Category Archives: Environment

Bridging the Climate Change Policy Gap

BLoggIt is clear that to fight climate change, we need to scale up green investment both in terms of amount and geographical reach. However, climate change law, in this case the United Nations Conference Framework on Climate Change and the recently-signed Paris Agreement, do not specifically include terms to promote and protect investment. This is a policy gap.

The SCC, together with the International Bar Association, the International Chamber of Commerce and the Permanent Court of Arbitration, took an initiative to discuss this gap by organising a conference, Bridging the Climate Change Policy Gap: The Role of International Law and Arbitration, in Stockholm on 21 November.

It is noted during the conference that around USD 100 billion in investment over the next fifteen years is needed to combat climate change – a target that is considered achievable. Another speaker emphasised that there is no shortage of capital to address climate change. The challenge is how to get investors to actually invest and how to match the capital with the green investments.

It appeared to be a consensus among the speakers that good policy is key to attracting sustainable investments. Policy needs to be long-term and stable. Short-term policies, often associated with government’s turnover, caused bad impacts, from high transaction costs to the fact that the industry had to fire and re-hire employees depending on how policy is.

A panel of lawyers discussed how litigation has been used to fight climate change, directly and indirectly. Among other things, renewable energy investors have resorted to international arbitration to bring a claim against government for unstable policies and revocation of incentives. Another case being discussed in depth was Urgenda Foundation v. the Netherlands where a Dutch district court ruled that the government has breached its duty of care to its citizens by not doing enough to address climate change.

It may be foreseen that these types of cases, both in domestic and international fora, will propel the right type of government actions.

A report from the conference with more details will be published soon.

 

Host states’ legitimate expectation

Scenic landscapes of Northern ArgentinaThe investor’s legitimate expectations are often a key question in ISDS cases. Such expectations can be based on, for example, the host state’s laws, policies, or contractual commitments – such as when a host state granted the investor mining rights for a certain number of years. A violation of these expectations can be a ground for the investor to bring an ISDS claim against the host government. Several tribunals have ruled that a host country cannot act contrary to the investor’s legistimate expectations.

Karl P. Sauvant and GüneşÜnüvar have written an article published by Columbia Center for Sustainable Investment, introducing the question of whether or not states can also have legitimate expectations towards the foreign investor. According to the article, such expectations may arise from, for instance, the investor’s statements of its contribution to the host country.

As an example, the article points to Sempra v Argentina, where Argentina argued that it “had many expectations in respect of the investment that were not met or otherwise frustrated … (such as)… work diligently and in good faith…”. The article also notes, however, that since governments currently cannot initiate ISDS proceedings against foreign investors, their reliance on legitimate expectations is limited to counterclaims brought in response to investors’ claims. See our previous post about counterclaims here.

Finally, the article proposes that future international investment agreements (IIAs) could explicitly stipulate that host states’ legitimate expectations are protected, thereby establishing a right for host states to bring a claim on this basis.

Vattenfall v. Germany live stream

Blogg_v41_2In the much-publicised ICSID case between Vattenfall and Germany, the main hearing is currently taking place. The parties have agreed to broadcast the hearing live and those who are interested in ISDS can follow this link to see what a hearing looks like. The broadcast starts at 19.00 CET, every night this week and the next.

Just published: Peter Allard v. Canada

Blogg_v41A much-anticipated award is now released for public, Peter A. Allard v Barbados.

As we have written before, a Canadian investor, Peter Allard, brought a claim against Barbados in Permanent Court of Arbitration in 2010. The case concerned Mr Allard’s environmental sanctuary in coastal Barbados. He grounded his claim on the failure of the government of Barbados to enforce its own environmental law which, as a result, has polluted his sanctuary.

The investor claimed that the government’s failure amounted to violation of Canada – Barbados Bilateral Investment Treaty.

In an award rendered in June 2016, the tribunal rejected the investor’s claim on all grounds.

The tribunal disagreed with the investor that Barbados has failed to accord him full protection and security by failing to prevent pollution from coming to the sanctuary. As a departing point, the tribunal asserted that the obligation of the State to provide the investment with full protection and security standard is of ”due diligence” and ”reasonable care” – not of strict liability.

In this case, the tribunal found that Barbadian officials have taken reasonable steps to protect the sanctuary. Among others, the tribunal pointed out that the officials established a committee tasked with developing plans for preservation of the sanctuary.

The claim of expropriation was also dismissed. The tribunal concluded that there was no substantial deprivation of the investment since the investor remains the owner of the sanctuary and operates a cafe there. The tribunal further referred to the investor’s statement during the hearing that ”there is some kind of business remaining there”.

