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Beyond known worlds: climate change governance by arbitral tribunals?


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.






      A.  Mandatory and Voluntary Approaches

      B.  Public and Private Dimensions of
          Climate Change Law

      C.  Global and Local Dimensions of
          Climate Governance

      D.  Conclusions



      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


      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


      A. De Lege Ferenda

      B. De Lege Lata



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 emerging arbitrations in which foreign investors have alleged that the host state has breached investment treaty provisions by adopting or repealing regulation to prevent climate change. These arbitrations raise a number of critical issues. How should power be allocated between national and international levels of governance? Is investor--state arbitration the best forum to adjudicate climate change-related disputes? What is the role of arbitral tribunals in global climate governance? By imposing liability for monetary damages where government actions violate international obligations, arbitral tribunals can and do have a significant impact on national legislative bodies, administrations, and courts. This study aims to feed into and inform the ongoing debate on the role of foreign direct investments in the climate change discourse. Is comprehensive regulatory change necessary in order to foster environmentally sound development and mitigate climate change?

The Article proceeds as follows. First, it conceptualizes climate as a global public good. Second, it investigates the conceptualization of climate change as an environmental issue and the relevant legal framework. Third, it examines the conceptualization of climate change as a human rights issue. Fourth, it illustrates the regime complex governing climate change. Fifth, it discusses the interplay between climate change and foreign direct investments in the light of the current international investment regime. Some relevant investor-state arbitrations will be surveyed. Sixth, the Article will examine 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.


Climate--from the ancient Greek klima, meaning inclination (15)--is commonly defined as "the average of weather over time and space." (16) It can be categorized as a global public good, given the collective benefits it provides, as well as its global character. (17) Global public goods present two main features: (1) publicness, and (2) a global nature. (18) With regard to the first feature, the concept of public goods traces its roots back to antiquity, originating in the writings of Plato, Aristotle, and Cicero (res publica). (19) According to current economic literature, "public goods" indicate goods that are nonrivalrous and nonexcludable. (20) Nonrivalry is the ability of multiple consumers to consume the same good; and Nonexcludability means that no one can be excluded from using the good. Climate presents the features of a (global) common good as it provides collective benefits as well as inter- and intragenerational spillovers. Everybody can enjoy it without reducing the enjoyment of this good by others. (21) Common examples of public goods include lighthouses, (22) clean air, and environmental goods, among others. The second feature of global public goods, their global character, is given by the fact that their benefits are almost universal in terms of countries, peoples, and generations. (23) Certainly, climate defies traditional notions of territorial sovereignty. Climate is a common and shared environmental resource that is both within and beyond the jurisdiction of every state.

As a public good, climate cannot easily be provided by the "invisible hand" of the market. Rather, a global economic system built on resource extraction and consumption has spurred climate change. Human induced climate change has been conceived as "the biggest market failure the world has ever seen." (24) Because of the key features of public goods, "the market alone is often unable to ensure their efficient provision," (25) requiring some form of governmental intervention. (26) International regulation allows states to address the shortcomings of national regulation (27) because nations and regions may not fully, or sufficiently, appreciate the value of climate as a global public good.

According to mainstream economic literature, two main problems affect the provision of public goods: (1) free riding, and (2) the prisoner's dilemma. (28) Free riding refers to the powerful incentive to avoid contributing personal resources to common endeavors. Let us consider the following example. While a number of states have ratified the Kyoto Protocol, (29) other states are reluctant to do so, fearing that by ratifying it they could affect profitable industries. A state can seek to "free ride" by allowing others to commit themselves to a binding regime, and then allowing its nationals to exploit finite resources. Moreover, even if states ratified the Protocol, certain violations of the same could be "desirable from an economic standpoint." According to some scholars, "the concept of 'efficient breach' ... has direct applicability to international law." (30) If the free rider problem cannot be solved, natural resources will remain unprotected and overexploited. (31) Hardin reformulated this problem, calling it the "tragedy of the commons": if shepherds share a common pasture, they may be tempted to increase their herd without limit. (32) Analogously, as the atmosphere is "a shared and open access resource ... readily and freely available for unsustainable exploitation," states may be tempted not to reduce their greenhouse gases emissions. (33)

The prisoner's dilemma refers to a situation in which cooperation would lead to a better outcome, but individual players driven by self-interest prefer a less desirable outcome. (34) In the imagined scenario, two prisoners are held in separate cells and so are unable to agree on a common line of defense. (35) In the meanwhile, the prosecutors give the prisoners the following three options: (1) if both prisoners deny the charge, they will each get one year in prison; (2) if one confesses while the other denies, the one who collaborates will be rewarded with freedom, while the other will spend five years in prison; or (3) if both confess, each will spend three years in prison. (36) Undoubtedly, if both prisoners cooperated and denied the charge, they would each get one year in prison. Lacking the ability to communicate, they also lack the possibility to cooperate and thus to optimize their chances. (37) Without cooperation, the risk of spending five years in prison can lead both prisoners to confess in the attempt to minimize the higher risk. (38)

