Arrested ambition? Foreign investor protections, stabilization clauses and fossil‐fuelled power generation in developing countries

• Published date: 01 November 2021
• Author: Gillian Moon
• Date: 01 November 2021
• DOI: http://doi.org/10.1111/reel.12410

ORIGINAL ARTICLE

Arrested ambition? Foreign investor protections, stabilization

clauses and fossil-fuelled power generation in developing

countries

Gillian Moon

Correspondence

Email: g.moon@unsw.edu.au Abstract

States introducing measures to transition away from fossil-fuelled power generation

might be obliged, under international investment treaty provisions, to compensate

affected foreign investors in that sector. Treaty-based investor protections may be

augmented by broad entitlements in ‘stabilization clauses’in project contracts

between host States and foreign investors in the sector. This article explores the

extent and scope of such clauses with regard to host developing countries, as well as

the capacity of the clauses to hold back the transition by these countries. Much litera-

ture has focused on the exposure of fossil fuel-rich developing countries to investor

claims for compensation. This article concentrates on the arresting effect of investor

protections on the ambition of fossil fuel import-dependent developing countries to

make a robust transition. Information is required urgently about the exposure of

these countries to compensation claims, particularly under stabilization clauses, by

foreign investors in the fossil-fuelled power generation sector.

1|INTRODUCTION

There is a risk that host States which introduce environmental mea-

sures might be obliged, through investor-state arbitration (ISDS) under

international investment agreements (IIAs) to which they are parties,

to compensate adversely affected foreign investors.

1

The risk of

claims must also be considered by host States which are parties to the

Paris Agreement when they introduce measures to reduce their

greenhouse gas (GHG) emissions, in accordance with the aim in Article

2 of that Agreement.

2

Even before the coming into force of the Paris

Agreement in 2016, measures to reduce GHG emissions were trigger-

ing ISDS claims for compensation by foreign investors. For example,

in 2009, the Swedish energy utility Vattenfall initiated international

arbitration against Germany under the Energy Charter Treaty (ECT)

3

in relation to the company's planned coal fired power plant in Ham-

burg.

4

While the ECT dispute was ultimately argued on the basis of

delays in issuing water permits, Vattenfall's Request for Arbitration

also complained about 3 years of delay by the Hamburg authorities in

issuing the required GHG ‘immission control permits’for the plant,

5

a

delay which Vattenfall attributed to the imminent release by the Inter-

governmental Panel on Climate Change of the Fourth Assessment

Report in late 2007.

6

The dispute was subsequently settled, with

1

See, for example, S.D. Myers Inc. v Canada, UNCITRAL (NAFTA), Final Award, 30 December

2002; Técnicas Medioambientales Tecmed S. A. v United Mexican States, ICSID Case

No. ARB/AF/00/2, Award, 29 May 2003; Metalclad Corp. v United Mexican States, ICSID

Case No. ARB/AF/97/1 (NAFTA), Award, 30 August 2000.

2

Paris Agreement (adopted 12 December 2015, entered into force 4 November 2016)

55 ILM 740 art 2. Some view climate law, a discrete body of law in its own right, as

indifferent to the purposes of environmental law. Zahar, for example, says ‘[t]he new notion

of climatically sustainable development seeks to conserve forests (qua carbon sinks), for

example, but has little else in common with the received environmentalist notion of

(ecologically) sustainable development’; A Zahar,’Climate Law, Environmental Law, and the

Schism Ahead’in E Techera et al (eds), Routledge Handbook of International Environmental Law

(2nd edn, Routledge 2020) 488, 490.

3

Energy Charter Treaty (adopted 17 December 1994, entered into force 16 April 1998) 2080

UNTS 100 (ECT).

4

Vattenfall AB, Vattenfall Europe AG, Vattenfall Europe Generation AG v Federal Republic of

Germany, ICSID Case No. ARB/09/6, Award, 11 March 2011 (Vattenfall I). A further pre-

Paris, ongoing ISDS dispute involving GHG emissions reduction (a ban on gas fracking) is Lone

Pine Resources Inc v Government of Canada, ICSID Case No. UNCT/15/2 (NAFTA),

8 November 2013.

5

Vattenfall I (n 4) paras 13–16 and 20, which refers to a requirement at one stage for carbon

capture and storage at the power plant.

Received: 2 December 2020 Accepted: 1 July 2021

DOI: 10.1111/reel.12410

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