Addressing the Clash of Interests Between Investment Treaty Law and International Climate Change Law
| Autor | Diego Piedra Trejos |
| Cargo | Costa Rican attorney. He holds an LL.M. degree in Public International Law from the London School of Economics and Political Science |
| Páginas | 18-46 |
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X Edición, I semestre 2020
Addressing the Clash of Interests Between In-
vestment Treaty Law and International Climate
Change Law
Diego Piedra Trejos*
Resumen:
El derecho internacional de inversión ha sido ampliamente criticado por priorizar intereses económicos y colocar
al poder regulatorio en segundo plano. Estas críticas incrementarán con la intensificación de los efectos de la crisis climática
donde los Estados necesitan modificar y emitir nuevas regulaciones para cumplir con el derecho internacional de cambio
climático. Esta situación tenderá a cambiar la situación de muchas industrias de alta emisión de carbono y, por ende, nuevos
casos de arbitraje de inversión. En este contexto, el presente artículo cuestiona cuáles serían algunos de los choques de intereses
entre el derecho de inversión y el de cambio climático. El artículo compara los fundamentos de ambos regímenes de derecho
internacional para examinar cuáles choques de intereses pueden debilitar el desarrollo sostenible.
Palabras claves:
cambio climático, derecho de inversión, derecho internacional, arbitraje internacional, tratados de
inversión, desarrollo sostenible.
Abstract:
Investment treaty law is criticised for having a bias in favour of economic interests where the regulatory power
occupies a second place. Critics will increase with the climate crisis on the rise as States need to amend or issue new regulations
to comply with international climate change obligations. This situation is likely to trigger changes in some carbon-intensive
foreign investments and, therefore, new cases of investment arbitration. With these points in mind, the present article questions
what kind of clash occurs between investment treaty law and climate change law. The article compares the rationales of both
regimes of international law to examine what are the causes that can undermine sustainable development.
Key words:
climate change, investment law, international law, international arbitration, investment treaties, sustainable
development.
* Diego Piedra Trejos is a Costa Rican attorney. He holds an LL.M. degree in Public International Law from the London School
of Economics and Political Science. Contact information: piedratrejos@gmail.com.
Fecha de postulación del artículo: 9 de septiembre de 2019. Fecha de aprobación del artículo: 1 de marzo de 2020
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X Edición, I semestre 2020
1-) Introduction
The interaction between Investment Treaty Law
(ITL) and International Climate Change Law
(ICCL) is a matter of current concern in the inter-
national scholarship. Despite the early stage of cli-
mate change related disputes in Investor-State Dis-
pute Settlement (ISDS), the debate originates be-
cause both regimes of Public International Law
(PIL) represent different international obligations
for the State with a potential clash between them.
On the one hand, ICCL fosters a shift of the global
economy and challenges carbon-intensive indus-
tries. On the other hand, ITL emerged to protect the
economic stability of many of those industries (e.g.
fossil fuels and coal) from developed countries op-
erating in developing countries.
Climate change is changing law, regulation and
economics as its effects become more tangible and
significant. In this regard, climate change is on the
two sides of the same coin of international invest-
ment law. On one side, climate change provides in-
vestors with an opportunity for growth. The ur-
gency of response and the obligations that States
have acquired under ICCL indicate a favourable
scenario for promoting low-carbon investments.
As one of the global leaders on climate change,
Christiana Figueres, argues:
1
Fiona Harvey, ‘Businesses will act on c limate despite
Trump, says ex-UN climate chief’ The Guardian (London, 1
“Investors are seeing a tipping point in terms of cli-
mate change and more investors are now taking the
risks into account when allocating funds (…) The
growing interest of investors in low-carbon activity
will (…) determine the global response to climate
change much more than the actions.”
1
On the other side, it is common to hear that climate
change matters more than anything else and thus
States will drastically take measures to control
GHG emissions and to adapt to climate change.
This will generate negative impacts on different in-
dustries. For example, Joshua Busby states:
“… there are myriad potentially contentious poli-
cies governments might enact in response to
changing climate conditions. Banning exports of
newly scarce resources, acquiring land overseas,
mandating the use of biofuels, enacting rules to
conserve forests, and a thousand other choices will
all create winners and losers and inflame domestic
and international tensions. As fears grow of runa-
way climate change, governments will be increas-
ingly tempted to take drastic unilateral steps such
June, 2018)
ment/2018/jun/01/businesses-will-act-on-climate-despite-
trump-says-ex-un-climate-chief> accessed 1 August 2018.
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as geoengineering, which would prove immensely
destabilizing.”
2
(emphasis added)
On the face of it, both ICCL and ITL can provide a
legal environment framework for the investors to
contribute with the developing countries (normally
host States under ITL). For example, through re-
newable energies or technologies facilitating adap-
tation to climate change. The problem is when both
sides of the same coin do not match easily. That is,
when a State cannot afford any more high-carbon
investments because of the devastating effects of
climate change or because international commit-
ments require States to limit such investments. In
that case, ITL tribunals must decide whether that
limitation is or not a breach to the standards of pro-
tection of the investors.
Within this context, the debate can be seen through
two main perspectives. Van Harten states that ITL
authorizes arbitrators to ‘scrutinize virtually any
sovereign act of the states that may affect the assets
of a foreign investor.
3
This position also warns the
chilling effect of ITL for the regulatory power re-
garding environmental purposes where ICCL is
certainly situated. Waelde and Kolo argue that ITL
2
Joshua Busby ‘Warming World: Why Climate Change Mat-
ters More Than Anything Else’ (2018) Foreign Affairs,
July/August, 49-55, 54.
3
Gus Van Harten, Investment Treaty Arbitration and Public
Law (Oxford University Press, Oxford 2007) 93.
4
Thomas Waelde and Abba Kolo, 'Environmental Regula-
tion, Investment Protection and Regula-
is a mechanism that facilitates environmental pro-
tection.
4
This essay examines Van Harten’s con-
tention. It aims to understand if there is a clash be-
tween ITL and ICCL. And if there is a discrepancy,
what kind of clash is it? Is it about principles and
norms or is it more about political and economic
interests? It highlights the potential of legal con-
flicts to delay or obstruct the urgent limitation of
global temperature rise.
5
For example, compensa-
tion to foreign investors caused by regulation could
render climate change policies unmanageable, as
governments will be crippled by claims for com-
pensation.
6
Firstly, this essay considers the fragmentation phe-
nomenon of PIL as the context that triggers the po-
tential clash between these regimes of PIL. Sec-
ondly, it examines different essential principles of
ICCL that are related to investment and are ex-
pected to inform regulation to tackle climate
change. Thirdly, this essay examines how are those
core principles of ICCL assessed in ITL, through
particular institutions such as the standards of pro-
tection of investments and the ISDS mechanism.
Through the examination of this interaction, this
essay argues that the solution to the fragmentation
tory Taking in International Law' (2001) 50 Int'l & Comp.
L.Q. 811, 814.
5
María Pía Carazo and Daniel Klein ‘Implications for Public
International Law: Initial Considerations’ in Klein and others
(eds), The Paris Agreement on Climate Change (Oxford Uni-
versity Press, Oxford 2017) 394
6
Waelde and Kolo, 839.
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X Edición, I semestre 2020
between ITL and ICCL needs more than harmoni-
zation of norms between both regimes. ITL has to
embrace the promotion of sustainable economic
development.
2-) Fragmentation of International Law: Fos-
tering Clashes
The potential clash between ITL and ICCL is orig-
inated by the fragmentation of Public International
Law (PIL). This is one of the current concerns of
international law, as assessed by the International
Law Commission.
