case law, see August Reinisch and Christoph Schreuer, International Protection of Investments: The Substantive Standards (CUP 2020) 251 ff.
See eg Patrick Dumberry, ‘Fair and Equitable Treatment’ in Mbengue and Schacherer (n 85) 95, 100–07.
The requirement of ‘specific representation’ departs from some previous ECT case law, see eg Electrabel SA v Republic of Hungary, ICSID Case No ARB/07/19, Decision on Jurisdiction, Applicable Law and Liability (30 November 2012) para 7.78; Antaris Solar GmbH and Dr Michael Göde v Czech Republic, PCA Case No 2014–01, Award (2 May 2018) para 360(5). For a discussion on the divergent approaches in case law, see Biggs (n 87).
See eg Mobil Exploration and Development Inc Suc Argentina and Mobil Argentina SA v Argentine Republic, ICSID Case No ARB/04/16, Decision on Jurisdiction and Liability (10 April 2013) paras 955–57 (holding that a specific commitment may arise from general regulation); see also the sceptical view in Kriebaum (n 131) 478.
Energy Charter Secretariat (n 117) 18–19 (Japan and Switzerland favored an open list).
AIP (n 10) art 10(2).
ibid 10(2)(vi) ‘frustration of an Investor’s legitimate expectations where these were central to its Investment, and arose from a clear and specific representation or commitment by that Contracting Party upon which the Investor reasonably relied in deciding to make or maintain the Investment.’).
ibid art 10(2)(vi) fn 2.
ibid 10(2)(vi) fn 3.
See eg Cees Verburg, ‘Modernising the Energy Charter Treaty: An Opportunity to Enhance Legal Certainty in Investor-State Dispute Settlement’ (2019) 20 JWIT 425, 430–31; Diego Zannoni, ‘The Legitimate Expectation of Regulatory Stability Under the Energy Charter Treaty’ (2020) 33 LJIL 451, 454–62.
For a discussion of these cases, see eg Biggs (n 87); see also Danae Azaria, ‘The Renewable Energy Arbitrations Under the Energy Charter Treaty’ in Hélène Ruiz Fabri and Edoardo Stoppioni (eds), International Investment Law: An Analysis of the Major Decisions (Hart 2022) 153.
See supra Section 4.1.1.
Anatole Boute, ‘The Potential Contribution of International Investment Protection Law to Combat Climate Change’ (2009) 27 J Energy & Natural Resources Law 333, 364–65, 376.
See Gian Maria Farnelli, ‘Investors as Environmental Guardians? On Climate Change Policy Objectives and Compliance with Investment Agreements’ (2022) 23(5–6) JWIT 887.
Peter A Allard v The Government of Barbados, PCA Case No 2012-06, Award (27 June 2016) paras 177–78 (the claimant argued that his expectations where reasonable because of Barbados’ ratification of the Ramsar Convention on Wetlands and the Convention on Biological Diversity).
See eg Zelena NV and Energo-Zelena d.o.o Inđija v Republic of Serbia, ICSID Case No ARB/14/27, Award (9 November 2018) paras 156, 239, 267, 293 cited in Ioan Micula, Viorel Micula and others v Romania [II], ICSID Case No ARB/14/29, Award (5 March 2020) paras 367–70.
See cf Farnelli (n 147).
EU proposal (n 9) art 10(1)(iv). While this provision is also found in the AIP (n 10) art 10(2), the inclusion of frustration of legitimate expectations as a breach of FET might leave more room for such claims under the AIP, in particular since a footnote in the AIP outlines an apparently broader understanding of ‘clear and specific representation or commitment’ taking into account a ‘Contracting Party’s relevant publicly known policies and their objectives’ (AIP (n 10) art 10(2)(vi) fn 3).
See infra Section 4.4.3.
See eg CETA (n 84) ch 22 (Trade and Sustainable Development) and ch 24 (Trade and Environment); EU–Singapore IPA (n 84) ch 12 (Trade and Sustainable Development).
See EU proposal (n 9) 10–12.
ibid art 28A(1).
ibid.
ibid art 28A(3).
ibid art 28A(2).
ibid art 28A(4).
Energy Charter Secretariat (n 117) 53.
Energy Charter Secretariat (n 41) 38.
AIP (n 10) New Article: Climate Change and Clean Energy Transition; ibid art 19(2).
ibid.
ibid art 19(2) and art 19(6).
ibid art 19(3),
ibid art 19(5)(i).
ibid art 28bis.
ibid art 28bis(3).
ibid art 28bis(5).
ibid art 28bis(6).
ibid art 28bis(7).
ibid.
