The role of investor-state arbitration in promoting climate change mitigation : from “shield” to “sword” through renewable energy disputes?

Abstract

In international investment law, the principle of solidarity has contributed to the growing concern for the protection of the public interests in the host state, particularly in environmental protection. It is demonstrated in three aspects: first, the definition of development has evolved from merely referring to economic development to include social development; second, the increasing inclusion of stand-alone provisions on environmental protection and labor standards in bilateral and multilateral investment treaties; and lastly, the rising number of cases that touch upon environmental concerns relating to the host state’s right to regulate, particularly the newest development of allowing the host state to invoke counterclaims against the investor for environmental damages, as demonstrated in Burlington v. Ecuador, as well as claims referring to the host state’s obligation under international environmental agreements. Apart from the opportunities above, there are also challenges in environmental protection under international investment law. For instance, it is questionable whether investor-state dispute settlement (ISDS) can provide adequate protection to renewable energy investments, since the question remains unanswered whether the retraction of the subsidies from the host state constitutes a breach of legitimate expectations under international investment agreements, as is the case with several EU member states and Canada. These renewable energy investment cases present a paradox. On one hand, the host state should enjoy regulatory autonomy over the energy sector and should not be required to compensate investors for the change of energy regulation in good faith; on the other hand, the protection and promotion of renewable energy and reducing greenhouse gas emission represents a global common interest reflected in international environmental agreements, UN declarations, the Energy Charter Treaty and several investment treaties. This paper explores the opportunities and challenges of the contribution that international investment law can make towards mitigating climate change. Through analyzing investor-state arbitration cases concerning renewable energy investment, as well as cases that touch upon the applicability of international environmental agreements, this paper advocates for a re-conceptualization of important investment law concepts such as legitimate expectations to utilize the ISDS mechanism as a tool to compel states to mitigate climate change.