The judgment is another first in that a company, as opposed to a state, is being held responsible for complying with international environmental law.
It does not sit well that while climate negotiators are trying to find ways to up the appetite for raising the $6.9-trillion needed to meet the Paris Agreement goals, multinationals are seeking billions of dollars in awards under ICSID in what effectively amounts to a resistance to climate change measures and shifting the tab for their climate change responsibilities on to governments. This is especially disquieting as there is no guarantee that the awards will be spent on climate change responses. As preparations for COP 26 pick up speed, it is therefore important that the negotiators focus not only on steps for making the Paris Agreement more ambitious, but also on how other international legal regimes can undermine it. Perhaps what is needed is a multilateral treaty that excludes countries’ potential liability in investment law for climate action so that investment and climate change responses can be harmonised. Challenges like these are being discussed in a free seminar series, which a group of researchers from Johannesburg-based universities have coordinated and which are hosted by the South African Institute for Advanced Constitutional, Public, Human Rights and International Law (SAIFAC), a centre in the Faculty of Law of the University of Johannesburg. The seminar on 17 June 2021 hosted Prof Christina Voigt, the co-chair of the Paris Agreement Committee on Implementation and Compliance. She addressed issues including what the current climate legal regime is, what the sticking points are in negotiating a more effective legal response and the challenges that climate change poses for traditional legal approaches. *The views expressed in the article is that of the author/s and do not
ICSID is an international arbitration institution that handles most disputes between investors and governments, including an increasing number based on government actions aimed at addressing environmental protection and climate change. Declaration of these disputes is risky for governments because awards often run into billions of dollars, with the average successful claimant receiving in excess of $500 million. Decisions cannot be appealed and statistics show that more than 60% of decisions that are decided on the merits go in favour of the investor. Several principles that ICSID follows in its proceedings can be climate change unfriendly and used to prefer investors’ rights over government climate change initiatives, or even in complete disregard of the underlying need for climate law and policy. For example, because investment law often provides for the recovery of loss of future profits, when Germany decided to phase out coal from its energy mix by 2038, it agreed to pay investors in coal-fired power stations more than €4-billion to compensate them for lost profits resulting from the early closure of their plants. Germany, which is no stranger to being sued in the ICSID over its energy policies and has settled several disputes already, did this
cause difficulties for the climate agenda.
Legislation that deprives the investor of the use and benefit of its investment (such as the phase- out of coal) may be considered to be indirect expropriation for which compensation must be paid. Investment tribunals have been inconsistent in their interpretation of the principles, which apply to indirect expropriation. However, investors have high prospects of success where the “sole effects doctrine“, a doctrine in investment law that only considers a law’s effect on the investor and not its purpose, is adopted. African countries may also bump up against other principles, which could make them hesitant to implement urgent climate action for fear of facing an expensive ICSID dispute. As an example, bilateral investment treaties between France and various African countries, including South Africa, contain draconian fair-and-equitable treatment clauses, which in essence provide that almost any restriction on the use and exploitation of fossil fuels will violate the treaties. Effectively, this means that any ban on fossil fuels may automatically amount to a breach of the fair-and-equitable treatment clause under these agreements and give rise to an obligation to pay compensation. The position is exacerbated by the fact that unilateral withdrawals are an ineffective strategy for avoiding liability for climate action owing to long sunset clauses. This is starkly demonstrated by South Africa’s termination of its treaty with France, where investments made before September 2014 will continue to enjoy protection until 2034, 20 years after the termination date.
in part to avoid claims in investment arbitration.
The Netherlands, on the other hand, which did not offer large compensation packages for the early closure of coal-fired power stations, is now facing a €1.4-billion ICSID claim by RWE AG and a further claim believed to amount to around €1-billion by Uniper SE.
necessarily reflect that of the University of Johannesburg.
Other ICSID principles can also
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