The prisoner's dilemma illustrates that parties to a regime may have an incentive to defect from the system, unless mechanisms are established to facilitate communication and cooperation. (39) For instance, states may have economic incentives to defect from the Kyoto Protocol to the Framework Convention on Climate Change. For instance, Canada decided to withdraw from the Kyoto Protocol as it was certain that it would not be able to achieve its targeted emission reduction. (40) Authors have highlighted that common goods are often endangered by the same states that should keep them in custody but subordinate them to economic interests of private actors. (41) However, due to mechanisms of blame and shame, a number of states have taken action to prevent climate change because of consequential loss of reputation and the desire to be perceived as a reliable partner in future negotiations. (42)

Conceptualizing climate as a global common good is useful in that it emphasizes the positive spillovers and common benefits that derive from climate. The paradigm also provides useful theoretical tools to examine state and individuals' conduct in the climate domain. Should the state and the international community intervene to protect the climate? How much should be left to the private sector, allocating scarce resources through the market-based mechanisms? Clearly answers to these questions cannot be provided by economic analysis only. (43) Legal approaches are needed because economic analysis seems too narrow a perspective. (44)

On the other hand, conceptualizing climate as a global common good presents certain drawbacks. Conceiving climate as a public good seems to imply that climate change is a "public bad." However, what constitutes a public good is a political question. Climate change might be beneficial to one social group but detrimental to another. For instance, in the Arctic countries, climate change has brought some limited benefits, including reforestation (45) and growing fish stocks. (46) Moreover, the Arctic's abundant supplies of oil, gas, and minerals are becoming newly accessible along with newly opened polar shipping routes. (47) On the other hand, "small island countries, countries with low-lying coastal ... areas or areas liable to floods, drought and desertification ... are particularly vulnerable to the adverse effects of climate change." (48) Coastal communities and indigenous peoples can be disproportionately affected by climate change. (49) Furthermore, climate policies may lead to the primacy of professional elites vis-a-vis local polities, being imposed top-down on local communities and concealing state authoritarianism, if they are not coupled with human rights guarantees. For instance, reforestation policies or the construction of dams in alleged compliance with climate change law can breach the fundamental rights of indigenous peoples and other local communities by causing forced evictions, (50) affecting cultural practices and biodiversity. (51)

In conclusion, the conceptualization of climate as a global common good may be useful in that it highlights certain specificities of climate. Namely, it provides collective benefits and has a global character. However, this paradigm is neither the only paradigm nor the definitive one; rather, it needs to be complemented by additional conceptual paradigms.


With the potential to radically transform the natural environment, "[c]limate change is one of the major challenges of our time...." (52) Climate change, meant as shifting weather patterns, has been a constant feature through the millennia. (53) Yet, since the 1950s, its growth has proceeded at an unmatched speed and level, (54) partly due to human activities, and mainly greenhouse gas emissions. Climate change has affected ecosystems, (55) warming the atmosphere and ocean, reducing the amounts of snow and ice, and raising the sea level.

International law instruments regard climate change as a "common concern" of humankind.56 While common concerns indicate community interests, (57) common concerns of humankind constitute interests of the international community as a whole. (58) As common concerns of humanity can affect populations regardless of state boundaries, they require a delicate balance between state sovereignty and accountability to the international community. (59) With regard to such common concerns, states are not entirely free to adopt whatever policy may suit their needs; rather, common concerns require international cooperation. In fact, after affirming that climate change and its adverse effects "are a common concern of humankind," (60) the United Nations Framework Convention on Climate Change (UNFCCC) (61) acknowledges that "the global nature of climate change calls for the widest possible cooperation by all countries and their participation in an effective and appropriate international response." (62) Other international instruments call for the protection of global climate for present and future generations of mankind. (63) Therefore, as a common concern, climate change is to be governed as a sort of common good and requires international cooperation. (64)

While the analytical concept of common concern does not express a general principle of law, it is not an empty political manifesto. (65) Rather, it has legal content, serving as "a catalyst for the development of binding rules on diligent conduct of States" and "prepar[ing] the ground ... for liability." (66) Accordingly, "it is ... one of the most important aspects of the progressive development of international environmental law and the restriction of national sovereignty for the benefit of the community of States." (67)

