Abstract

Analyses of climate change issues in energy investment arbitration have largely neglected the possible implications of customary international law in the interpretation and application of investment treaties. Here, a duty to prevent unabated fossil fuel production serves as shorthand for the fundamental duty of each State to exercise due diligence in the prevention of environmental harm through the initial approval and continuous monitoring of fossil fuel projects within its jurisdiction, requiring a State to perform environmental impact assessments and to determine appropriate measures to prevent such harm. I apply this prevention principle to the cumulative harm caused by fossil fuel production in light of developments in climate science and energy economics. The high risk of irreversible damage to unique and threatened systems beyond 1.5°C warming triggers a State’s due diligence. Moreover, the necessary pathways to net zero emissions in the global energy sector by 2050 suggest that current or planned fossil fuel projects without mandatory abatement of life-cycle emissions are inconsistent with customary international law. The implications of the prevention principle for energy investment arbitration are explored in circumstances where a host State implements its previously neglected duties contrary to the economic interests of a foreign investor. At the stage of jurisdiction or admissibility, a respondent might allege that investment in an unabated fossil fuel project was void due to its failure to comply with domestic regulations or that those very regulations were inconsistent with international law. On the merits, whether the prevention principle is integrated as a matter of treaty interpretation or evidenced in the application of the standard of fair and equitable treatment, diligent energy firms may not legitimately expect a State not to fulfil its customary duties by adopting appropriate preventive measures, such as phase-out policies or abatement through carbon capture and storage technologies.

This paper will be part of the TDM Special Issue on "International Investment Arbitration - Environmental Protection and Climate Change Issues". More information here www.transnational-dispute-management.com/news.asp?key=1893