International Investment Agreements and Climate Change: The Potential for Investor-State Conflicts and Possible Strategies for Minimizing It
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ARTICLES
International
Investment
Agreements and
Climate Change:
The Potential for
Investor-State
Conflicts and
Possible
Strategies for
Minimizing It
by Lise Johnson
Lise Johnson is currently a Law Teaching Program
Fellow at Columbia Law School.
Editors' Summary
Much concern has been raised regarding the possibility
that measures governments take to mitigate and adapt
to the impacts of climate change will conflict with their
obligations under the law of the World Trade Organiza-
tion. What has not yet received adequate attention, but
poses a potentially greater threat of government liabil-
ity under international law, is the possibility that the
climate change-related measures States implement will
be inconsistent with their obligations under the roughly
5,600 international investment agreements (IhAs) to
which they are currently party. Although States do
likely face exposure to IIA-based claims for their actions
on climate change, there are strategies governments can
and should pursue to minimize their potential liability.
On April 7, 2009, the Financial Times reported that
Germany could be forced to pay more than Clbn
compensation to a state-owned Swedish power com-
pany after Green politicians slapped restrictions on a new
coal-fired power plant in Hamburg.1 The power company,
Vattenfall, is seeking compensation under a multilateral
agreement, the Energy Charter Treaty, and is pursuing its
claims through arbitration at the World Bank's International
Centre for Settlement of Investment Disputes (ICSID).2
This investor-State dispute raises questions regarding
whether and to what extent governments may be liable when
their environmental regulations negatively impact investors'
bottom lines (or expectations about those bottom lines). To
date, however, these questions as they relate to the particular
area of climate change regulation have received only mini-
mal attention. Yet, as is suggested by Vattenfall's claim that
Germany should be liable for more than one billion euros
as a result of the State's environmental regulation of a coal-
fired power plant, the relationship between international
investment law and climate change regulation needs to be
addressed, as it has potentially significant implications for,
on the one hand, States' willingness and ability to implement
climate change mitigation and adaptation measures3; and, on
the other, the impacts of climate change regulations on mul-
tinational enterprises (MNEs).
Three issues are particularly ripe for discussion: (1) whether
and to what extent measures taken by States to respond to
challenges of climate change may be inconsistent with their
obligations to foreign investors; (2) whether, if State actions
are likely to violate their substantive obligations to foreign
investors, there are exceptions under international law to
excuse those violations; and (3) whether, if such exceptions
are not available, or if their coverage is uncertain, States can
and might want to identify other means of ensuring they
have sufficient regulatory discretion to implement climate
change mitigation and adaptation measures without unnec-
essarily exposing themselves to the threat of significant legal
action by foreign investors. These issues are especially relevant
now due to the convergence of two main phenomena: first,
over roughly the past decade, foreign investors have filed an
1.Chris Bryant, Germany Faces Action Over Power Plant, FINANCIAL TIMES, Apr.
7, 2009, http://www.ft.com/cms/s/O/b4188738-2398-llde-996a-00144feab-
dc0.html?nclick check-1 (last visited Oct. 7, 2009).
2. Id.
3. Mitigation measures are those that reduce the sources or enhance the sinks
of GHGs [greenhouse gases]. Examples include using fossil fuels more ef-
ficiently for industrial processes or electricity generation, switching to solar
energy or wind power, improving the insulation of buildings, and expanding
forests and other 'sinks' to remove greater amounts of carbon dioxide from
the atmosphere. United Nations Framework Convention on Climate Change
[UNFCCC], Glossary of Climate Change Acronyms, http://unfccc.int/essen-
tial background/glossary/items/3666.php (last visited Oct. 1, 2009). Adapta-
tion measures are those that are designed to adjust natural or human systems
in response to actual or expected climatic stimuli or their effects, so as to
moderate[ ] harm or exploit[ ] beneficial opportunities. Id.
NEWS & ANALYSIS
12-2009
39 ELR 1 1147](ViewImageLocal?handle=hein.journals/elrna39&div=184&collection=&method=preview&ext=.png&size=3)
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