Meanwhile, Simon Lester, a trade policy analyst for Cato Institute, argues that the case sends an important signal for environmental protection. According to him, the legal standard in BIT may pave the way for future cases that environmentalists could help investors bring against governments who may do too little to protect the environment. An example mentioned is if the impact of climate change, for instance rising sea level, caused damage to an investor’s property.

Combating Climate Change through ISDS

White lily in an environment of green leaves on waterAn article demonstrates how ISDS provides the necessary tools to improve regulatory stability and predictability necessary for low-carbon investment. According to the author, ISDS has the potential to protect low-carbon investments against the risk of regulatory changes that can affect climate policies.

The text takes its starting point at the importance of private capital and technology in the transition to a low-carbon economy. The Kyoto Protocol establishes different implementation mechanisms for State parties to reduce greenhouse gas emissions, mechanisms in which private actors play important roles. In turn, governments may also establish different support schemes for investment in low-carbon technology. Some of the common schemes are guaranteed a minimum price for electricity produced by renewable resources (the so-called feed-in tariff) and investment aid for renewable energy producers.

The article points out some risks for low-carbon investment, including that authorities could withdraw the promised support or shorten its duration.

It further argues that some substantive protections under international investment agreements may play an important role.

One example is the ISDS case, Nykomb v. Latvia. In this case, the tribunal found that the government provided support scheme for low-carbon installations operated by domestic investors, but not for installations operated by foreign investors. The tribunal held that this amounted to discrimination, and the investor obtained compensation.

The article concludes that climate law and investment law are based on comparable principles but having different perspectives. Climate law creates rights and expectations for investors, while investment law aims to protect them. In turn, investment arbitration has the potential to limit the instability that currently affects the implementation of climate change mitigation policies.

Case Summary: Adel A Hamadi Al Tamami v. Sultanate of Oman

?????????????????????????????????This summary is prepared based on facts described in the award rendered in October 2015.

The investor made an investment in the development and operation of a limestone quarry in Oman through two lease agreements between his corporations and an Omani state-owned enterprise. The dispute arose mainly because of the termination of the lease agreement by the Omani SOE. In addition, the investor based his claim on his arrest and prosecution by the Omani authorities relating to unlawful operation of the quarry.

The investor brought the claim under the U.S – Oman Free Trade Agreement, arguing that the measures by the Omani authorities constituted violation of fair and equitable standard treatment and that it amounted to expropriation.

The tribunal found that it had no jurisdiction to decide on termination of the first lease agreement because it had ceased to exist before the U.S – Oman FTA came into force. Further, the tribunal rejected the expropriation claim due to the termination of the second lease agreement by the Omani SOE, asserting that this action was not attributable to the Omani State.  According to the tribunal, the SOE did not exercise the necessary governmental authority for its actions to be considered those of the Omani State.

The arrest and prosecution of the investor, according to the tribunal, did not amount to a violation of fair and equitable treatment standard protection. The tribunal took note of the fact that the investor was prosecuted and later acquitted for, among others, alleged violation of environmental law by operating quarries without necessary permits. However, in the view of the tribunal, a state must be able to take a legal position when it comes to alleged violation of its laws, even if that position turns out to be wrong, provided it does so in good faith and with appropriate due process.

The Tribunal agreed that in this case, Oman had to defend itself against claims that had been “entirely unmeritorious”. Accordingly it ordered that the investor pay to the Omani State as respondent 75% share of its total litigation costs.

Guest blog in Swedish: The first award in solar panel cases against Spain

Solar panels behind fenceIn a guest blog in Swedish this week, Jonas Hallberg, an analyst at the Swedish National Board of Trade, has written about Charanne B.V. & Construction Investments S.A.R.L v. Spain. The award is the first that has been rendered among at least 26 disputes regarding Spain’s measure to reduce incentives for solar panel sectors.

The award is published and can be downloaded in Investment Arbitration Reporter website.

The investors brought the claim under the Energy Charter Treaty, arguing that the measure violated fair and equitable treatment standard and that it constituted indirect expropriation.

The tribunal rejected the investors’ claims in its entirety and ordered the investors to pay Spain’s legal costs which is equivalent to EUR 1.3 million.

Peter Allard vs. Barbados: Investor argues breach of environmental laws

KingfisherPeter Allard, a Canadian investor who owns a nature sanctuary in Barbados, has brought an ISDS claim against Barbados. In a nutshell, he grounds his claim on the failure of the government of Barbados to enforce its own environmental law which, as a result, has polluted his sanctuary. He is also accusing Barbados of refusing to abide by its international obligations under the Convention on Wetlands and Convention on Biological Diversity.

The actions and inactions by Barbados, according to the investor, have destroyed the value of his investment in the sanctuary. The claim is brought under Canada – Barbados Bilateral Investment Treaty (BIT).