7
This phenomenon can be un-
derstood as ‘the increased proliferation of interna-
tional regulatory institutions with overlapping ju-
risdictions and ambiguous boundaries’
8
that causes
the possibility ‘for a party to two treaties to comply
with one rule only by thereby failing to comply
with another rule’.
9
This creates a conflict of
norms. However, treaties do not necessarily create
incompatible obligations at first sight. Rather, the
conflict arises in the state of adjudication, interpre-
tation or implementation.
10
7
International Law Commission, ‘Report of the Study Group
of the International Law Commission on the Work of its 58th
Session’ (1 May-9 June & 3 July-11 August 2006) UN Doc
A/CN.4/L.682.
8
Eyal Benvenisti and George Downs, ‘The Empire’s New
Clothes: Political Economy and the Fragmentation of Inter-
national Law’ (2007) 60 Stan. L. Rev 595, 596.
9
ILC, 19.
10
Carazo and Klein, 397.
Inconsistency and double standards in PIL echo
what Koskenniemi refers to as a ‘weak indetermi-
nacy’.
11
That is, the international system and inter-
national lawyers prefer practices, outcomes and
choices. Every PIL regime advocates for its own
structural bias.
12
For instance, a bilateral invest-
ment treaty (BIT) may not require a State’s com-
pliance with the principle of sustainable develop-
ment, while the said principle is crucial for the
Change (UNFCCC). However, both treaties are
binding international legal instruments. The hierar-
chy of norms in an eventual dispute involving both
agreements, even when subject to the rules of the
(VCLT),
13
is determined by the choices and biases
of the ones applying the rule of law.
Benvenisti and Downs
14
conceive this ‘indetermi-
nacy’ not because of fragmentation but as an in-
tended result reflecting the dynamic of the interna-
tional order. That is, double standards in PIL help
powerful states to put keep their own interests first
by using the proliferation of bilateral treaties to
11
Marti Koskenniemi, From apology to Utopia: the structure
of international legal argument (Cambridge University
Press, Cambridge 2006) 607.
12
Marti Koskenniemi, ‘The Fate of Public International Law:
Between Techniques and Politics’ (2007) 70 (1) MLR 1-30,
6.
13
Vienna Convention on the Law of Treaties (adopted 23
May 1969, ente red into force 27 Janu ary 1980) 1155 UNTS
14
Benvenisti and Downs, 625.
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X Edición, I semestre 2020
their own advantage, as has occurred with BIT’s.
15
In the 1960s, the international economic institu-
tions and the major economies fostered Investment
Treaty Law as mechanisms to export and grow cap-
ital from developed countries within the develop-
ing countries. Nowadays, those treaties have also
proved that developed countries are not exempted
from facing a lawsuit in an Investor-State Dispute
Settlement (ISDS), especially through multilateral
agreements like North American Free Trade
Agreement (NAFTA).
16
Thus, among other cri-
tiques to ISDS, powerful nations are currently try-
ing to revert back to the dynamic they once fos-
tered.
17
Accordingly, BIT’s have helped to concen-
trate the bargaining power of the major economies
to produce a regulatory order that favours hege-
monic countries and that they alone can modify.
18
International Climate Change Law is another ex-
ample of this power dynamic. Climate change un-
deniably represents a major threat to humankind.
However, controversy remains on who should pay
the dreadful consequences that global warming is
causing in the entire globe. The Global North has
15
Ibid, 611
16
The US has been sued several times by Canadian and Mex-
ican investors.
17
More than 200 US law urged Donald Trump to remove
ISDS from NAFTA and other pacts. Letter by Joseph Stiglitz
and others (25 October 2017) <https://www.citizen.org/sys-
tem/files/case_documents/isds-law-economics-professors-
letter-oct-2017_2.pdf> accessed 30 July 2018
18
Benvenisti and Downs, 596.
had a decisive role in the concentration of green-
house gases (GHG) in the atmosphere since the In-
dustrial Revolution. On the other side, the Global
South claims its right to develop as the North did
once by pursuing economic activities that released
high amounts of GHG. In response to this claim,
ICCL put the burden of GHG mitigation on the de-
veloped economies through a bifurcated system in
the UNFCCC and the Kyoto Protocol. However,
major emitters of GHG did not sign the Kyoto Pro-
tocol or withdrew their commitments.
19
Tension
between the Global South and the Global North
was also instrumental in the 2009 failure to agree
on a treaty to tackle climate change in Copenha-
gen.
20
The COP 21 succeeded with the adoption of
the Paris Agreement due to the shift that included
every State Party of the UNFCCC, regardless of the
level of development, in the task of GHG mitiga-
tion and according to their respective capacities.
International law is a political project constituted
by regimes with their own structural biases. In this
regard, ITL and ICCL is surrounded by the frag-
mentation context. For example, it can be argued
19
For example, the US never signed the Kyoto Protocol and
Canada withdrew from it.
20
An agreement was impossible in Copenhagen due to the
differences developed and developing countries. Developed
countries were not available to continue without the commit-
ment of China, India and Brazil. The latter countries did not
table the pledges and argued freedom of development despite
the environmental impact.
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X Edición, I semestre 2020
that PIL is designed to promote the sustainable de-
velopment of the planet and the progress of its in-
habitants. However, ITL and ICCL may not em-
brace the same means for achieving such aspira-
tions. It is even questionable whether these two re-
gimes look after the same kind of progress.
3-) Where is Investment in International Cli-
mate Change Law?
This section focuses on the principles of sustaina-
ble development and precaution, which are the
most critical ICCL principles for balancing eco-
nomic growth and preservation. The Paris Agree-
ment is also examined as the most recent and strong
set of commitments of the State to tackle climate
change. This section also introduces examples that
inform the examination of the clash of ICCL within
ITL in Section 4.
A-) Sustainable development
ICCL is based on international environmental law
(IEL) together with the autonomous framework
that climate change has developed. For this reason,
21
Damilola S. Olawuyi, ‘Harmonizing International Trade
and Climate Change Institutions: Legal and Theoretical Basis
for Systemic Integration’ (2014) 7 (1) The Law and Develop-
ment Review 107–129, 120.
22
United Nations Conference on Environment and Develop-
ment (UNCED), ‘Rio Declaration on Environment and De-
velopment’ (14 June 1992) UN Doc A/CONF.151/26, art 12.
any dispute dealing with a regulation to tackle cli-
mate change must examine the principles of IEL.
In this regard, the principle of sustainable develop-
ment frames the interaction between IEL and/or
ICCL and any other regime of PIL such as ITL. It
has been included in over 300 international legal
instruments.
21
Additionally, the Rio Declaration
fosters harmonization of different regimes of PIL
towards sustainable development by striving for an
international consensus on the global environmen-
tal problem.
22
The UNFCCC states that ‘responses to climate
change should be coordinated with social and eco-
nomic development’.
23
Sustainable development is
thus understood as the right to growth while equi-
tably meeting the ‘developmental and environmen-
tal needs of present and future generations’.
24
This
global approach also involves a trans-boundary re-
sponsibility. In this sense, the Drafts by the Inter-
national Law Commission on Prevention of Trans-
boundary Harm from Hazardous Activities and the
Articles of Responsibility of States set a basis to
say that the State has to avoid contributing to global
warming and also to compensate for the harm
23
UN General Assembly, United Nations Framework Con-
vention on Climate Change (UNFCCC) (adopted 20 January
1994, entered into force 21 March 1994) UN Doc
A/RES/48/189, preamble para 21.
24
UNCED, Rio Declaration, art 3.
