The inherent incompatibility of international investment law with a just green transition

Abstract

The longstanding tensions between states’ international investment law (IIL) obligations and their obligations under international human rights and environmental laws are becoming increasingly prominent in the context of climate action and just transition policies. The acceleration of domestic mitigation and adaptation measures adopted by governments around the world to tackle the climate emergency have given rise to investment treaty claims by investors adversely impacted by such measures, primarily in the energy sector. 

Climate action requires major transformations of economies and societies. Both its implementation and its delay pose grave dangers to the most vulnerable segments of society, climate policies raise complex distributive questions at local and international levels. Energy transition is a fundamental pillar of climate action. With oil, gas and mining sectors being amongst the most powerful and litigious industries in the face of public policy reforms, and IIL providing a layer of protection above and beyond domestic laws from policy shifts detrimental to profit margins, it is inevitable that international investment law will be a battlefield where arbitrators will settle some important distributional consequences of climate policies. 

The flurry of policy making, policy U-turns and adjustments to tackle the climate crisis, including possible shifts in response to instances of irresponsible investor conduct, in sectors critical to climate action make fertile ground for investment disputes, both in relation to the phasing out of fossil fuels and in relation to promoting investments crucial to decarbonization goals. In this chapter, I review the role of investment treaties in the context of climate action, both their potential to hinder phasing out fossil fuels and their potential as a catalyst for climate friendly investments to assess whether, as currently configured, investment treaties are compatible with just transition objectives. This review finds that besides hindering the regulation of fossil fuels in line with climate goals, the risks investment treaties pose to the implementation of a just and equitable transition outweigh the potential benefits of relying on investment treaties to attract climate friendly investments. I conclude that investment treaties would stifle a just and equitable transition by unconditionally protecting and over-compensating climate-friendly investments during a complex period of major transformation in society.

Keywords: Investment treaties, Climate action, Just transition