International Investment Law and Climate Change: Competing Commitments and Potential Tensions in International Governance

Abstract

To meet Paris Agreement long-term commitments to hold global warming to well below 2° C as compared to pre-industrial levels, governments must act to transition the world economy away from fossil fuels. Specifically, climate scientists warn that addressing climate change will require the vast majority of fossil fuel reserves to remain unburned, and therefore be rendered valueless, or ‘stranded’. Against this backdrop, in addition to commonly cited challenges related to collective action and political will, States are bound by a vast web of international investment treaties, which have the potential to curtail their ability to regulate in any way that might threaten foreign investors’ ability to operate profitably. This presentation will examine the tension between the International Investment Agreement (IIA) system, arbitrated through Investor-State Dispute Settlement (ISDS), and the global mandate to achieve de-carbonization. Whilst the intent behind these two systems of international law are conceivably compatible, in reality ISDS presents incentives that may impede de-carbonization efforts. After a brief overview of the economic implications of de-carbonization and the IIA system, the presentation will illustrate the policy objectives and areas of conflict between the international investment system and climate policies in the light of actual ISDS cases (e.g., Vattenfall v. Germany; Rockhopper v. Italy; Lone Pine v. Canada; Westmoreland v. Canada). Last, it will draw some recommendations towards a rethinking of the IIA and ISDS system, in order to ensure that foreign investment protections do not discourage or prevent the adoption of climate policies in the public interest.