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X Edición, I semestre 2020
caused by global warming.
25
This progression in
IEL brings consequences to the application of
ICCL. For example, a recent Advisory Opinion of
the Inter-American Court of Human Rights estab-
lishes that States can be held accountable for the
emission of pollutants from activities in their terri-
tory under their effective control causing trans-
boundary ecological harm.
26
There is an essential link between sustainable de-
velopment in ICCL and ITL. Foreign investments
are subject to a sustainability review both locally
and internationally since they operate due to the
sovereign consent of the State. States are also ex-
pected to be accountable for the GHG contributions
originated on their territories and to regulate in or-
der to avoid harm. In addition, ITL finds an im-
portant space in ICCL because sustainable devel-
opment cannot be achieved without economic
growth and technology transfer from developed to
developing countries (in the ITL narrative: from
capital-exporting to capital-importing countries).
In sum, foreign investment has an important role in
the realisation of sustainable development under
ICCL but only if investments are controlled on
25
C. Schwartze & W. Frank, 'The International Law Associ-
ation's Legal Principles on Climate Change and Climate Lia-
bility Under Public International Law' (2014) 4 Climate Law
201-216.
26
Inter-American Court of Human Rights, Opinión Consul-
tiva OC-23/17 solicitada por la República de Colombia, Me-
dio Ambiente y Derechos Humanos (15 November 2017) para
their GHG contributions. If not, the State is inter-
nationally required to require compliance with the
corresponding standards of climate change mitiga-
tion and adaptation.
B-) Precautionary Principle
The precautionary principle bases the regulatory
duty of the State to prevent global warming and its
dreadful consequences. This principle is also
crossed by an in dubio pro natura approach. That
is, prevention has to proceed even when there is
uncertainty regarding the eventual environmental
degradation.
27
This principle is crucial for climate
change regulation since many of its effects are
foreseeable but not actual. However, the character
of international principle or State obligation is not
uniformly granted to the precautionary principle.
As an example, the Appellate Body of the World
Trade Organisation (WTO), a PIL regime that
shares many foundations with ITL, has questioned
the precautionary principle as an authoritative
value outside the field of international environmen-
tal law.
28
242, < http://www.corteidh.or.cr/docs/opiniones/se-
riea_23_esp.pdf> accessed 30 July 2018
27
UNCED, Rio Declaration, art 15.
28
WTO, EC: Measures Concerning Meat and Meat Products
(Hormones)- Report of the Appellate Body (16 January 1998)
WT/DS26/AB/R and WT/DS48/AB/R [123]
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X Edición, I semestre 2020
In addition, the application of the precautionary
principle remains unclear in the general PIL realm.
In the Pulp Mills case, the International Court of
Justice (ICJ) stated that precaution does not reverse
the burden of proof when assessing the State liabil-
ity for environmental harm. That is, the State has
to demonstrate any actual environmental harm
when basing any claim and not only an eventual
damage.
29
Besides, the ICJ indicated the absence of
an obligation under international law to conduct
environmental impact valuation, recognising the
State’s sovereignty to decide what constitutes an
appropriate environmental impact under local
law.
30
Furthermore, the application of the precautionary
principle in regulation is challenged by the cost-
benefit analysis standpoint. Coase argues that a
regulatory decision has to be decided based on
whether the gain from preventing the harm is
greater than the loss suffered as a result of stopping
the action that causes such harm.
31
Sunstein sees
the climate change discourse as ‘re-fashioning’ the
precautionary principle because it obstructs the
benefits of economic activities for alleged greater
29
Case Concerning Pulp Mills on The River Uruguay (Ar-
gentina v Uruguay) (Merits) [2010] ICJ Rep 977, paras 161-
164.
30
Ibid, para 205.
31
Ronald Coase, ‘The Problem of Social Cost’, (1960) 3 J.L.
& Econ. 1, 27 < https://heinonline-org.gate3.li-
brary.lse.ac.uk/HOL/Page?collection=journals&han-
dle=hein.journals/jlecono3&id=2> accessed 5 July 2018
harms that lack substantial evidence.
32
On the other
side, these positions are criticized for pricing the
priceless values of life, health, nature and the future
of the globe.
33
The latter position is the one em-
braced in ICCL. It considers the economic reasons
for regulating but also recognises the need to pre-
vent climatic catastrophes based on scientific evi-
dence, which will also represent major economic
costs.
ICCL recognises precaution as a core principle and
it triggers many disputes in the regulatory sphere
even though the concept and its application are not
entirely recognised in the different PIL regimes.
This is because the State is expected to act to pre-
vent the harmful consequences of climate change.
With regards to foreign investment, the State can-
not wait until the effects are enough to adjust limits
on GHG emissions of investments. However, as
discussed in the next section, ITL has joined the re-
gimes of PIL where the precautionary principle is
not normally considered.
32
Cass Sunstein, ‘The Paralyzing Princi ple’, (2002-2003)
Regulation Winter, 36 https://ob-
ject.cato.org/sites/cato.org/files/serials/files/regula-
tion/2002/12/v25n4-9.pdf accessed 5 July, 2018
33
Frank Ackerman and others, ‘Pricing the Priceless: Cost-
Benefit Analysis of Environmental Protection’ (2002) 150 U.
Pa. L. Rev. 1553, 1584 < https://heinonline-org.gate3.li-
brary.lse.ac.uk/HOL/Page?public=false&handle=hein.jour-
nals/pnlr150&page=1553&collection=journals> accessed 5
July, 2018
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X Edición, I semestre 2020
C-) Investment in the Paris Agreement
The Paris Agreement is a point of inflexion in
ICCL because it expands, clarifies and accelerates
climatic actions that States must perform. The need
to address climate change has been generally well
accepted for a few years but the action towards mit-
igation and adaptation was not as strong as today.
every State Party with common but differentiated
responsibilities and respective capabilities
(CBDRRC) as a manifestation of broader advances
in the area of sustainable development.
34
Every
five years, each State must submit increased na-
tional determined contributions (NDC) with miti-
gation and adaptation targets. This logically influ-
ences the State’s regulatory path in the upcoming
years. NDCs commonly include measures to tackle
the sector with the highest contributions of GHG,
such as transportation, energetic production and ef-
ficiency, as well as regulations on land use, land-
use change, and forestry.
The Agreement is particularly important for the
ITL regime considering that promotion of foreign
investment in capital-importing countries is crucial
for facing the challenges of global warming. The
34
Carazo and Klein, 391.
35
UNFCCC, Paris Agree ment (adopted 12 December 20 15,
entered into force 4 November 2016) FCCC/CP/2015/L.9, art
10
Paris Agreement sets the legal basis for countries
to attract, for example, more low-carbon invest-
ments and technologies to reduce GHG emis-
sions.
35
It also encourages each State Party to im-
prove or modify regulation in order to comply with
the GHG mitigation objectives submitted under the
NDCs.
However, the commitments in the Paris Agreement
are not completely enforceable. For instance, there
is no international standing to make the State com-
ply with the fulfilment of the NDCs targets. In ad-
dition, the Paris Agreement does not regulate its re-
lationship with other treaties. It only expresses
‘awareness’ of other treaties and encourages inte-
gration in the interpretation and implementation of
the different regimes.
36
This can increase the clash
between ICCL and other PIL fields like ITL. Such
conflict is evident with other legal instruments of
IEL. For example, a World Trade Organisation
(WTO) Panel decision on Measures Affecting the
Approval and Marketing of Biotech Products con-
sidered that the Cartagena Protocol on Biosafety
was not a relevant rule to consider on the assess-
ment of trade measures since other Members of the
WTO were not Parties to it.