The notion of common concern presents some commonalities with the concept of "common heritage" of mankind. The concept of common heritage indicates resources belonging to humanity as a whole. Both concepts of common heritage and common concern are of a legal character as they are expressly mentioned in a number of international law instruments. Both concepts refer to humanity as a whole, rather than referring to states. (68) Both concepts echo the idea of common interest. They "inevitably transcend the boundaries of a single state and require collective action in response...." (69) In fact, both common heritage and common concerns cannot be managed efficiently and effectively by a given state; rather, they require collective action. (70)

Yet, the concepts of common heritage and common concern diverge, having different application, function, and objectives. The concept of common heritage applies to resources in common spaces, notably the deep seabed and the moon. (71) The concept of common heritage has also been used in some international cultural law instruments to indicate a general interest of the international community in the conservation and enjoyment of cultural resources. (72) In the cultural sector, such concept would be akin to the concept of common concern of humankind, developed in relation to environmental goods. (73) By contrast, common concerns do not belong to a specific area; rather, they "can occur within or outside sovereign territory." (74) While climate change is a paradigmatic example of a common concern of humankind, other examples include the conservation of biological diversity (75) and the prevention of desertification and drought. (76)

The common heritage concept has played a revolutionary role in the making of international law. The areas that are designated as common heritage cannot be appropriated and/or be subject to claims of sovereignty. Rather, they are res publica (commons) governed by an international authority, and the benefits derived from the exploitation of the common heritage are to be shared equitably and for the benefit of mankind. (77) The notion of common heritage challenged the "structural relationship between rich and poor countries" and amounted to a "revolution not merely in the law of the sea, but also in international relations." (78)

By contrast, the common concern concept is not a radical notion, but it is a suitable analytical tool expressing current challenges in international environmental law. Common concerns indicate that specific issues are "no longer in the reserved domain and under the exclusive domestic jurisdiction of states." (79) A common concern requires "management of environmental resources at all levels of governance," including "participation by non-state actors." (80) When action is taken in matters of common concern, a double balance must be struck between competing objectives: (1) national and international, and (2) climate change mitigation and other legitimate policy objectives. On the one hand, the action of the international community "must be balanced with respect for national sovereignty." (81) On the other, a balance must be struck between the objectives pursued by climate change law and those pursued by other domains of international law such as international economic law. In fact, these other fields are regarded as "instrumental to achieving [other] common interest [s] of humanity." (82) In conclusion, while common concern is "a far from a precise term," (83) it may "facilitate levelling the playing field" between different conflicting interests before different dispute settlement mechanisms. (84)


Human rights have played a marginal role in international climate change law and politics to date. (85) However, this has started to change, and a growing number of scholars and practitioners have investigated the linkage between climate change and a range of human rights. (86) Several international instruments have also acknowledged such a link. (87) A number of key questions arise with regard to the interplay between climate change and human rights. Is there a human right to a stable climate? Does climate change affect human rights? How do climate change policies interact with human rights? What are the limits, if any, to climate change policies? Who should bear the burden of climate policies?

There are no firm answers to these questions. First, whether there is a human right to a stable climate is uncertain. An additional question is whether entitlements to a stable climate constitute an element of other human rights. Certain climate change issues have been framed in terms of human rights. (88) For instance, entitlements to a stable climate could be considered to be a component of the right to a healthy environment, which is a third-generation human right. (89) Third-generation human rights include solidarity rights, namely those rights that respond to challenges that are not addressed by civil and political rights on one hand, and economic, social, and cultural rights on the other--which can be termed first- and second-generation rights respectively. (90) While the scope of third-generation rights remain debated, they are deemed to include the right to development, the right to self-determination, the right to a healthy environment, (91) and other collective rights--rights held by a group qua group rather than by its members severally. A number of international instruments have recognized the right to a healthy environment. (92) In addition, several domestic courts have guaranteed the right to a healthy environment in various countries. (93)

Second, with regard to the question as to whether climate change can affect human rights, some scholars have pinpointed that climate change can affect a broad range of human rights including the rights to life, health, food, water, property, self-determination, and subsistence. (94) Not only does climate change affect human rights in a direct fashion, exacerbating natural disasters, such as heat waves, floods, and droughts, but also it affects human rights in an indirect and cumulative way. (95) The indirect effects of climate change are evident in a number of sectors such as agriculture, food security, and water resources. (96) The very existence of some states may be jeopardized by climate change, spurring the migration of "climate refugees." (97) There have been attempts to frame climate change as a violation of human rights before different fora. (98)

Third, climate change policies interact with human rights in multifold ways. On the one hand, greenhouse gases (GHGs) mitigation policies can prevent some of the most devastating effects of climate change. On the other hand, they can affect a range of human rights, including non-discrimination, due process, property rights, and others. (99) For instance, subsidies for farmers to switch from agriculture to biofuel production may affect food security, especially in developing countries. (100) Reforestation projects can breach the fundamental rights of indigenous peoples by causing forced evictions. (101) In this respect, states should take human rights into consideration when developing their climate change policies. (102)

Fourth, certain human rights, especially access to information and participation in decision-making processes can be regarded as essential to good climate governance.

