Now available "Climate Change Arbitration: Using the Energy Charter Treaty to Enforce the New European Green Deal" - TDM 1 (2024)
Published 8 March 2024
Climate Change Arbitration: Using the Energy Charter Treaty to Enforce the New European Green Deal
Dr. Aikaterini Florou, Tufts University; University of Liverpool
Introduction
(Note: added 08/03/2024) "It's now or never", if we want to prevent a climate disaster; "without immediate and deep emissions reductions across all sectors, it will be impossible." This is the main message that one can retain from the recent report of the Intergovernmental Panel on Climate Change (IPCC) and the concluding remarks of the co-chair of the IPCC's Working Group on climate change mitigation. Climate change is a concrete and increasing threat to a series of human rights, including the fundamental rights to equality and to a clean and healthy environment.
According to the International Energy Agency (IEA), the energy sector is the source of around three-quarters of greenhouse gas emissions today and holds the key to averting the worst effects of climate change by reducing global carbon dioxide (CO2) emissions to net zero by 2050. To this end, the IEA has invited governments to design policies that will send market signals to the private sector to invest in green energy projects while at the same time phasing out investments in the oil and gas and coal sectors.
To achieve the ambitious goal of net zero by 2050, the IEA has identified several "priority actions". Among those are the following: make the 2020s the decade of massive clean energy expansion; preclude new fossil-fuel projects as of 2021 and drive a historic surge in clean energy investment; and foster international cooperation, especially on investment, in order to achieve net-zero emissions by 2050.
It has, thus, become clear that the climate crisis is a multifaceted problem that requires not only public but also private action. According to the 2022 World Energy Investment Report, renewables have outperformed fossil fuels in listed and unlisted markets, but their smaller market capitalizations and lower margins reduce investors' willingness to reallocate capital. The IEA has also found that reaching net zero targets requires a massive ramp-up of spending on clean energy, particularly by the private sector, which should account for 70% of all energy investment by 2030.
In these circumstances, governments need to provide assurances of stability to investors in renewable energy projects. Does the European Union ("the EU"), as a prominent international actor in the battle against climate change, provide such stability to renewable-energy investors? Does the new EU Green Deal create legitimate expectations to investors for legal certainty and stability of their investments in renewable energy? What is the role of the Energy Charter Treaty ("ECT") in enforcing the legitimate expectations that the Clean Energy for All Europeans legislation may create?
These are the questions that the present research aims to address by looking into the past, present and potential future of renewable energy investments in the EU. As a general caveat, this article does not take a position on the appropriateness of the ECT to accommodate the energy transition and the measures that states take to combat climate change. What it does, is to take stock of the way that the treaty has been used in the EU context to protect investments in the renewable energy sector and to make predictions for its future use based on the EU Green Deal.
As the most recent statistics show, the majority of ECT disputes have been launched to protect investments in renewable energy.
Indeed, while 34% of the total 158 known ECT disputes have been initiated by the fossil fuels industry, 59% of those disputes refer to the renewable energy sector. This picture shows that the ECT has been used and can be used to protect investments that aim at implementing the energy transition and addressing climate change.
The following section examines the experience that EU investors had in various Member States under the previous EU legislative regime for renewables, and particularly the arbitral disputes that investors launched against Spain. The focus will be on the reasoning of arbitral tribunals regarding the concept of "legitimate expectations", which allegedly arose from the legislative and regulatory regimes that investors relied upon in deciding to invest in renewable-energy projects. The third section examines the current state of play in the negotiations for the modernization of the ECT, while the fourth section takes a close look into the investment elements of the EU Green Deal and examines whether the laws implementing this new deal create legitimate expectations on the part of the EU as a whole to investors that would rely on these laws to invest in the EU renewable energy sector. The fifth, and final, section concludes.
The Article is available here "Different Paths to the Same Goal? The Potential of BITs and FTAs for Achieving Climate Objectives" (www.transnational-dispute-management.com/article.asp?key=3044) and is part of TDM 1 (2024).