37
36
Carazo and Klein, 400
37
Ibid, 398
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X Edición, I semestre 2020
Despite its limitations, the Paris Agreement fosters
investments in new technologies and clean ener-
gies in order to address the climate challenge. It
also embraces a broader sustainable development
transition by urging transformation of the global
economy through the shifting of investment toward
lower emission and resilient alternatives.
38
Change
is happening as the short-term goals of reduction of
the global temperature arrive. But it will exclude
investments not contributing to these goals which
are likely to be denounced by the international
community and challenged by the State’s regula-
tion. The remaining question is, to what extent will
ITL hinder the unstoppable shift of the new low-
carbon economy? This is addressed in the upcom-
ing section to understand what are the challenges
that ICCL faces within the ITL regime.
4-) Where is Climate Change in Investment
Treaty Law?
A-) Climate Change in the environmental clauses
of investment treaties.
38
Heleen de Coninck and Ambuj Sagar, ‘Technology Devel-
opment and Transfer’ i n Klein and others (eds), The Paris
Agreement on Climate Change (Oxford University Press, Ox-
ford, 20017) 275.
39
Comprehensive Economic and Trade Agreement (CETA),
art 8.31 (1).
The relationship of ICCL and ITL is imprecise and
open to debate. From the ITL perspective, it is al-
most impossible to see clauses mentioning climate
change in BITs or Free Trade Agreements (FTAs).
Nonetheless, it is common to find clauses acknowl-
edging the right of the State to regulate for environ-
mental purposes. Any other regime of PIL fits in
the clauses of applicable law, which are normally
described as ‘rules and principles of international
law applicable between the Parties’.
39
Some of the most important investment treaties ad-
dress the environmental concerns, but others do
not. For instance, NAFTA sets forth the regulatory
power of the State to adapt, maintain or enforce any
consistent measures to address environmental con-
cerns and also the inappropriateness of encourag-
ing investment through de-regulation.
40
The US
BIT Model has an explicit commitment to harmo-
nize the State’s international environmental obliga-
tions.
41
In addition, it includes the right of the State
to exercise regulatory discretion and requires pre-
vention of harm and reduction in the emission of
pollutants
42
such as GHG. The Comprehensive
Economic and Trade Agreement (CETA) estab-
lishes that there is no automatic breach of a stand-
40
North American Free Trade Agreement (entered into force
01 January 1994) (NAFTA) art 1114.
41
US BIT Model 2012, art 12 (1)
tion/188371.pdf> accessed 01 August 2018
42
Ibid, art 12 (3) and (4.a)
28
X Edición, I semestre 2020
ard of investor’s protection with the mere interfer-
ence of an investment or with an investor’s expec-
tations, including its expectations of profits.
43
The
UK BIT Model has been criticised for omitting
similar environmental clauses and that is in fact,
with very few exceptions, the situation of the UK
BITs in force.
44
The climatic concern is much more present in the
Energy Charter Treaty (ECT) since it aims to liber-
alise trade in a sector crucial for facing climate
change. The ECT incorporates the aforementioned
principles of sustainable development and the pre-
cautionary principle ‘to prevent or minimise envi-
ronmental degradation'.
45
But the ECT also puts the
cost-effective criteria within the same environmen-
tal clause when setting forth that the Contracting
Party shall seek to ‘achieve a defined objective at
the lowest cost or to achieve the greatest benefit at
a given cost’.
46
It employs the cost-benefit analysis
because an environmental measure is legitimate if
it causes a concrete and higher benefit than the one
obtained from the activity affected by regulation.
47
The cost-benefit analysis is widely criticized for
43
CETA, art 8.9 (2)
44
Trade Justice Movement, Worried About UK BITs?: The
case for reviewing UK investment protection provisions
ried_about_your_BITS_report__FINAL.pdf> 13 (accessed
25 July, 2018).
45
Energy Charter Treaty (adopted 17 December 1994, en-
tered into force 16 April 1998) (ECT), art 19.
46
ECT, art 19 (3) (d).
putting prices to priceless values such as life, na-
ture and future generations. This approach to regu-
lation ignores the harms that can occur without a
preventive regulation.
48
Furthermore, the cost-ef-
fective criterion offers an apparent impartial test to
normalise, in a very anthropocentric manner, the
distribution of natural resources to powerful eco-
nomic interests.
49
Hence, in the ECT, ITL and
ICCL are not as aligned as they pretend to be. In an
ITL dispute, it will likely be easier to demonstrate
the concrete monetary costs of restricting a high-
carbon investment than to quantify the future ben-
efits of climate change regulation, which normally
has preventive objectives.
The foregoing references to some international in-
vestment treaties illustrate the complexity of the re-
lationship between ICCL and ITL. The written pro-
visions of treaties of both regimes can match but
they are subject to multiple and contradictory inter-
pretations. The structural bias of investment trea-
ties has the protection of investors as a rule and the
protection of the environment as an exception.
50
For this reason, in the mentioned example of the
ECT, the State has the burden of undertaking a
47
For a defence of this argument see Coase (n 31).
48
Frank Ackerman and Lisa Heinzerling, ‘Pricing the Price-
less: Cost-Benefit Analysis of Environmental Protection’
(2002) 150 U. Pa. L. Rev. 1553-1584, 1583.
49
Douglas Kysar, ‘Global Environmental Constituti onalism:
Getting There from Here’ (2012) Vol.1(1) Transnational En-
vironmental Law, 87-89.
50
Koskennieme (n 12).
29
X Edición, I semestre 2020
cost-benefit analysis for an environmental regula-
tion to be legitimate, even though this is not a well-
accepted criterion from an environmental perspec-
tive.
BITs have broad purposes and clauses that provide
scope for interpretation to governments, investors
and arbitrators to make their own interpretations.
Even the textual interpretation of the provisions of
an investment treaty are subject to different under-
standings. In this regard, depending on the back-
ground and interests of the arbitrator, ICCL princi-
ples might not be considered if they do not ex-
pressly refer to them. An international commercial
arbitration approach in ITL constrains an arbitrator
to the ‘four corners of the contract’ to interpret the
treaty. That was an issue of contention in HICEE
vs Slovakia when the tribunal disagreed on the in-
tention of the States Parties reflected in the kind of
investors that were protected under the BIT.
51
Ar-
bitrators also disagreed on the application of the
VCLT’s rules of treaty interpretation. Charles
Brower, in his dissenting opinion, insisted on the
need to interpret the explicit meaning of the text
instead of looking to extraneous material to inter-
pret the intentions of the parties.
52
For authors like
51
HICEE B.V. v The Slovak Republic, Partial Award (23 May
2011), paras 117-128 aw.com/sites/de-
fault/files/case-documents/ita0404_0.pdf> accessed 01 July
2018.
52
HICEE B.V. v The Slovak Republic, Dissenting Opinion of
Judge Charles Brower ((23 May 2011), paras 5-42
Van Harten, this could be seen as an evidence of
how understanding the BIT as a commercial con-
tract neglects the sovereign origins of the dispute
that triggers the investor claims.
53
Consequently, a
primary textual interpretation of a BIT that does
not make reference international environmental
law, will likely exclude the application of sustain-
able development, precaution and the commit-
ments under the Paris Agreement.
In sum, since investment treaties are designed to
encourage foreign investment and to protect inves-
tors, this in turn informs the interpretation of ITL
provisions. Besides, as evidenced above, invest-
ment treaties marginalise the relationship with
other regimes of international law. This is why
there is a very soft presence, if any, of environmen-
tal clauses. BITs and FTAs want environmental
regulation to be less restrictive to the foreign in-
vestment purpose. If investment treaties do not ex-
plicitly include climate change clauses allowing
the State to regulate for this purpose, a measure
could be justified under environmental clauses but
it is not a guarantee.
