Climate change policies and foreign investment: some salient legal issues

Asteriti, A. (2015) Climate change policies and foreign investment: some salient legal issues. In: Levashova, J., Dekker, I.F. and Lambooy, T.E. (eds.) Bridging the Gap Between International Investment Law and the Environment. Eleven Legal Publishing. ISBN 9789462365872

Abstract

The interaction between investment and climate change can be read at different levels and in different perspectives. From a synergic perspective, climate change measures, such as those contained in the Kyoto Protocol – namely, the Clean Development Mechanism (CDM) and the Joint Implementation (JI) – can be seen as a form of investment for sustainable development, harnessing foreign investment for sustainable development and emission reduction projects. Equally, International Investment Agreements (IIAs) can be seen as providing a further layer of protection of ‘green investors.’ In the traditional perspective of international investment law, the investment regime was instrumental in reducing the regulatory risk for foreign investors, where this was taken to imply, in the case of environmental measures, the ratcheting up of environmental standards to the detriment of carbon-intensive and/or polluting investors. The synergic perspective allows IIAs to provide further protections for the investor against loosening/reducing of support mechanisms used to attract low-carbon investments and switching projects (as shown by the climate change cases litigated so far). This new form of regulatory risk is predicated upon the reliance placed by low-carbon projects on domestic state regulation (and international, through CDM and JI) not least through cap and trade, where setting baselines and allocation of emission reduction units and certified emission reductions constitute the most obvious form of interference. The potential for conflicts arising by the intersection of these two legal regimes has attracted more attention. In the chapter, I will consider first how the this interaction can be read on a purely international plane, whereby climate change legal obligations, enshrined mainly in the 1992 United Nations Framework Convention on Climate Change (UNFCCC) and its 1997 Kyoto Protocol (as amended in the 2012 Doha Amendment), can conflict with the obligations contained in IIAs, and how these potential conflicts can be avoided, resolved or remedied with the tools provided by international law (from interpretation to conflict resolution). I will then consider how host states’ domestic measures in pursuance of climate change prevention and mitigation might interfere with the international obligations in the investment regime. While climate change policies are often ultimately derived from an international source, nonetheless international law provides different tools for the resolution of purely international conflicts and mixed conflicts. I will consider how the necessary linkage between domestic measures and international obligations might be found, for example via the ‘police powers doctrine,’ in order to preserve the policy space necessary to implement progressive environmental legislation without breaching international investment undertakings.Either from a purely international perspective, or a mixed one, whereby domestic measures interfere with the protections granted by IIAs, crucial to the relationship is the assessment of the litigation risk resulting from the implementation of climate change policies. In the chapter I will argue that the risk is highest for domestic measures (such as feed-in tariffs), medium for CDM projects and lowest for JI projects; I further argue that the assessment of the regulatory risk has to take into consideration how the presence/absence of an applicable IIA between the parties, the scope of its dispute settlement provisions, etc and the available investment opportunities on the one hand and the domestic regulatory environment on the other, interact with each other. For example, the involvment of independent monitoring bodies in CDM projects should reduce the risk of procedural FET claims; conversely, the higher level of states’ involvment in JI projects will not necessarily increase the risk of litigation outwith the umbrella of the Energy Charter Treaty (ECT), as the Annex I countries participating in JI projects do not normally share IIAs amongst themselves (with the noted exception of the ECT). The analysis conducted in the chapter evidences the multiple functions that investment law can fulfil, acting in concert with climate change policies or providing a convenient shield for investors in more carbon-intensive industries. Systemic integration and interpretation, amendments and clarifications can steer investment law in the direction of a more climate-friendly framework. The choice, however, is political.

• Item Type: Book Sections
• Status: Published
• Glasgow Author(s) Enlighten ID: Asteriti, Dr Alessandra
• Authors: Asteriti, A.
• Subjects: K Law > K Law (General)
• College/School: College of Social Sciences > School of Law
• Publisher: Eleven Legal Publishing
• ISBN: 9789462365872