International Investment Agreements and Climate Change: The Potential for Investor-State Conflicts and Possible Strategies for Minimizing It

Date01 December 2009
12-2009 NEWS & ANALYSIS 39 ELR 11147
Agreements and
Climate Change:
The Potential for
Conf‌licts and
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 conict 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 (IIAs) to
which they are currently part y. 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, t he Financial Times reported that
“Germany could be forced to pay more than €1bn
compensation to a state-owned Swedish power com-
pany after Green politicians slapped restrictions on a new
coal-red power plant in Hamburg.”1 e power company,
Vattenfall, is seeking compensation under a multilateral
agreement, the Energy Charter Treaty, a nd is pursuing its
claims through arbitration at the World Bank’s International
Centre for Settlement of Investment Disputes (ICSID).2
is 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 reg ulation 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 t he State’s environmental regulation of a coal-
red power plant, the relationship between international
investment law and climate change regulation needs to be
addressed, as it has potentially signicant 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).
ree issues are particularly ripe for discussion: (1) whether
and to what extent measures ta ken 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 sucient regulatory discretion to implement climate
change mitigation and adaptation measures without unnec-
essarily exposing t hemselves to the threat of signicant legal
action by foreign investors. ese issues are especially relevant
now due to the convergence of two main phenomena: rst,
over roughly the past decade, foreign investors have led an
1. Chris Bryant, Germany Faces Action Over Power Plant, F T, Apr.
7, 2009,
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-
ciently 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,
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 eects,” so as to
“moderate[] harm or exploit[] benecial opportunities.” Id.
Copyright © 2009 Environmental Law Institute®, Washington, DC. reprinted with permission from ELR®,, 1-800-433-5120.

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