54
Clauses will be interpreted
according to different interests of the arbitrators
ments/ita0403.pdf> accessed 01 July 2018.
53
Van Harten (n 3).
54
Meredith Wilensky, ‘Reconciling International Investment
Law and Climate Change Policy: Potential Liability for Cli-
mate Measures Under the Trans-Pacific Partnership’ (2015)
45 ELR 10685, 16.
30
X Edición, I semestre 2020
and with even contradictory awards, due to the pro-
liferation of treaties and disputes. Some of the in-
terpretations that generate tension between ITL and
ICCL are examined in the upcoming sections. This
includes the scientific evidence that is crucial for
climate change and will base the defence by the
State before an investment tribunal, the standards
of protection of investors that will challenge regu-
lation, and features of the ISDS mechanism that re-
view public policy.
B-) The role of scientific evidence
As ICCL is mainly based in science, scientific evi-
dence will play an essential role in international in-
vestment litigation regarding GHG mitigation and
climate change adaptation measures.
55
Evidence in
ICCL also fixes the GHG contribution of every
State and guides the goals that States voluntarily
submit in the NDCs. However, it is likely that sci-
entific evidence in an ITL dispute trying to justify
climate change measure will be subject to assess-
ment by investment tribunals. As a result, the suc-
cess of using scientific evidence to justify regula-
tion will depend first on the burden of proof re-
quired by the particular treaty at issue and second,
55
Bradly J. Condon, ‘Climate Change and International In-
vestment Agreements’ (2015) 14 (2) Chinese Journal of In-
ternational Law, 305-339, 305.
56
Tania Voon, ‘Evidentiary Challenges for Public Health
Regulation in International Trade and Investment Law’
(2015) 18 (4) J Int Economic Law, 795-825, 808.
on the arbitrators’ interpretation. The former is nor-
mally not regulated in a BIT and the latter is what
commonly happens in the ITL disputes.
There are, therefore, two main concerns regarding
scientific evidence in ITL. Firstly, investment tri-
bunals have inherent powers to decide what to ad-
mit and how to weigh the evidence. These faculties
are lightly established within the different ISDS
bodies like the ICSID or the PCA. Yet, some have
questioned the capability of an arbitrator to assess
evidence without a proper scientific background.
56
The Methanex v USA tribunal, one of the most
commented cases related to environmental
measures, exemplifies this concern. Scientific evi-
dence was decisive in determining whether the reg-
ulatory ban imposed by California affecting Me-
thanex was legitimate or aimed to discriminate be-
tween ethanol and methanol producers.
57
When as-
sessing the evidence provided by the USA, the tri-
bunal was clear on its intention towards determin-
ing not the validity of the evidence but its credibil-
ity as the basis for regulatory measures.
58
Significantly, there is also controversy regarding
the assessment of scientific evidence in PIL, which
is a general frame that ITL arbitrators normally re-
fer to in cases of legal gaps. In the Pulp Mills case,
57
Methanex Corporation v United States, Final Award (3
August 2005) pt III, ch A, para 102 <
https://www.italaw.com/sites/default/files/case-docu-
ments/ita0529.pdf> accessed 15 July 2018.
58
Voon, 815.
31
X Edición, I semestre 2020
the ICJ considered itself qualified to assess expert
scientific evidence of environmental harm despite
acknowledging that they did not subject the experts
provided by the parties to an interrogatory.
59
The
dissenting opinions considered that the ICJ lacked
enough knowledge to assess and weigh scientific
evidence in environmental disputes. For instance,
judges Al-Khasawneh and Simma pointed out that
such approach to evaluating scientific evidence
‘will increase doubts in the international legal com-
munity whether it, as an institution, is well-placed
to tackle complex scientific questions.’
60
The second concern when assessing this kind of ev-
idence is the burden of proof. While the burden is
placed on the party submitting the evidence, there
are different standards of proof. Judge Greenwood,
in the Pulp Mills case, argued that, due to the bal-
ance of probabilities, the standards of proof review
are lower in environmental harm allegations while
requiring higher levels of evidence in cases such as
genocide. Greenwood stated that ‘the nature of en-
vironmental disputes is such that the application of
the higher standard of proof would have the effect
of making it all but impossible for a State to dis-
59
Ibid, 799.
60
Case concerning Pulp Mills on the River Uruguay (Argen-
tina v Uruguay), Separate Opinion of Judges Al-Khasawneh
and Simma, [2010] ICJ Rep 108, para 3.
61
Case concerning Pulp Mills on the River Uruguay (Argen-
tina v Uruguay), Separate Opinion of Judge Greenwood,
[2010] ICJ Rep 221, para 26.
charge the burden of proof’.
61
The Rompetrol v Ro-
mania tribunal established a similar definition of a
standard of proof in ITL. The standard is the as-
sessment of how much evidence is needed to prove
the alleged elements in the dispute.
62
It varies on a
case by case basis and thus leaves the weighing of
scientific evidence to the discretion of the arbitra-
tors, with or without the support of experts.
On the contrary, ICCL is completely based on a
narrative addressed to accept the unquestionability
of the climatic evidence. For example, the Paris
Agreement relies on a strong commitment of ac-
cepting the ‘best available scientific knowledge’
63
to tackle climate change. It also grants scientific
authoritative to different subsidiary bodies for the
implementation of the agreement’s commit-
ments.
64
Importantly, regulation based on the pre-
cautionary principle is necessary and justified for
ICCL when based on scientific evidence proving
future harm.
65
However, precautionary regulation
affecting an investment will more likely trigger the
requirement of compensation than a measure based
on evidence demonstrating current and effective
damages. It is unlikely that arbitrators will accept a
severe interference on an investment regulation
62
Rompetrol Gro up NV v Romania, Award, (6 May 2013)
para 178 < https://www.italaw.com/sites/default/files/case-
documents/italaw1408.pdf> accessed 15 July 2018.
63
Paris Agreement, Preamble para 4.
64
Ibid, art18.
65
See Section 2 (B) (ii).
32
X Edición, I semestre 2020
even based on scientific evidence indicating future
damages. As the next section argues, ITL evidence
is just the starting point of a high threshold to jus-
tify a regulation.
In sum, there is a clash between ITL and ICCL on
the use and assessment of scientific evidence. Sci-
entific evidence is crucial for justifying a climate
change regulation under ITL and also for demon-
strating the violation of a standard of protection.
Albeit, the standards of evidence are far from pre-
cise in investment treaties and arbitrators are nei-
ther subject to respect climatic evidence enacted
within ICCL nor expert opinions. In addition, as
derived from the ICJ cases, PIL does not provide a
basis for an ITL tribunal to clarify what are enough
levels of scientific evidence. The balance and
weighing in ITL of whether a challenged climate
change regulation is justifiable will indeed require
important scientific evidence. Nevertheless, ITL
has enough openness in the rules of weighing evi-
dence prioritise investor’s interests either in favour
or against the interests of ICCL.
66
Van Harten, 91
C-) Climate change within the standards of pro-
tection of investors.
This section highlights concerns regarding the core
standards of protection of investors against regula-
tion aimed to mitigate GHG emissions or to adapt
to climate change effects. As aforementioned, this
regulation can be described as a measure for envi-
ronmental purposes expected in the majority of
BITs and MITs. Notwithstanding, the assessment
by ITL tribunals towards such measures is contro-
versial. In this regard, different cases and interpre-
tations of non-discrimination, minimum standard
of treatment (MST), and compensable expropria-
tion illustrate the ITL’s capacity to challenge the
application of ICCL.
