Abstract
As the world drags towards a sustainable future, most countries are vying to achieve the climate targets as outlined in the Paris agreement. This is the creation of a huge move towards the abandonment of fossil fuels and into renewable energy but the outcome of these policy changes is gradually running afoul of the legal wall of the International Investment Law. In particular, companies are attempting to contest green regulations by using Investor State Dispute Settlement (ISDS) mechanisms, which are provided by numerous bilateral and sectoral treaties. This has given rise to a rising tension between the right of the government to preserve the environment and a foreign investor to preserve their capital. This paper goes into the black hole of this conflict with the Energy Charter Treaty (ECT) serving as a major example. Although the ECT was put in place as a measure to promote cross border energy collaboration, its stringent safeguards such as Fair and Equitable Treatment (FET) and indirect expropriation are now being directed against climate-friendly legislation. Upon a close examination of the case Vattenfall AB v. The case of Federal Republic of Germany, it is possible to observe how the nuclear power phase-out resulted in an enormous court battle on the safety of people and financial damages. This paper discusses the regulatory chill where an evaluation of the law is combined with an examination of existing literature to examine why governments have not taken action on climate change because of the risk of a billion-dollar lawsuit. Conclusively, the paper holds the view that to make the energy transition successful, the international investment system must seriously be overhauled to make sure that it does not become the obstacle between the living planet and the energy transition.
Keywords:Phase-out, Energy Transition, Expropriation, Regulatory Chill, Energy Charter Treaty.
INTRODUCTION
Our world is evolving at an alarming rate, owing to the alarming need to reduce the level of emissions and the speed at which the climate change is advancing. Governments are working to abandon coal and nuclear energy to wind and solar energy and other renewable sources. Although these actions are required to ensure our survival, they are often conflicting with a legal system called investor-state dispute settlement (ISDS). These investment treaties had initially been put in place to ensure that companies felt confident in investing in other countries since they felt that they cannot be unfairly treated or property taken away. Such transactions tend to secure such things as Reasonable and Equitable Treatment (FET) and compensation against being forced out. Most importantly, they enable firms to bypass the local courts and proceed to international tribunals demanding money. The energy charm treaty (ECT) is the largest participant in this space in the energy world. It was signed in 1994 and was intended to assist in cross-border cooperation of energy markets. However, nowadays, it is a very controversial one. Opponents note that the general principles of the treaty, in fact, bond the hands of legislators, leaving the taxpayer to pay billions in the event a government attempts to create new environmental regulations. This conflict is ideally encapsulated in Vattenfall AB v. Federal Republic of Germany. In 2011, the Fukushima disaster made Germany resolve to permanently close its nuclear facilities. It was a modification of their legislation, namely the Atomic Energy Act, so that all plants would be shut down by 2022. The Swedish firm Vattenfall, however, that operated the Krummel and the Brunsbuttel plants did not bow out easily. They undertook a huge arbitration suit in the ECT claiming that the phase-out infringed their rights and cost them a fortune.
This case is not just an outlier as it represents a huge challenge for the future of global energy. As we try to decarbonize, we are going to see more of these legal fights[1]. Many experts worry this will lead to a “regulatory chill,” where governments become too afraid of expensive lawsuits to pass the climate laws which we actually need.[2] This article uses a doctrinal legal approach to look at how the ECT and cases like Vattenfall are shaping the future of energy policy.
[1]Vattenfall AB v. Federal Republic of Germany, ICSID Case No. ARB/12/12.
[2]Kyla Tienhaara, Regulatory Chill and the Threat of Arbitration.