Beyond known worlds: climate change governance by arbitral tribunals?

• Author: Vadi, Valentina
• Position: Abstract into VII. Beyond Known Worlds: Climate Change Governance by Arbitral Tribunals?, p. 1285-1319

ABSTRACT

Can economic development and the fight against climate change be integrated successfully'? What role, if any, does international investment law play in global climate governance? Can foreign direct investments (FDI) be tools in the struggle against climate change? What types of claims have foreign investors brought with regard to climate change-related regulatory measures before investment treaty arbitral tribunals? This Article examines the specific question as to whether foreign direct investments can mitigate and/or aggravate climate change. The interplay between climate change and foreign direct investments is largely underexplored and in need of systematization. To map this nexus, this Article proceeds as follows. First, it examines the conceptualization of climate as a global public good. Second, it considers it as an environmental issue. Third, it scrutinizes its conceptualization as a human rights issue. Fourth, it explores critical legal issues raised by the complex interplay between climate change and foreign direct investments. Fifth, it critically assesses several current case studies. Sixth, the Article will present some legal tools to achieve a balance between the different interests at stake. The conclusion will then sum up the key findings of the study.

TABLE OF CONTENTS I. INTRODUCTION II. CLIMATE AS A GLOBAL PUBLIC GOOD III. CLIMATE CHANGE AS A COMMON CONCERN OF HUMANKIND IV. CLIMATE CHANGE AS A HUMAN RIGHTS ISSUE V. CLIMATE CHANGE GOVERNANCE A. Mandatory and Voluntary Approaches B. Public and Private Dimensions of Climate Change Law C. Global and Local Dimensions of Climate Governance D. Conclusions VI. CLIMATE CHANGE IN INTERNATIONAL INVESTMENT LAW VII. BEYOND KNOWN WORLDS: CLIMATE CHANGE GOVERNANCE BY ARBITRAL TRIBUNALS? A. Renewable Energy Investors as Claimants B. Challenges to Climate Change-Related Regulatory Measures 1. Expropriation 2. Discrimination 3. Stabilization Clause 4. Fair and Equitable Treatment VIII. CHALLENGES AND PROSPECTS A. Lack of Transparency B. Inconsistent Awards C. Multiparty Arbitration D. Private v. Public Interest E. The Evolving Role of the European Commission in Investor-State Arbitration IX. DEALING WITH FRAGMENTATION A. De Lege Ferenda B. De Lege Lata X. CONCLUSION I. INTRODUCTION

With temperatures constantly rising since the industrial revolution, climate change has brought extreme heat waves, decreased global food stocks, depleted ecosystems and biodiversity, and a raised sea level. (1) Originally perceived as only an environmental issue, climate change, defined as any change in climate over time (whether due to natural factors or as a result of human activity), has become a pressing global concern. (2) Climate change can affect diverse determinants of human well-being, such as access to water, energy supplies, and public health, and can determine social disruptions, such as migration due to drought or rising sea levels and loss of traditional livestock and habitat. (3)

Because climate change is a common concern of mankind (4) and can affect populations regardless of state boundaries, a wide range of international, regional, and national regimes governs various aspects of the same. To a large extent, this multilevel regulatory framework or "regime complex" (5) gives rise to a sort of lex climatica, or climate change law. Climate change law is a good example of multipolar law: national, regional, and international law address this challenge. (6) As a complex phenomenon, climate change "is best addressed at multiple scales and levels." (7) Yet, while different institutions are formulating responses, much remains to be done to ensure coherent, effective, and holistic approaches to the issue, and a coordinated international response is missing. Moreover, different domains of public international law govern different aspects of climate change.

Against this background, this Article examines whether economic development as spurred by foreign direct investments (FDI) can mitigate and/or exacerbate climate change. In particular, it explores the complex interplay between climate change and foreign direct investments on two critical issues. First, the Article addresses the question as to whether FDI can be a tool in the struggle against climate change. (8) Second, it investigates the parallel question as to whether regulatory measures relating to climate change can affect investors' rights.