(i) Expropriation due to climate change
and compensation.
Expropriation is understood under international
law as a violation of private property and thus an
obligation for the State to compensate. Investment
treaties provide basis to declare an expropriation
not only for direct seizures or nationalization of
property but also for creeping or indirect expropri-
ation, i.e. a series of State acts that tantamount to
an expropriation that interfere with the use, enjoy-
ment or disposal of the investment.
66
Critics have
33
X Edición, I semestre 2020
focused on the effect that a broad interpretation of
what constitutes an expropriation has in chilling
regulation for public health and environmental pro-
tection.
67
These concerns arise from interpretations
of arbitrators such as in Tecmed v Mexico, where
the tribunal stated that there is expropriation in en-
vironmental regulation regardless of the beneficial
purpose ‘if the negative economic impact of such
actions on the financial position of the investor is
sufficient to neutralize in full the value, or eco-
nomic or commercial use of its investment without
receiving any compensation whatsoever’.
68
This expansive criterion can be found in many
other cases. In Pope & Talbot v Canada, ‘even
non-discriminatory measures of general applica-
tion which have the effect of substantially interfer-
ing with the investments of investors’
69
trigger the
protection against expropriation set forth in
NAFTA. Santa Elena v Costa Rica had a similar
position, the tribunal considered that any environ-
mental expropriatory measure, regardless of its
‘laudable and beneficial objectives, originates the
state’s obligation to pay compensation’.
70
How-
67
Ibid, 92
68
Técnicas Medioambientales Tecmed SA v The United
Mexican States, Merits (29 May 2003) para 121
ments/ita0854.pdf> accessed 15 July 2018
69
Pope & Talbot INC v the Government of Canada, Interim
Award (26 June 2000) para 84<
https://www.italaw.com/sites/default/files/case-docu-
ments/ita0674.pdf> accessed 15 July 2018
ever, for the Feldman v Mexico tribunal, reasona-
ble environmental regulation cannot be achieved if
‘any business that is adversely affected may seek
compensation’.
71
The latter position is the accepted
approach for ICCL because it aims a balance be-
tween the public interest and investor protection.
It is generally accepted that States will need to im-
prove their legislation and regulation to address cli-
mate change. However, under this expansive un-
derstanding of expropriation, climatic measures
could generate claims for compensation if the in-
terests of investors are affected. For example,
measures to limit the use of land due to erosion or
deforestation could give basis to expropriation, as
major contributions to global warming. In addition,
touristic investments could be expropriated from
coastal territories, because of the rise in sea levels,
in order to protect those living in coastal areas from
flooding.
72
Moreover, the cost of carbon certifi-
cates could be so high as to affect the viability of
an investment, for example in the case of oil explo-
ration or coal-fired power plants.
73
Particular in-
dustries know that they do not have space within
the new green economy such as the fossil fuels or
70
Compañía del Des arrrollo de Santa Elena S.A. v The Re-
public of Costa Rica, Award (17 February 2000) para 72
ments/italaw6340.pdf> accessed 15 July 2018
71
Marvin Feldman v Mexico, Award (16 December 2002)
para 103 -
documents/ita0319.pdf> accessed 15 July 2018
72
Wilensky, 10686.
73
Wilensky, 10690.
34
X Edición, I semestre 2020
intensive livestock production. Nevertheless, the
compensation or not of a regulation that is tanta-
mount to an expropriation needs to be balanced on
a case by case basis. There must be a link between
the bona fide regulation and the aim pursued. That
is, weighing the purpose and the effect of the
measures.
74
Another key issue in the creeping expropriation
analysis and other standards of protection is the re-
spect for the legitimate expectations. The investor
will not be compensated if there were no concrete
commitments by the State backing up the inves-
tor’s legitimate expectations.
75
Legitimate expecta-
tions of the investor play an important role in this
analysis balancing interests within between the in-
vestor’s interest and the post-investment environ-
mental regulation. The Saluka v Czech Republic
award is an example of this position of balancing
the interests. The tribunal stated that ‘States are not
liable to pay compensation to a foreign investor
when, in the normal exercise of their regulatory
powers, they adopt in a non-discriminatory manner
bona fide regulation that is aimed at the general
welfare’.
76
The Methanex v USA tribunal expressed
74
Justin Jacinto and Rahim Moloo, ‘Environmental and
Health Regulation: Assessing Liability under Investment
Treaties’ (2011) 29:1 Berkeley Journal of International Law,
17.
75
Ibid.
76
Saluka Investments BV v The Czech Republic, Partial
Award (17 March 2006) para 255 <
https://www.italaw.com/sites/default/files/case-docu-
ments/ita0740.pdf> accessed 15 July 2018
the same position, finding that an environmental
regulation is as not deemed expropriatory and com-
pensable unless the State promised that it would re-
frain from such regulation.
77
In sum, not every
change in the host state’s legal system violates the
legitimate expectations of investors, especially if
regulatory changes are predictable at the time of
the investment.
78
The Metalclad v Mexico tribunal raises an addi-
tional concern related to the requirement of not
generating legitimate expectations in order to jus-
tify an environmental measure. Mexico claimed
NAFTA article 1114 (1)
79
as a defence for the in-
direct expropriation of the Metalclad’s hazardous
waste plan, carried out by the local government of
San Luís Potosí that declared the area as an ecolog-
ical zone. The defence was rejected since the State
took previous steps to guarantee that Metalclad's
investment would be undertaken in a manner con-
sistent with environmental concerns.
80
For Con-
don, this approach is an obstacle for climate change
regulation because regulations will only be justi-
fied if they are in force prior to an investment being
77
Methanex, para 7.
78
Rudolf Dolzer and Christoph Schreuer, Principles of Inter-
national Investment Law (Oxford University Press, Oxford,
2012) 116.
79
See NAFTA (n 21)
80
Metalclad Corporation v. The United Mexican States,
Award (30 August 2000) paras 106-112 <
https://www.italaw.com/sites/default/files/case-docu-
ments/ita0510.pdf> accessed 15 July 2018
35
X Edición, I semestre 2020
made.
81
Albeit, almost every climate change regu-
lation will be post-investment, e.g. measures de-
rived from the commitments of the State under the
Paris Agreement in 2015. In this regard, the rulings
suggest that post-investment regulations do not re-
late to the investment and, thus, cannot be justified
under environmental clauses preserving the right of
the State to regulate like the Article 1114(1) of the
NAFTA. This provision is also a common type of
environmental clause in BITs.
The application and interpretation of legitimate ex-
pectations and the causes generating compensation
are core elements of expropriation that have the po-
tential to challenge measures taken as a result of
the effects of climate change. This essay does not
argue for a withdrawal from the right of compen-
sation in case of expropriation but argues that there
is a clash between this standard and climate change
interests. And, as stated by the Feldman tribunal,
high compensations can generate many limitations
to regulation. The complexity increases with the
open interpretations of what constitutes a legiti-
mate expectation and the requirement to compen-
sate for every post-investment measure.
81
Condon, 319.
82
Waelde and Kolo, 837.
(ii) Non-discrimination.
Discrimination plays a fundamental role in the bal-
ance between a legitimate regulation and a breach
of National Treatment (NT) and Most Favoured
Nation (MFN).
82
Thus, the non-discriminatory
character is an aspiration for a climate change
measure to be justified under an investment treaty.
