Investment treaty reform when regulatory chill causes global warming

Abstract

State-to-state investment protection treaties, and the Energy Charter Treaty in particular, are alleged to dissuade host countries from regulating foreign-owned investment with adverse climate impact. This paper examines implications of treaty reforms that have been proposed as remedies for such regulatory chill. It finds that an increased carve-out, and reduced compensation in case of regulation, can address the stranded investment problem, but might not be accepted by both parties to the agreement. Disallowing investor-state dispute settlement (ISDS) solves the chill less effectively, but is more acceptable to both parties. Shortening of a sunset period applicable to unilateral withdrawal will tend to worsen the problem.