Finally, climate justice (i.e. viewing climate change from an ethical perspective and considering how its causes and effects relate to concepts of justice) is central to human rights discourse. The issue of climate justice is twofold. On the one hand, at the international level, it seems that those states least responsible for climate change experience its greatest impacts. As the UN High Commissioner for Human Rights pointed out, "Many of the least developed countries and small island States, which have contributed least to global greenhouse gas emissions, will be worst affected by global warming." (103) On the other hand, at the national level, "[t]he effects of climate change will be most acutely felt by those segments of the population whose rights protections are already precarious due to factors such as poverty, gender, age, minority status, migrant status and disability." (104) Therefore, under human rights law, "[s]tates are legally bound to address such vulnerability in accordance with the human rights principle of equality and non-discrimination." (105)

More substantively, if one scrutinizes the interplay between climate change and human rights through the tripartite structure of the latter--according to which human rights provisions compel states to respect, protect, and fulfill human rights--in relation to climate change, this means that states are required to adopt measures to prevent greenhouse gas emissions, to adopt mitigation measures, inter alia regulating private corporations, and to provide remedies when breaches have occurred. (106) As the UN Independent Expert on human rights and the environment John Knox pointed out, "The obligation to protect human rights from environmental harm does not require States to prohibit all activities that may cause any environmental degradation." (107) Rather, "[s]tates have discretion to strike a balance between environmental protection and other issues of societal importance, such as economic development and the rights of others." (108) Yet, "the balance cannot be unreasonable, or result in unjustified, foreseeable infringements of human rights." (109)


After having examined the various conceptualizations of climate change, the Article now examines how climate change is governed. Climate change governance has emerged as a new frontier of study and has come to the forefront of legal debate. (110) Climate change governance is a "regime complex" (111)--a range of multilevel, "multiscalar" (112) and multipolar regulatory frameworks (113) at times diverging and at times converging, if not overlapping. Climate change governance constitutes a good example of multilevel and multiscalar legal pluralism as multiple bodies govern climate change at national, regional, and international levels. Climate change governance is a multipolar regulatory framework as multiple actors play an important role with regard to climate change, ranging from international administrative bodies to private actors, and from national courts and tribunals to international economic fora.

Why are certain areas of international law, such as climate change law, characterized by an inherent fragmentation or a dispersed legal landscape, while other sectors are characterized by binding, concentrated, and robust regulatory frameworks? Political scientists suggest that "[w]here conflicts of interest are not severe and especially where power is concentrated, incentives to cooperate can lead to the construction of robust international regimes, such as the international trade regime.... But where interests and power are more fragmented, incentives for cooperation often lead to ... 'regime complexes.'" (114) Climate change law is an area characterized by intense conflicts of interests between industrialized countries and developing countries on the one hand, and between public and private actors. On the one hand, developing countries focus on their developmental needs and argue that, historically, the bulk of greenhouse gas emissions have been produced by industrialized countries. In turn, while some industrialized countries are concerned that climate change regulatory measures could make their industries less competitive, others consider renewable energies as an opportunity to achieve energy security and a better and healthier environment. On the other hand, private actors can and have contested regulatory measures affecting their economic interests.

Therefore, three dualisms traditionally characterize climate change law: (1) the distinction between the mandatory and the voluntary, (2) the distinction between public law and private law, and (3) the division between domestic and international law. (115) However, these traditional boundaries have become blurry in contemporary climate law, as both private and public traits, national and international dimensions, as well as mandatory and voluntary features constantly interact in several different ways. Climate change law has been increasingly regulated at the national and international levels by both public and private actors. Moreover, climate change law is characterized by a peculiar mixture of mandatory and voluntary approaches. The next sections will scrutinize these dichotomies and their interactions.

A. Mandatory and Voluntary Approaches

There is a sort of mimesis and dialectic between the mandatory and voluntary as well as the hard law and soft law dimensions of climate law. Binding international legal instruments include treaties, protocols, and amendments, as well as "secondary legislation," i.e. decisions taken pursuant to a treaty if the treaty authorizes the Conference of the Parties (COP) to adopt rules on a specific matter. (116) Such instruments are subject to the rule of pacta sunt servanda, and if they are violated, they give rise to international responsibility. (117) In parallel, several subsidiary treaty-based bodies have produced influential "soft law" (i.e. instruments that do not have any legally binding force but can be morally persuasive).