It is also crucial for a tribunal to determine whether
the governmental action is compensable. One of
the main issues here is whether a regulation follows
a truly public interest or a protectionist one. For
Condon, the political economy of climate change
regulation commonly combines the pursuit of the
public interest with elements that serve private in-
terests, rather than purely public interest
measures.
83
In this regard, a measure can either fos-
ter investment such as in renewable energies or
constrain it such as fossil fuels exploitation. Once
again, this latter scenario of regulatory restriction
is the scope where ICCL and ITL clash as it fol-
lows.
NAFTA cases have widely dealt with discrimina-
tion in environmental regulation. They exemplify
the balance of interests in ITL tribunals. In SD
Meyers v Canada, arbitrators found a discrimina-
tory action by the State because there was no legit-
imate environmental reason for introducing an ex-
port ban on poly-chlorinated biphenol waste. The
83
Condon, 308.
36
X Edición, I semestre 2020
tribunal assessed the measure with the criterion of
looking first after different alternatives to cause the
minimum impact to trade liberalisation. For Jacinto
and Moloo, this is a wrong approach because the
tribunal brought the standards of ‘less restrictive-
ness’ and ‘more trade-opened’ from the WTO cov-
ered agreements to the investment provisions of the
NAFTA.
84
For Waelde, the approach was right due
to clear evidence on the intention of the Minister of
Environment to reserve the business to Canadian
competitors who lobbied her persistently.
85
In the Ethyl Corp v Canada case, the State banned
the chemical substance MMT as an additive to gas-
oline due to health and environmental purposes.
86
Canada had to settle the case because there was no
current evidence proving that low amounts of
MMT were harmful. This case could be an exam-
ple where environmental regulation is chilled since
the State wanted to avoid high compensations and
did not even try to use the precautionary principle
to justify the measure.
87
For Waelde and Kolo, the
case is an example of the efficient role of the non-
discriminatory standards in ITL because the meas-
ure was hiring a protectionist agenda, as the Cana-
dian government did it not legislate for a total ban
on the manufacture, transportation, sale or use of
the MMT.
88
84
Jacinto and Moloo, 31.
85
Waelde and Kolo, 838.
86
Waelde and Kolo, 838.
87
Ibid.
In these cases, one could identify a basis for argu-
ing that ICCL and ITL can work together. The pre-
cautionary approach is crucial for ICCL but it re-
quires evidence. Otherwise, even the UNFCCC is
unfollowed because measures should not constitute
an unjustifiable discrimination as it happens in
ITL.
89
As stated in the Methanex case, arbitrators
want to make sure that any particular ban is not a
‘sham environmental protection in order to cater to
local political interests or in order to protect a do-
mestic industry’.
90
(iii) The minimum standard of treatment
(MST).
After the discriminatory analysis, the parties to the
dispute have another opportunity to advocate for
interests even if the scientific evidence has the
enough weigh to justify a regulation. The assertion
of the MST plays an essential role in this scenario.
Firstly, it is not clear what is the meaning of an
MST. The interpretation of fair and equitable treat-
ment (FET) clause under the NAFTA is an exam-
ple. In Pope and Talbot v Canada the tribunal ar-
gued for understanding FET as a concept involving
consistency, transparency, fairness, due process
and proportionality of governmental measures.
91
88
Ibid, 834.
89
UNFCCC, art 3.5
90
Methanex, pt II, ch D, para 41.
91
Pope and Talbot, paras 43-69
37
X Edición, I semestre 2020
On the contrary, the ADF Group Inc v USA adopted
a more restrictive concept suggested by the States
Parties to the NAFTA, i.e. the traditional Neer
standard meaning an outrageous treatment with
bad faith and wilful neglect of duty.
92
This latter
approach was pursued by the Parties in order to
protect their interests as States since many cases in
NAFTA involving public health and environmen-
tal regulation have caused high compensations to
investors under a breach of FET.
MST is a very wide concept argued in almost every
case to evaluate any action of the State under the
fair and equitable treatment (FET) clause provided
in every investment treaty. That means that a meas-
ure based on scientific evidence but assessed as
discriminatory will also normally guide the tribu-
nal to classify it as a breach of the MST. However,
the elements of MST are subject to plenty of inter-
pretations and are open gates to keep advocating
for the investor’s interests even when a regulation
is legitimate and justifiable. For example, the
Metalclad tribunal found a discriminatory conduct
that led to a FET breach of the NAFTA due to a
lack of transparency and a predictable framework
for the investment.
93
For Van Harten, this kind of
interpretations are far from the concept of MST in
92
ADF Group Inc v USA, Award (9 January 2003) paras 175-
192 < https://www.italaw.com/sites/default/files/case-docu-
ments/ita0009.pdf> accessed 15 July 2018.
CIL and produce a ‘mistreatment of foreign inves-
tors towards an all-encompassing guarantee of
highly flexible notions’
94
of FET.
ICCL does not foster breaches to MST in order to
tackle climate change. However, any climate
change regulation will be subject to the MST anal-
ysis in an ITL dispute and there is no certainty of
the outcome of such an examination. As aforesaid,
scientific evidence is a top priority for ICCL that
triggers urgent action, however, that evidence for
ITL is only the starting point of an eventually jus-
tifiable measure that requires other analysis to dis-
card any protectionist intention and/or an ‘unfair’
treatment. The concepts involved in the MST anal-
ysis, that go beyond the customary international
law standard, are broad enough to fit every post-
investment regulation as climate change measures
into a breach of the FET provision.
D-) Investor-State Dispute Settlement mechanism
(ISDS).
ISDS poses different challenges to ICCL where
one can see clashes of interests with ITL. The two
topics in this section are related to transparency and
inconsistency as major challenges. The former is-
93
Van Harten, 88.
94
Van Harten, 89.
38
X Edición, I semestre 2020
sue has a lot of echo in ICCL and the latter is a di-
rect consequence of the fragmentation of PIL that
generates deep concerns of interpretative con-
flicts.
95
This does not mean that ICCL could not
have additional clashes with other features of
ISDS. For example, independence of arbitrators
has potential to challenge ICCL interests as arbitra-
tors are appointed by the parties to advocate for
their own interests either of the State or the inves-
tor.
96
In ICCL, transparency is a broadly used narrative
in the Paris Agreement.
97
The aim of this principle
is to make public the contributions submitted by
the States to mitigate GHG and to adapt to climate
change effects. It also fosters public scrutiny of
regulation at the national and international level. In
addition, transparency also implicates accountabil-
ity. In the Urgenda Foundation v. Government of
the Netherlands, the Dutch District Court held that
the government has a duty of care to mitigate GHG
and used the NDC of The Netherlands as a param-
eter to determine whether the State’s policies were
enough for such goals.
98
95
See the explanation on Section 1 above.
96
Van Harten, 167-174
97
Paris Agreement, art 13.
98
Stichting Urgenda v. Government of the Netherlands (Min-
istry of Infrastructure and Environment),
ECLI:NL:RBDHA:2015:7145, Rechtbank Den Haag,
C/09/456689 / HA ZA 13-1396 (Urgenda), para. 4.83; 2.74
In ISDS, transparency is not understood in the
same sense due to its international commercial ar-
bitration structure. Transparency is not a core ele-
ment of ITL neither in disputes nor in the drafting
of BITs. Hence, there is privacy in a wide range of
cases even when they are dealing with regulations
of public interest. This is a challenge to environ-
mental decision-making that increases with the im-
possibility of guaranteeing access to third parties,
such as amicus curiae, which are in many cases
fundamental to climate change decision-making
and accountability. For example, in ITL, publicity
of a dispute could allow access to civil organisa-
tions or scientific experts to properly assess scien-
tific evidence and also for illustrating a tribunal on
the link between a regulation and the alleged pur-
pose. For instance, in Phillip Morris v Uruguay, the
World Health Organisation submitted an amicus
curia brief pursuant to rule 37.2 of ICSID Arbitra-
tion rules.