The sanctuary, which is an eco-tourism facility, consists of almost 35 acres of natural wetlands situated on the Graeme Hall wetlands, a site protected under the Convention of Wetlands of International Importance in the south coast of Barbados. Mr Allard, as written in his notice of dispute, made investment in this sanctuary with the purpose to conserve the environmental heritage of Barbados.

The investor claims that Barbados has failed to accord him full protection and security under the BIT. Among other things, the investor points out that Barbados has failed to prevent the Barbados Water Authority, a state agency, from repeatedly discharging polluted substances from a sewage treatment facility into the Graeme Hall wetlands. The investor also asserts that Barbados has failed to operate drainage structures into the wetlands that regulate its biological health.

In addition, the investor argues that Barbados has violated fair and equitable treatment standard protection under the BIT due to a change of land use that allows run off of pollution into the sanctuary. The investor underlines that he made the investment in the sanctuary because of Barbados’ previous regulatory frameworks that he believed will protect the environment.

The case is still pending and administered by the Permanent Court of Arbitration in the Hague. Barbados’ reply to this claim is not publicly available and therefore the response of the state is still unknown.

UNCTAD at the Stockholm Energy Charter Treaty Forum

summer meadow with high-voltage towers rowThe need to scale up energy investment was address by Deputy Secretary-General of the United Nations Conference of Trade and Development (UNCTAD), Joakim Reiter, at the recent Stockholm Energy Charter Treaty Forum, In his speech, Mr Reiter also remarked that international investment agreements (IIAs) can play a critical role in achieving this objective.

The Deputy Secretary General emphasized that energy poverty is the immense challenge of our time, when almost a fifth of the world’s population today have no access to electricity of any kind.  The amount of investment needed to address this problem is staggering, where for sustainable energy alone, the required amount reaches USD 800 billion. In this respect, he pointed out that the Energy Charter Treaty, as the only multilateral investment agreement in the field of energy, can play an important role in fostering sustainable energy future.

DSG Reiter remarked that international investment agreements (IIAs) have the potential to reinforce investor confidence by fostering predictability and transparency. It can also foster good governance and therefore improving the host country climate. However, he viewed that the new IIAs should strike a better balance between investment protection and the right to regulate of host government.

When it comes to ISDS, he noted the increasing number of ISDS has raised concerns. However, he asserted that the choice is not between having ISDS and not having ISDS. The choice is between having ISDS that works for sustainable development and ISDS that does not.

Read our previous posts about ISDS in support of climate change mitigation, about more environmental languages in IIAs and also about ISDS at COP 21.

Stockholm Energy Charter Treaty Forum was held on 8 February 2016 as a result of collaboration between the Arbitration Institute of the Stockholm Chamber of Commerce (SCC), Energy Charter Secretariat, the International Centre for Settlement of Investment Disputes (ICSID) and the Permanent Court of Arbitration. The theme of this year’s forum was how to boost energy investment as well as to remove related barriers and risks. Among the speakers were high-level government officers from Asia, South America and Africa as well as energy investors, law practitioners and academics.

ISDS AT COP21: ENFORCEMENT OF CLIMATE COMMITMENTS

Globe between two pairs of clasped handsIn a speech in Paris during the COP21 summit, the president of the International Bar Association David Rivkin expressed hope that ISDS could bridge the current enforcement gap in international environmental law.

Specifically, Rivkin highlighted the role of neutral and accessible dispute resolution mechanisms in enforcing commitments and underlying pledges made by state parties to the UNFCCC negotiations. He also noted that the existence of mechanisms for resolving disputes between investors and states is crucial to incentivizing foreign investment in renewable energy.

Noting that the fiercest critics of ISDS tend to focus on the system’s purported chilling effect on a state’s regulatory ambitions, Rivkin explained that this “regulatory chill” relates to the substantive terms of the treaties rather than to ISDS procedure.

Rivkin remarked that in the “new wave” of investment treaties and agreements, “environmental issues are being considered increasingly by states at the outset of drafting investment chapters”. Today, most BITs include some environmental language, and many contain a general reservation of policy space for environmental regulation. Rivkin emphasized that a number of recent BITs have included specific obligations to promote sustainable development, to encourage trade in environmental products, or to facilitate FDI in environmental technologies or eco-labeled goods.

Commenting on these developments, Rivkin noted:

It is clear that we are entering a new era of BITs/FTAs, in which states are delineating more specific obligations in the negotiation of these agreements, both as to standards of investor protection and regulatory autonomy. As we are seeing in the context of TTIP, CETA and TPP, ‘self-calibration’ of the ISDS system is already evident. In the future we may also see more movement in the areas of state counterclaims, which would be particularly relevant for environmental claims.

Rivkin also discussed the recent report by the IBA Task Force on Climate Change Justice and Human Rights, which provides a comprehensive coverage of pro-environment clauses included in investment chapters.

Read the full speech here.