Reconciling International Investment Law and Climate Change Policy: Potential Liability for Climate Measures Under the Trans-Pacific Partnership
| Date | 01 July 2015 |
| Author |
7-2015 NEWS & ANALYSIS 45 ELR 10683
Reconciling
International
Investment Law
and Climate
Change Policy:
Potential Liability
for Climate
Measures Under
the Trans-Pacific
Partnership
by Meredith Wilensky
Meredith Wilensky is an associate attorney at Lozeau Drury
LLP in Oakland, CA. She is a 2012 graduate of the University
of California-Berkeley School of Law. is Article was written
while she was the 2013-2014 Associate Director and Fellow at
Columbia Law School’s Sabin Center for Climate Change Law.
Summary
e pending Trans-Pacic Partnership (TPP) trade
agreement has raised controversy, fueled by leaks of
the draft text a nd congressional debate over fast-track
negotiation authority. Like similar agreements, the
TPP creates the risk of government liability for enact-
ing regulations, especially new or comprehensive mea-
sures to address climate change. is Article analyzes
how the TPP’s investor protection provisions and dis-
pute settlement mechanism might be invoked to chal-
lenge climate change policy. e author concludes
that the negotiators’ eorts to date are insucient to
protect climate measures from the risk of liability, and
suggests reforms to the draft text.
I. Introduction
e Trans-Pacic Partnership Trade and Globalization
Agreement (TPP) is currently being negotiated by the
United States and 11 other Pacic R im countries: Austra-
lia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New
Zealand, Peru, Singapore, and Vietnam. With 29 chap-
ters in the document, the TPP addresses much more than
trade: It will a lso set binding policy related to investment,
intellectual property, technological barriers to trade and,
most importantly for readers of the Environmental Law
Reporter, the environment. If negotiations are successful,
this mega-treaty will be the largest free-trade agreement to
date, initially governing 40% of the world’s gross domestic
product (GDP) and 26% of the world’s trade. e agree-
ment will be open for other Pacic Rim countries to join
over time.1
Many scholars have expressed concern that fair trade
agreements (FTAs) and other international investment
agreements (IIAs) create a threat of government liability
for measures undertaken to address climate change.2 is
Article examines whether the TPP investment chapter
adequately shields governments from the risk of liability
for climate change policies. TPP negotiations are conden-
tial, a nd negotiating parties have not released any ocial
working drafts of the a greement; however, private organi-
zations have leaked two drafts of the investment chapter,
rst in June 2012 and then in March 2015.3 ese drafts
are assumed to be genuine for purposes of the Article.
IIAs are intended to encourage foreign investment
through the development of a legal scheme that protects
foreign investors from certain government actions that
negatively aect their investments. To achieve this goal,
modern IIA s impose standards of conduct on host coun-
tries in their dealings with foreign investors, and usually
establish an investor-state dispute settlement (ISDS) mech-
anism. e ISDS mechanism permits aggrieved investors
to initiate arbitration in ad hoc international tribuna ls for
compensation for losses that arose from the host coun-
try’s violation of the investor protection provisions. Any
damages awarded are paid out of the liable government’s
national treasury.
While it is generally agreed that host countries should
be held to certain standards of treatment regarding foreign
1. See generally Oce of the U.S. Trade Representative (USTR), Trans-Pacic
Partnership Frequently Asked Questions, http://www.ustr.gov/tpp (last visited
Feb. 11, 2014).
2. See generally Lise Johnson, Investor-State Contracts, Host State “Commit-
ments,” 24 A. R. I’ A. 361, 367 (2013).
3. Trans-Pacic Partnership Trade and Globalization Agreement (TPP) Invest-
ment Chapter ( Jan. 20, 2015 draft; leaked Mar. 2015), available at www.
citizenstrade.org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf. e
website also leaked the 2012 draft, available at http://www.citizenstrade.
org/ctc/wp-content/uploads/2012/06/tppinvestment.pdf.
Copyright © 2015 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.
45 ELR 10684 ENVIRONMENTAL LAW REPORTER 7-2015
investors, the ISDS mechanism has been heavily criticized
for allowing investors to challenge government policies
intended to protect public health a nd the environment.4
To date, governments have paid out substantial damage
awards under the United States’ IIAs alone; over one-half
of the awards pertain to natural resource, environmen-
tal, and energy policies.5 According to an open letter by a
group of over 100 academics, judges, practicing at torneys,
and legislators advocating the exclusion of ISDS from the
TPP, that gure is as high as 70%.6
A few particularly salient examples of arbitration spurred
by public interest regulations are currently pending. Vat-
tenfall A B, a Swedish energy company, has initiated arbi-
tration under the Energy Charter Treaty in response to
Germany’s decision to phase out nuclear energy in the
wake of the Fukushima disaster.7 While the arbitration
documents have been condential, the German Federal
Ministry of Economic Aairs and Energy revealed that
the claim is for $6 billion dolla rs.8 is suit comes on the
heels of Vattenfall’s 2009 suit against Germany alleging
that the restrictive water quality standards in an environ-
mental permit issued for the company’s coal-red power
plant would make the project “uneconomical.”9 Vattenfall
initially sought 1.4 billion Euros in damages plus arbitra-
4. In 2012 alone, over 500 treaty-based arbitrations were initiated. U
N C T D [UNCTAD], R-
I-S D S: I S R
No. 2 (2013) [hereinafter UNCTAD, R].
