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Foreign Investment Law and the UNFCCC/Kyoto Protocol: Barriers to Addressing Climate Change

This study examines the modes of interaction between investment and climate change, including opportunities for investors in the renewable energy sector and the flexible mechanisms under the Kyoto Protocol. It also explores regulatory changes in a low-carbon economy, environmental regulation as a treaty violation, investor-state disputes, fair and equitable treatment, and the potential for claims related to climate change mitigation measures.

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Foreign Investment Law and the UNFCCC/Kyoto Protocol: Barriers to Addressing Climate Change

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  1. Foreign Investment Law and the UNFCCC/Kyoto Protocol: Barriers to Addressing Climate Change British Institute of International and Comparative Law Annual Conference, October 2008 Kate Miles

  2. Investment and Climate Change: Modes of Interaction • Opportunities for investors • Markets in renewable energy sector; • Flexible mechanisms under Kyoto Protocol; • Innovation in eco-efficient technology. • More stringent restrictions on carbon-emitting activities

  3. Regulatory Changes in a Low Carbon Economy • Energy efficiency standards; • Prohibitions on the use of products and activities; • Withdrawal of rights to emit at current levels; • Emission trading schemes; • Requirements to obtain electricity from renewable sources; • New regulation to support Clean Development Mechanism (CDM) projects; • Incentives to invest in renewable energy; • Changes to tax, exemptions and subsidies.

  4. Environmental Regulation as Treaty Violation • Indirect expropriation; • Discriminatory treatment; • Fair and equitable treatment • Azurix • Tecmed

  5. Investor-State Disputes • Azurix • Looked to the Tecmed award for guidance; • Tecmed – an expansive interpretation; • Tribunals cannot agree on effects/purpose; • Tecmed • no principle stating that regulatory administrative actions are per se excluded from the scope of the treaty, even if they are beneficial to society as a whole – such as environmental protection …

  6. Fair and Equitable Treatment • Legitimate expectations of the investor; • Stable legal and business environment; • Tecmed • Not affect the basic expectations in entering the investment; • Consistency; • Free from ambiguity; • Transparency; • Know all regulations that will govern the investment for the life of the investment. • Endorsed by Azurix.

  7. Climate Change • Claims of discriminatory treatment; • Arcelor and the European Emissions Trading Scheme; • Discrimination as between sectors; • Political constraints in EU – not applicable in ad hoc system of investor-state arbitration.

  8. Potential for Claims re Climate Change Mitigation Measures • Follow Tecmed and Azurix? • Effects of regulation; • Expectations of the investor; • Stable legal and business environment; • Stabilisation clauses; • Claims of discrimination; • Measures favourable to CDM projects; • ‘Like circumstances’ • Parkerings Award

  9. Conclusions • Ways forward? • Win-win situation? • Carve-outs for public welfare regulation; • Re-framing of fair and equitable treatment standard; • Ecological impacts in criteria for ‘like circumstances’; • Energy from renewables not ‘like’ energy from carbon-intensive sources; • Balance competing interests in investor-state arbitration; • Host states to signal with transparency and advance notice the regulatory changes to be made in the move to a low carbon economy.

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