In contrast, see eg Morocco–Nigeria BIT (n 19) arts 14, 18 and 20; Netherlands Model BIT (n 21) arts 7(1) and 7(4).
Cf Restrictions Applied by Ukraine on Exports of Certain Wood Products (European Union v Ukraine), Arbitration Panel, Final Report (11 December 2020) paras 244, 250.
ibid para 249; see also Vienna Convention on the Law of Treaties (signed on 23 May 1969, entered into force 27 January 1980) (VCLT) 1155 UNTS 331, art 31(1).
See Wolfgang Alschner and Elisabeth Tuerk, ‘The Role of International Investment Agreements in Fostering Sustainable Development’ in Freya Baetens (ed), Investment Law Within International Law (CUP 2013) 217, 223.
See eg Chemtura Corporation v Government of Canada, UNCITRAL, Award (2 August 2010) paras 133–143, 266; SD Myers, Inc v Government of Canada, UNCITRAL, Partial Award (13 November 2000) paras 201–04, 252–57; David R Aven and Others v Republic of Costa Rica, ICSID Case No UNCT/15/3, Final Award (18 September 2018) paras 390, 417–24, 482, 585; Eco Oro v Colombia (n 102) paras 85, 460, 598, 644–45.
See eg RREEF v Spain (n 18) paras 238, 242.
Stefanie Schacherer and Rhea Tamara, ‘International Investment Law and Sustainable Development’ in Markus Krajewski and Rhea Tamara Hoffmann (eds), Research Handbook on Foreign Direct Investment (Edward Elgar 2019) 563, 590.
See cf Wintershall Aktiengesellschaft v Argentine Republic, ICSID Case No ARB/04/14, Award (8 December 2008) para 119; see also Panel of Experts Proceeding Constituted Under Article 13.15 of the EU-Korea Free Trade Agreement (European Union v Republic of Korea), Panel of Experts, Report (20 January 2021) para 269.
UNFCCC (n 34) art 13(7).
ibid art 14(2); Paris Agreement (n 2) art 24.
Solomon Islands (arbitration), Tuvalu (arbitration) and the Netherlands (adjudication by the ICJ and arbitration), see UNFCC, ‘Declarations by Parties’ <https://unfccc.int/process/the-convention/status-of-ratification/declarations-by-parties> accessed 17 October 2022.
Statute of the International Court of Justice, Annex Charter of the United Nations (signed 26 June 1945, entered into force 24 October 1945) 1 UNTS XVI, art 36(2)–(4).
On compulsory jurisdiction of the ICJ with respect to the UNFCCC and the Paris Agreement, see generally Margaretha Wewerinke-Singh, Julian Aguon and Julie Hunter, ‘Bringing Climate Change Before the International Court of Justice: Prospects for Contentious Cases and Advisory Opinions’ in Ivano Alogna, Christine Bakker and Jean-Pierre Gauci (eds), Climate Change Litigation: Global Perspectives (Brill 2021) 393, 398–402.
Only 73 States have made such declarations, see ICJ, ‘Declarations Recognizing the Jurisdiction of the Court as Compulsory’ <www.icj-cij.org/en/declarations> accessed 17 October 2022.
See eg ibid the declaration by Malta <www.icj-cij.org/en/declarations/mt> accessed 17 October 2022.
See eg ibid, the declaration by Poland <www.icj-cij.org/en/declarations/pl>; and Romania <www.icj-cij.org/en/declarations/ro> both accessed 17 October 2022.
UNFCCC (n 34) art 14(5); art 14(7).
Catherine Amirfar and Merryl Lawry White, ‘The Paris Agreement’s Conciliation Annex: If Not Now, Then When?’ (2021) 25(17) ASIL Insights.
Free Trade Agreement Between the European Union and Its Member States, of the One Part, and the Republic of Korea, of the Other Part (signed 6 October 2010, entered into force 1 July 2011).
European Union v Republic of Korea (n 180).
See cf Schacherer and Tamara (n 179) 593–94.
Stefanie Schacherer, Sustainable Development in EU Foreign Investment Law (Brill 2021) 250; see also Katerina Hradilová and Ondrej Svoboda, ‘Sustainable Development Chapters in the EU Free Trade Agreements: Searching for Effectiveness’ (2018) 52 JWT 1019, 1041–42.