Among the mandatory instruments of climate law, the 1992 United Nations Framework Convention on Climate Change (UNFCCC) (118) has played a leading role in the making of climate law. The UNFCCC aims at "control[ling] greenhouse gas emission," (119) while enabling "economic development ... in a sustainable manner." (120) Under the UNFCCC, member states agreed upon a common but very general approach to the problems associated with global climate change. By establishing a system of governance for an issue area, framework conventions facilitate the development of cognitive and normative consensus about the relevant facts and the appropriate international response. Like other framework conventions, the UNFCCC sets out an incremental process in lawmaking. It establishes a discourse on climate change, setting general objectives and instituting a structure for further course of action. Subsequent treaties, the Protocols, then develop more specific commitments that supplement the original convention and require states to undertake specific legal obligations. (121)

Specific commitments on the reduction of greenhouse gases were negotiated later and led to the inception of the Kyoto Protocol. (122) The Kyoto Protocol legally binds parties to reduce their greenhouse gas emissions. Under the concept of "common but differentiated responsibilities," the Protocol places heavier commitments on developed nations. (123) Ongoing UN negotiations are developing a new international climate change agreement--the Paris Protocol--that will be adopted at the Paris climate conference in December 2015 and implemented in 2020, after the Kyoto Protocol ends. (124)

The decisions of the Conference of the Parties, the supreme decision-making organ of the Convention, have further extended the scope of climate law providing additional supporting rules. (125) The legal status of COP decisions falls between the two extremes of voluntary and mandatory. While some of these decisions have been perceived as nonmandatory, others have been perceived as having a mandatory nature.

The UNFCCC, the Kyoto Protocol, and some COP decisions constitute a top-down, mandatory approach to climate change governance. They have raised awareness of the importance of climate change mitigation and spurred the development of domestic climate policies. All of these instruments channel climate concerns into the fabric of international law and influence policymaking and adjudication, due to the almost global ratification of the UNFCCC.

In parallel, a bottom-up, facilitative approach favoring voluntary actions has emerged. (126) For instance, a voluntary framework was adopted in Cancun. (127) The Cancun Agreements took stock of the action undertaken by both developing and developed countries respectively, (128) "established a new funding mechanism (the Green Climate Fund), and incorporated an agreement on reducing emissions from deforestation and forest degradation (REDD+)." (129) Several subsidiary treaty-based bodies have produced influential soft law. (130) Soft law is a contested concept. Some scholars have pointed out the contradictory nature of the expression, (131) as commitments are either legal or non-legal. (132) Yet, others highlight the existence and even the desirability of gray areas and different degrees of normativity. In fact, while binding instruments are more difficult to achieve in areas--such as climate change--where multiple interests converge and diverge, soft law instruments, non-binding instruments, and instruments with a mixture of both legal and nonlegal approaches can catalyze consensus and have a greater influence on state behavior than their legally binding counterparts. The principle of state sovereignty, which underlies binding treaty commitments, often prevents the adoption of binding instruments to govern climate change. This does not mean, however, that nonbinding instruments have no effect whatsoever. (133)

Soft law instruments present a quasi-legal nature and influence both treaty making and treaty interpretation. On the one hand, soft law can morph into hard law in two different ways. First, declarations, recommendations, and other nonbinding instruments can constitute the first step towards a treaty-making process, in which reference will be made to the principles already stated in the soft law instruments. Second, they can influence the practice of states and eventually lead to the coalescence of customary law. On the other hand, international courts and tribunals do take soft law instruments into account. For instance, in the Texaco arbitration, the sole arbitrator applied the General Assembly's Declaration on Permanent Sovereignty over Natural Resources. (134)

While top-down, mandatory approaches address the collective action problem encompassed by climate change and solve the free rider problem, bottom-up, voluntary approaches foster local action. (135) Current negotiations for a new climate deal that will come into effect and be implemented starting in 2020 propose the increased adoption of "hybrid architectural approaches," (136) mixing mandatory top-down and voluntary bottom-up approaches to climate change mitigation. (137) While the negotiations aim at "developing a new protocol, another legal instrument or an agreed outcome with legal force," (138) they also consider voluntary approaches to improve states' environmental performance beyond legal requirements. (139) Voluntary approaches may be more cost-effective than "command and control" mechanisms. (140) Yet, as only moderate results have been achieved through voluntary approaches, the adoption of a well-articulated mix of regulatory and voluntary instruments is preferable.

B. Public and Private Dimensions of Climate Change Law

There is a sort of mimesis and dialectic between the private and public dimensions of climate change law. On the one hand, there is an increasing awareness that climate change requires public intervention due to the existence of undeniable public interests. On the other hand, the role of private actors remains crucial. While human activities have substantially contributed to climate change, (141) they can contribute to its mitigation.