Consider the following scenario. (9) The government of Ruritania, an industrialized country, adopts policies to promote investment in renewable energy sources, creating a Feed-in-Tariff Program that sets up a twenty-year fixed price to be paid for energy from renewable sources including wind, hydroelectric, solar, and other types of renewable energy. In view of this favorable regulatory environment, Windpower, a foreign company from Marmorica, plans to develop a successful offshore wind facility in the area of Planasia, an island located in the territorial waters of Ruritania. Wind assessments have shown that the wind speeds in the Planasia area are high and steady due to the lack of mountains on the island. In fact, Planasia's highest point stands 22 m (72 ft) above sea level. It is thus likely that within a century Planasia's land will become subject to increased soil salination and will be largely submerged. Ruritania and Windpower sign a contract for the development of the offshore power plant. However, local communities vigorously oppose wind turbines. On the one hand, indigenous communities contend that sacred sites lying underwater would be jeopardized by the operation of wind turbines. On the other hand, local communities contest the development of the project close to Planasia, as this island is located in an area that is listed as a UNESCO biosphere due to its unique biological and environmental features. The government of Ruritania places a moratorium on the further development of the offshore wind development on the grounds that further scientific research has to be completed before the project can proceed. The company, however, files an investor-state arbitration against Ruritania under the Marmorica-Ruritania bilateral investment treaty, contending that Ruritania has indirectly expropriated its investment. Has Ruritania unlawfully expropriated Windpower's investment, thus breaching the relevant investment treaty provision? Can Ruritania legitimately adopt measures to protect the cultural and religious sites of indigenous peoples? Should the promotion of green energy be prioritized vis-a-vis other environmental concerns?

The above scenario is but one example of the complex interplay between climate change and foreign direct investments. Despite the upsurge in arbitrations at the crossroads between investment and climate change, the interplay between climate change and foreign direct investments remains underexplored and in need of systematization. Climate change has introduced a new dimension in the balancing of competing interests in international investment law and arbitration, whereby measures to address climate change are sometimes to be assessed and balanced against competing economic interests. Investigating the nexus between FDI and climate change is both timely and important because it can contribute to current debates on environmental governance. Moreover, climate change can be seen as a harbinger of broader debates and choices about the future of international investment governance. This Article aims at mapping this linkage, investigating it through the prism of international investment law and arbitration.

International investment law constitutes an important part of public international law governing foreign direct investment. (10) The sources of international investment law include international investment treaties; customary rules of international law protecting the rights of aliens; general principles of law; and--as subsidiary means for the determination of rules of law--previous awards, judicial decisions and legal scholarship. As there is still no single comprehensive global treaty, investor rights are mainly defined by almost 3,000 international investment agreements (IIAs) that are signed by two or more states and are governed by public international law. (11) Under such treaties, state parties agree to provide a certain degree of protection to investors who are nationals of contracting states, including compensation in case of expropriation, fair and equitable treatment, most favored nation treatment, and full protection and security, among others. At the procedural level, most investment treaties allow foreign investors to file arbitral claims directly against the host state. This is a major novelty in international law as investors are not required to exhaust local remedies and no longer depend on diplomatic protection to defend their interests against the host state. Investment treaty arbitration is often selected as the adjudicatory model to settle investment disputes. The claims are heard by ad hoc arbitral tribunals whose arbitrators are selected by the disputing parties and/or appointing institutions. Depending on the arbitral rules chosen, the proceedings occur in camera and the very existence of the claim and the final award may never become public.

As climate change and foreign direct investments are governed by different legal instruments, their interplay can be examined from different analytical and legal perspectives, including international climate change law (12) and international investment law. There can be possible convergences and/or divergences between various rules governing this interaction. (13) The Article explores the linkage between climate change and foreign direct investments from an international investment law perspective.

While some investment law scholars have addressed some aspects of the interplay between climate change and international investment law, (14) no study has focused on the...