Abstract

The urgent need to combat climate change has led many states to adopt regulatory measures aimed at phasing out fossil fuels and transitioning to sustainable energy systems. However, these climate-friendly policies have increasingly come under challenge through investor-state dispute settlement (ISDS) mechanisms, particularly based on the fair and equitable treatment (FET) standard found in international investment agreements (IIAs). This article critically examines the tension between the FET standard and the states’ regulatory autonomy in environmental matters. It argues that the expansive and often unpredictable interpretation of FET, primarily through the controversial doctrine of legitimate expectations, has created an overprotective investment regime that disincentivises ambitious climate action. The autopoietic nature of international investment law (IIL), which is structurally biased in favour of investor interests, contributes to the exclusion of external normative frameworks, such as environmental or human rights law. Through an analysis of key arbitral awards and the ‘renewable energy saga’ in Europe, the article illustrates how tribunals have frequently prioritised investor protection. It then examines recent attempts, particularly in European treaty practice, to clarify and recalibrate the FET standard, aiming to restore regulatory space for climate policies. Ultimately, the article advocates for a reconfiguration of investment law grounded in climate justice, one that rebalances investor rights and sovereign obligations in response to the climate and ecological crisis.

This paper will be part of the fourth 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