Private actors can contribute to climate change mitigation in different ways. Not only can they fund climate change mitigation actions, but they play a role in the development of climate change law and its implementation. According to the United Nations, "nearly 90 per cent of the funds needed to address global warming will derive from the private sector." (142) Moreover, private actors have played a significant role both in the normative development of the field and in its implementation. (143) At the normative level, given the complexity of climate change and the limitations of "command and control" regulatory techniques to govern it, "regulatory tools that use market principles to achieve environmental goals" have been used. (144)

For instance, the Kyoto Protocol calls for the involvement of private entities, such as foreign investors, to pursue its objective of limiting and reducing greenhouse emissions. Private actors can play an important role in helping states limit their emissions under two of the Kyoto Flexibility Mechanisms. (145) Under the joint implementation mechanism, industrialized countries can authorize legal entities, such as private investors, to participate in green investments in other industrialized countries to meet the home country's Kyoto targets. Under the clean development mechanism (CDM), industrialized countries or their investors can participate in projects in developing countries, thus contributing to the home country's Kyoto targets. Industrialized countries obtain certified emissions credits (CERs) that can be used to meet their targets or sold on the carbon market, and developing countries receive low carbon technology and financial flows that contribute to their sustainable growth. Foreign investments can thus represent an effective tool to mitigate climate change. Having know-how in energy-saving technology to reduce carbon emissions, (146) foreign investors can and do transfer technology and invest in renewable energy projects.

C. Global and Local Dimensions of Climate Governance

In parallel, there is a sort of dialectic between the global and local dimensions of climate governance. Local, bottom-up approaches to climate governance are important because the change of individual and local behaviors can contribute to fighting climate change. However, local governance may emphasize local needs including those of economic growth, which, in certain cases, may sensibly diverge from international desiderata. In fact, local dimensions of climate governance can suffer from "myopia and parochialism," prioritizing economic interests over climate concerns and eventually leading to "the tragedy of the commons." (147)

By contrast, international cooperation and collective action are essential to govern a global public good such as climate. Global governance of the commons can prevent the risks of a regulatory "race to the bottom" (148)--that is state deregulation of key sectors to attract or retain economic activities in its jurisdiction. However, global governance favors experts over nonexperts. Under global governance, decision-making processes tend to be elitist and opaque. Such top-down approaches may not necessarily be responsive to local needs. Human rights bodies have advocated the need to humanize and democratize climate law and condemned the forced eviction of local communities for the construction of large dams or other energy-related infrastructures.

The global dimension of climate change governance is multipolar. While the UNFCCC constitutes a central regime governing climate change, it would be a mistake to conceive of it as the only global legal framework governing the climate. In fact, other regimes can be relevant, including other environmental regimes, international trade law, international cultural law, and international investment law. (149) For instance, the Montreal Protocol on Substances that Deplete the Ozone Layer, (150) which aims to protect the ozone layer by phasing out the production of numerous substances that are responsible for ozone depletion, contributed to the mitigation of climate change by cutting some industrial gases that cause the depletion of the ozone layer and also contribute to climate change. (151) Analogously, while conflicts between international trade law and climate measures can arise, (152) different provisions of international trade law "could be used for climate change mitigation." (153) Similarly, given the duty of the states parties to the World Heritage Convention (WHC) (154) to protect world heritage within their territories, (155) the World Heritage Committee has imposed site-specific mitigation obligations on them. (156) In parallel, the World Bank has organized a large fund to invest in reforestation projects and a fund to help countries adapt to the effects of climate change. (157) More importantly, the Bank has brought climate change concerns into its main lending activities.

Questions remain in those cases in which the two interests--internationalist and nationalist--diverge. Which interest should prevail in the regulation of climate: the interest of the locals or the interests of the international community? Often the two interests coincide. Both communities have an interest in the mitigation of climate change. However, when interests collide, states face the dilemma as to whether to comply with international law or to agree with the preferences of the local constituencies. Of further interest is the question of how this overlapping or collision of interests relates to the admission and operation of foreign investments. Is there any difference between using the local public interest or the global interest as a parameter in the interpretation of international (investment) law and the adjudication of the relevant disputes?

D. Conclusion

In climate change governance, the distinctions between mandatory and voluntary, between public and private, and between global and local are best understood as the ends of three continuums. The distinction between mandatory and voluntary approaches is far from being a neat one; for instance, there are COP decisions that fall in between the two extremes. The dichotomy between public and private dimensions of climate law spans over different degrees "with regard to both the tools of regulation and the identity of the regulators." (158) Finally, the question as to how power should be allocated between national and international levels of climate governance is far from being settled.