5. Public Citizen,
(Feb. 2014) [hereinafter Public Citi-
zen Trade Chart], available at http://www.citizen.org/documents/investor-
state-chart.pdf (referencing the following disputes addressing environmen-
tal, natural resource, and energy policies: Ethyl Corp. v Canada, NAFTA
UNCITRAL (1998) ($13 million settlement due to methylcyclopentadienyl
manganese tricarbonyl (MMT) export ban); S.D. Myers v. Canada, NAFTA
UNCITRAL (2002) ($5.6 million award for temporary polychlorinated bi-
phenyl (PCB) ban); Pope & Talbot v. Canada, NAFTA UNCITRAL (2002)
($500,000 for lumber agreement with United States); Abitibi-Bowater v.
Canada, NAFTA (2010) ($122 million settlement for removal of timber
and water rights after closing of paper mill); Metalclad v. Mexico, NAFTA
ICSID Case No. ARB(AF)/97/1 (2000) ($15.6 million award for closure of
landll of hazardous wastes); St. Mary VCNA v. Canada, NAFTA (2013)
($15 million settlement for delayed permitting process for rock quarrying);
Tampa Elec. Co. (TECO) Holdings v. Guatemala, CAFTA ISCID Case
No. ARB/10/23 (2013) ($25 million award for lowering electricity rates
that a private utility could charge); TCW Grp. v. Dominican Republic,
CAFTA UNCITRAL (2009) ($26.5 settlement for failure to raise electricity
rates)). All but one of the remaining successful cases listed in Public Citizen’s
chart were brought in response to public health policies. Id.
6. Letter from Retired Justice Elizabeth A. Evatt et al., to Negotiators of the
Trans-Pacic Partnership Urging Rejection of Investor-State Dispute Set-
tlement at 3 (May 8, 2012), available at https://tpplegal.wordpress.com/
open-letter/.
7. Vattenfall AB v. Federal Republic of Germany, ICSID Case No.
ARB/12/12, http://www.italaw.com/cases/documents/1655; IISD News in
Brief, I T N, July 19, 2012; Nathalie Bernasconi-Os-
terwalder & Rhea Tamara Homann, I’ I. S D.,
Vattenfall v. Germany (II) 2
(June 2012).
8. Alexander Hellemans, -
, IEEE S, Nov. 12, 2014, http://spectrum.
ieee.org/energyw ise/energy/nuclear/swedish -energy-giant-vattenfall- nets-
billions-for-nuclear-phaseout.
9. Vattenfall AB v. Federal Republic of Germany, ICSID Case No.
ARB/09/6, Request for Arbitration (Mar. 30, 2009).
tion costs, but settled the suit when the government agreed
to watered-down standards.10
Another example arose in Canada when Quebec
imposed a moratorium on shale gas exploration and pro-
duction due to concerns over drinking water contami-
nation. e oil and gas exploration company Lone Pine
Resources, Inc. brought suit seeking over $250 million
in compensation under the North American Free Trade
Agreement (NAFTA)11 for the revocation of its gas explo-
ration and production permit.12 While and Lone
are still pending, the sheer size of the damage awards
being sought demonstrates the substantial nancial risk
that ISDS can create for countries taking action to protect
public health and the environment.
Critics of ISDS argue that the risk of liability constrains
governments’ fundamental responsibility to protect public
health and welfare.13 In May 2012, a group of lawyers and
scholars, led by retired Australian judge Elizabeth Evatt,
sent an open letter to TPP negotiators urging the rejection
of ISDS, arguing that ISDS “threatens to undermine the
justice systems in [member] countries and fundamentally
shift the balance of power between investors, states and
other aected parties.”14 Compensation for the economic
impacts of environmental regu lation is a particularly
troublesome issue. Rooted in the “polluter-pays” principle,
environmental regulation aims to shift the costs of envi-
ronmental harm to the responsible entity. To compensate
an investor for lost prots shifts the costs of regulation back
onto the public, essentially turning the polluter-pays prin-
ciple on its head.15 In most cases, investors claim damages
of tens or hundreds of millions of dollars.16 In practice,
these payments may make regulatory measures cost-pro-
hibitive, especially in an era marked by austerity.
Because of the high price associated with ISDS, many
critics worry that investors may use the ISDS mechanism
as a strategic tool to attack regulations that negatively
aect t heir investments.17 For example, eorts to discour-
age tobacco smoking, one of the leading causes of prevent-
able deaths, led Australia and Uruguay to pass legislation
requiring plain packaging of cigarettes.18 Tobacco giant
10. Bernasconi-Osterwalder & Homan, supra note 7, at 4.
11. North American Free Trade Agreement, U.S.-Can.-Mex., Dec. 17, 1992, 32
I.L.M. 289 (1993) (NAFTA).
12. Lone Pine Resources, Inc. v. Canada, Notice of Intent to Submit a
Claim to Arbitration Under Chapter 11 of NAFTA (Nov. 8, 2012), avail-
able at http://www.italaw.com/cases/documents/1607.
13. Vicki Been & Joel Beauvais, -
, 78 N.Y.U. L. R. 30, 132 (2003); Samrat Ganguly, e
, 38 C. J. T’ L. 113, 119 (1999) (“e prospect
of crushing liability claims or the chilling eect of the number and size of
claims that may result under ISDMs can deter governments from legislating
in the interest of the public.”).
14. Letter from Retired Justice Elizabeth A. Evatt et al., supra note 6, at 1.
15. J. Martin Wagner, International Investment, Expropriation, and Environmen-
, 29 G G U. L. R. 465, 471 (1999).
16. Public Citizen Trade Chart, supra note 5.
17. Marc R. Poirier,
, 33 E. L. 851, 852-53 (2003).
18. (Austl.); -
(Uruguay).
Copyright © 2015 Environmental Law Institute®, Washington, DC. Reprinted with permission from ELR®, http://www.eli.org, 1-800-433-5120.
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