Academic journal article Global Governance

Risky Business? the Energy Charter Treaty, Renewable Energy, and Investor-State Disputes

Academic journal article Global Governance

Risky Business? the Energy Charter Treaty, Renewable Energy, and Investor-State Disputes

Article excerpt

GLOBAL ENERGY GOVERNANCE HAS RECEIVED GROWING ATTENTION IN INTERNAtional affairs, and there is now widespread recognition among scholars and policymakers that the existing institutional architecture is inadequate. International relations scholars have pointed to institutional failures such as the lack of coordination between existing international energy organizations, while those in the public policy tradition have pointed to market failures such as imperfect competition and environmental externalities in global energy markets. (1) Both have argued for global energy governance reform, including in the pages of this journal where scholars have highlighted various governance challenges such as promoting renewable energy in developing countries and reforming the International Energy Agency (IEA). (2) Policymakers have responded and a spate of recent announcements has put the issue on the international agenda. For example, at the 2014 Group of 20 (G-20) summit, world leaders for the first time discussed reform of the international energy architecture, including the IEA. (3)

One of the main challenges for global energy governance is how to achieve a dramatic transformation of our energy system. The IEA has long argued that current global trends in energy markets "are patently unsustainable" and that "what is needed is nothing short of an energy revolution." (4) In the context of climate change and ever more dire predictions from scientists, (5) an energy revolution will not be achieved without transition to clean energy sources that can drastically curtail the rising greenhouse gas emissions from the energy sector. While the plunging cost of wind and solar power has meant that renewables now account for more than 20 percent of the global electricity supply, the IEA projects that an additional US$44 trillion in investment is required to decarbonize the energy system. (6)

However, in the literature on global energy governance, little attention has been given to the capacity of the existing institutional architecture to promote investment in clean energy technologies. In particular, there has been little discussion of institutions that protect investors in the clean energy sector. Accordingly, in this article we consider the potential of the Energy Charter Treaty (ECT), the most developed trade and investment treaty in the global energy architecture, and its investor-state dispute settlement (ISDS) mechanism, to do just that--that is, to expedite the transition to clean energy sources by facilitating the flow of investment into the renewable energy sector.

ISDS allows multinational corporations to sue states in an international forum. Disputes are presided over by panels of three arbitrators--one chosen by the state, one chosen by the investor, and the third mutually agreed on or appointed by an arbitral institution such as the International Centre for the Settlement of Investment Disputes (ICSID) or International Chamber of Commerce (ICC). While originally devised to deal with issues such as government seizure of property in the context of the postcolonial period, ISDS cases now frequently revolve around the impacts of public policies on investments.

There is considerable concern that incumbent energy producers in the fossil fuel industries will use ISDS provisions to try to stall action on climate change. (7) ISDS cases have arisen in response to: a moratorium on oil and gas operations along the Italian coastline; a ban by the Canadian province of Quebec on hydraulic fracturing ("tracking"); and the Barack Obama administration's rejection of a proposal by TransCanada Corporation to build the Keystone XL pipeline to transport oil produced from Alberta's tar sands to various refineries in the United States. The case in Quebec had not concluded at the time of this writing, and the Italian case was only in the very early stages. TransCanada withdrew its claim against the United States following President Donald Trump's executive order on 24 January 2017, allowing construction of the Keystone XL pipeline to move ahead. …

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