Not only are these differentiations fluid and intertwined, but, they also are also dynamic. (159) Soft law can harden and morph into hard law while "hard law can be softened if left largely unenforced." (160) What is now part of public law may become part of private law after privatization processes, while some aspects of private law can become "public" because of political contingencies. Moreover, public law looks to private law in order to learn from its arguments, dispute settlement mechanisms, and so on. Finally, like other sectors of environmental regulation, climate governance has traditionally fallen within the regulatory autonomy of the state. However, this has started to change since the inception of the UNFCCC. Certainly, "the global scope of climate change" requires "collective action" at the international level. (161)


As the international economic order has become more and more intertwined with concerns for climate change, (162) the international investment regime can and has played a role in global climate governance. Corporations can play a dual role with regard to climate change. On the one hand, corporations are the main greenhouse gas producers, (163) and greenhouse gases emissions spur climate change. On the other hand, multinational corporations can play an important role in greening the economy. (164) For instance, investments in renewable energy projects--those projects that derive energy from resources that are naturally replenished such as sunlight, wind, rain, tides, waves, and geothermal heat--can foster climate change mitigation and sustainable development. (165)

As mentioned, there is no comprehensive multilateral framework governing foreign direct investments. Rather, more than 3,000 bilateral investment treaties (BITs) regulate this vital area of international law. (166) This does not mean, however, that the system is fragmented; rather, authors have suggested that a de facto multilateralization of the system has taken place (167) due to the fact that many BITs share common and/or similar provisions, and arbitral tribunals do refer to earlier awards, despite the absence of stare decisis in international (investment) law. (168) The Energy Charter Treaty (ECT) (169) is a multilateral treaty governing energy investment and trade. Both bilateral investment treaties and the ECT provide a number of substantive standards of protection, including fair and equitable treatment, the prohibition of unlawful expropriation, full protection and security, non-discrimination, among others.

At the procedural level, both bilateral investment treaties and the ECT allow investors to file arbitration claims directly against host states for violations of their protections under the relevant provisions. Investor--state arbitrations can be ad hoc or institutionalized. In the latter case, the arbitrator can refer the dispute to a variety of fora, including the International Center for the Settlement of Investment Disputes (ICSID), the Permanent Court of Arbitration (PCA), and the Arbitration Institute of the Stockholm Chamber of Commerce. These institutions do not themselves decide disputes; rather, they administer the disputes in accordance with the applicable rules.

Do investment treaties chill and/or impede endeavors to mitigate the effects of climate change? (170) Investment treaties can foster investments in renewable energy, thus contributing to climate change mitigation. Yet, concerns remain that investment treaty protections can prevent regulation designed to mitigate climate change (171) and/or that investment treaty arbitrations can affect the implementation of climate law. Foreign companies can (and have) file(d) investor-state arbitrations, contending that climate change-related regulatory measures breach the relevant investment treaty provisions. (172) Climate change-related regulatory measures can affect the economic interests of private actors by requiring technological upgrades or banning specific economic activities. (173) Where the economic activities affected are owned by foreign investors, such measures can (and have) give(n) rise to investor-state arbitrations under the relevant treaties. (174) Foreign investors can (and have) argue(d) that these measures violate the prohibition on unlawful expropriation or the fair and equitable treatment standard, among others. (175) The next Part will explore how arbitral tribunals have dealt with climate change-related measures and whether such tribunals are contributing to climate change governance.


Investment treaty arbitration has become the last frontier of climate change-related disputes. Until recently, foreign investors had not challenged climate change-related measures before arbitral tribunals. (176) Today, a number of investment treaty arbitrations concern regulatory measures relating to climate change. This is not to say that investment treaty tribunals are the best venues for this type of dispute, let alone the only venue. (177) Rather, given the importance of such disputes for climate change governance, and the fact that there is scarce, if any, literature examining this emerging jurisprudence, this Part aims to cover this gap, moving beyond the state of the art, mapping and examining the relevant arbitrations and considering investment arbitration as a tool of climate governance.

The UNFCCC does not establish a dedicated dispute settlement mechanism for climate change-related disputes. Rather, like other multilateral environmental agreements, it restates the need for parties to settle their dispute "through negotiation or any other peaceful means of their own choice." (178) States can refer to adjudication or international arbitration or subject the dispute to compulsory nonbinding conciliation. (179) Not surprisingly, Article 14 of the UNFCCC "has not yet been relied upon as a jurisdictional basis for action, despite the significant ... violations of obligations under the Convention." (180) Most cases brought before the Compliance Committee have concerned issues of procedural compliance. (181)