99
Arbitrators were benefited with a more
completed understanding of the link between the
measures on intellectual property taken by the State
to distort the promotion of cigarettes and the public
health benefit. The fact that weighing of evidence
is not regulated in ITL means that arbitrators are
99
Phillip Morris Brands Sarl, Philip Morris Products S.a.
and Abal Hermanos S.A. v Oriental Republic of Uruguay,
Award (8 July 2016) paras 38, 360, 361, 407 <
https://www.italaw.com/sites/default/files/case-docu-
ments/italaw7417.pdf> accessed 20 July 2018.
39
X Edición, I semestre 2020
likely to solve disputes according to their own as-
sessment since they are not expected to listen to
third parties. Phillip Morris is a rare case in the
wide range of known disputes.
ICCL pursues an involvement a priori of the civil
society in the efforts towards climate change and a
permanent observation of the State’s climate ac-
tions as part of a global stocktake.
100
If ITL cases
remain private, the State can easily avoid regulat-
ing due to the ultimate millionaire compensation to
the investor without having the public scrutiny in-
volved in such a decision. Parties have committed
to progress in the mitigation of GHG emissions
101
and are expected to regulate in order to avoid trans-
boundary harm. Thus, a private dispute involving a
climatic regulation is also a concern of the entire
international community. For this reason, ISDS can
challenge ICCL and obstruct the participation of
third parties as a more transparent manner of ex-
amining regulation taken to address the public in-
terest in tackling climate change.
Inconsistency or legal uncertainty in ISDS is an-
other concern in the relationship between ITL and
ICCL. Due to the variety of arbitrations every-
where, Parties to the dispute have hesitations on
what to expect and, in particular, States do not
know if their regulations are going to be featured
as an ITL breach. ICCL did not exist when many
100
Paris Agreement, art 14.
101
Carazo and Klein, 405.
BITs were signed by States but now this global
threat does not excuse any State from global warm-
ing consequences. It is then likely to see different
interpretations of the standards of investment pro-
tection, on what is the applicable international law
and what are the regulatory duties of the State.
The problem is that arbitrators are engaging in reg-
ulatory and public interest review without judicial
control or appeal.
102
This has also a consequence in
the adjudication of international law because ITL
tribunals interpret core standards of investment
protection, such as the MST, in different ways and
there is no way to appeal decisions before any in-
ternational body. Therefore, decisions on ITL may
openly conflict with decisions in other interna-
tional spaces, such as the commitments taken by
the States under the UNFCCC and the Paris Agree-
ment. Furthermore, the inevitable adoption of more
climate change regulations around the globe will
intensify cases before national and international
courts in light of the bottom-up system of national
contributions brought in by the Paris Agreement
that generates obligations for every single State.
103
Incoherence in ITL will impact climate change reg-
ulation because governments will not know the
102
Van Harten, 152.
103
Carazo and Klein, 405.
40
X Edición, I semestre 2020
boundaries that an ISDS award will set to their sov-
ereign power in this regard.
104
The conflict of interests increases when consider-
ing which investors have access to ISDS. Nor-
mally, they are multinational firms with enough re-
sources to use litigation as a defence against regu-
latory initiatives imposing costs on the invest-
ment.
105
For example, a State may require power
plants and other carbon-intensive industries to in-
stall new technologies and may lead to early clo-
sure of some high-emitter facilities. Additionally,
adaptation to climate change implicates taking
measures to protect resources and to promote sus-
tainable development. Any limits on property use,
e.g. due to setbacks from coastlines, will be ques-
tioned as an expropriation due to the change in the
property’s condition.
106
Investors that could be in-
volved in these disputes belong to powerful sectors
such as the oil and energy industries. They will not
hesitate to trigger any BIT or MIT available to
challenge any regulation and to obtain the corre-
sponding compensation.
This section pointed out the critiques of lack of
publicity in disputes and incoherence between
many ISDS awards and with other fields of PIL be-
cause it represents major threats to climate change
104
Van Harten, 166.
105
Ibid.
106
Wilensky, 10686.
regulation. As Roberts states: “as long as the in-
vestment treaty system remains based on thousands
of BITs and FTAs interpreted by hundreds of ad
hoc tribunals, we will continue to see conflicting
analogies and diverse paradigms for understanding
the system's nature”.
107
The ISDS mechanism will
allow us to see the expression of such biases and
conflicts of interests towards climate change. An
interpretation of a climate change measure by an
arbitrator will be based on his or her background,
normally a commercial one where environmental
regulation is the exception but not the rule. While
we could also see arbitrators embracing an environ-
mental law approach and accepting non-compensa-
ble changes in investments, and/or embracing the
precautionary principle as a core element for ac-
cepting post-investment regulation.
5-) Conclusion
This essay argues that the clash between ICCL and
ITL is not a normative conflict. The UNFCCC fos-
ters environmental measures that do not constitute
unjustified or arbitrary discrimination. Also, the
Paris Agreement encourages investment from de-
veloped countries into developing countries to pro-
voke a shift from a carbon-intense economy to a
107
Anthea Roberts, 'Clash of Paradigms: Actors and Analo-
gies Shaping the Investment Treaty System' (2013) 107
American Journal of International Law, 45-94, 75
41
X Edición, I semestre 2020
new low-carbon economy. At the same time, in-
vestment treaties provide enough basis for justify-
ing governmental actions aimed to mitigate and
adapt to climate change. However, the essay points
out that investment treaties are not precise on the
meaning of the standards of protection of investors
nor on the relevant applicable international law be-
tween the State Parties. This scenario makes trea-
ties suitable to any particular interest that can be
either in favour of or against a climate change reg-
ulation.
Rather, despite the inexistence of known ITL cases
dealing with climate change measures, the essay
demonstrated potential clashes between ICCL and
ITL due to the interpretation and application of in-
vestment provisions. First, ITL does not embrace
environmental principles as they are understood
under ICCL. The principle of sustainable develop-
ment is embraced by both regimes, but it is a sec-
ondary objective for ITL because it is a regime that
was created to protect investments. For this reason,
the precautionary approach in regulation, which is
essential for preventing the increase of the global
temperature, is challenged by ITL. The world will
face more intensively the effects of climate change
and States will be required to regulate in a post-in-
vestment manner. This is unlikely to be accepted
by ITL arbitrators because this kind of measures
clash, at least, with the legitimate expectations of
the investors.
As a second main concern, the expansive and vari-
able interpretations of indirect expropriation and of
the fair and equitable treatment have challenged
environmental regulation and, thus, have the poten-
tial to oppose climate change measures. Besides, if
post-investment climate change measures are ac-
cepted, the compensatory consequences will repre-
sent another challenge that can cause a chilling ef-
fect in regulation.
Furthermore, the essay exhibits that the structure of
the ISDS deepens the clash with ICCL. Lack of
transparency in ISDS disputes stops arbitrators
from having a broader perspective for evaluating
the legitimacy of a climate change regulation. It ex-
cludes many actors that are active participants in
decision-making, such as environmental organisa-
tions. Moreover, the inconsistency caused by the
proliferation of investment disputes generates un-
certainty for investors and policymakers on the
consequences of climate change regulation under
investment treaties.
42
X Edición, I semestre 2020
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