Given the fact that the UNFCCC and the Kyoto Protocol offer no provision for non-state actors to initiate compliance procedures, (182) not surprisingly, climate change disputes have been adjudicated outside the climate change regime. Private actors have pursued their claims before a variety of different courts and tribunals at the national, regional, and international level. (183) The choice of the relevant court or tribunal is of fundamental importance, as the entrenchment of the tribunal in a given institutional culture may affect the outcome of the dispute. Therefore, there is a degree of forum shopping for the most advantageous adjudicatory mechanism. (184)

As mentioned, investment treaty arbitration has become the last frontier of climate change-related disputes and a steadily growing number a number of investment treaty arbitrations concern regulatory measures relating to climate change. Climate change-related investment arbitrations are varied. They can encompass a claimant filing an investment treaty claim to enforce existing climate-related laws to which the defendant is legally bound, to a claimant contending that climate change law is in breach of the relevant BIT provisions. The interests at stake may present a complexity unknown in other areas of the law, presenting a mixture of private and public interests which at times coincide (i.e., in which case, requiring climate change mitigation) and at times conflict (i.e., when the private interests clash with collective entitlements).

Arbitral tribunals are called to fill a "governance gap." Arbitral awards--the decisions of arbitral tribunals--can become a tool of global climate governance, serving as a "de facto source of ... climate policy with very real impacts on the regulatory landscape." (185) At the same time, the lack of a clear path to follow in settling such issues suggests that climate-related investment disputes can constitute a "legitimacy minefield" for the arbitral tribunals. (186) In international (investment) law, debates over the extent of arbitral lawmaking authority are common. (187) There is no settled approach to the question as to whether arbitrators should conform to strict legalism and show deference to the regulatory autonomy of the state or adopt a proactive approach to fill gaps in the law. Certainly, however, the effects of a given dispute reverberate beyond the parties to the same and can shape future decision making of governments, pressure corporations to invest in (or divest themselves of) a given sector activities, and reconfigure the public discourse. (188) Given the multiplicity of fora adjudicating climate change-related disputes and the commonality of the relevant issues, there is an opportunity for transnational judicial dialogue and cross-pollination of concepts. (189) Yet, there is a risk that arbitral tribunals will focus on the persuasive precedents of previous arbitral awards, not necessarily dealing with climate change-related disputes. A de facto system of precedent has coalesced in investment treaty arbitration: (190) the persuasiveness of previous arbitral tribunal awards can overshadow the potential merits of the jurisprudence of other courts and tribunals. The selection of the persuasive precedent matters, as it can influence the outcome of the proceedings.

Not only can arbitral awards contribute significantly to the development of international investment law, but they also can contribute, albeit indirectly, to the development of climate governance. These cases will contribute to the development of international investment law as they involve the interpretation of key standards of protection, including indirect expropriation, nondiscrimination, and fair and equitable treatment, among others. These cases will also contribute to the development of the climate regime. Investment treaty arbitral tribunals are of limited jurisdiction and cannot adjudicate on the eventual violation of climate change law. Yet, climate change-related arbitrations demonstrate that investor--state arbitration can constitute an unintended but effective tool for enforcing climate change law in mixed disputes (i.e., between states and non-state actors). These cases may also generate debate on the interplay, conflict, and/or mutual supportiveness between these branches of public international law, and, more generally, on the unity or fragmentation of international law.

From a climate law perspective, two types of claims have emerged. First, investors who have invested in renewable energy have challenged regulatory changes allegedly affecting their investments. In these cases, international investment law is being used as a legal mechanism to protect economic interests of businesses investing in renewable energy. In these cases international investment law is being used as a shield to protect climate change mitigation measures. However, it will be shown that in repealing and/or modifying climate change mitigation measures, the host state may be pursuing other fundamental objectives, including human rights. In times of austerity, cuts in public expenditure can be unavoidable and may be spread among different economic sectors. If host states could not adjust their climate energy policies to provide essential services with respect to fundamental human rights, then this situation could lead to a regulatory chill, as states would be wary of adopting climate change mitigation measures in the first place.

Second, investors who have invested in polluting activities have filed investor-state arbitrations, deeming Kyoto-related measures as a violation of the host state obligations under its international investment treaties. In these cases, international investment law is being used as a sword to protect private property against climate change mitigation measures.

This Part now examines these two different facets of the relevant arbitrations. As most of these disputes have been filed only recently and are pending at the time of this writing, it is not possible to foresee whether these disputes will be settled by the parties and, if so, on which terms, or whether--and if so how--they will be adjudicated by the relevant arbitral tribunals. It is nonetheless timely and appropriate to provide a brief overview of the relevant issues that have arisen in these emerging disputes.
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Title Annotation:Abstract into VII. Beyond Known Worlds: Climate Change Governance by Arbitral Tribunals?, p. 1285-1319
Author:Vadi, Valentina
Publication:Vanderbilt Journal of Transnational Law
Date:Nov 1, 2015
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