Using the Paris Agreement in arbitrations

In a recent judgment, the UK Court of Appeal ruled, in the planning decision regarding the expansion of Heathrow airport with a third runway, that the UK government failed to take into account its own firm policy commitments on climate change under the Paris Agreement. Consequently, the Court of Appeal ordered the UK government to reconsider its planning decision by fully taking into account the Paris Agreement obligations.

Last year, the Dutch Supreme Court confirmed the lower court’s ruling in the Urgenda case that the Dutch government is required by law to adopt immediately all necessary measures in order to achieve the binding Paris CO2 targets.

These examples illustrate that the Paris Agreement is slowly seeping through the domestic legal systems and is increasingly used in judicial proceedings in order to force governments to take the Paris Agreement seriously, and adopt pro-actively more far reaching measures.

At an international level, it seems to be only a matter of time until potential investor-state dispute settlement (ISDS) disputes involving the Paris Agreement arise.

Indeed, last year, German company Uniper threatened to bring an ISDS case against the Netherlands after the Dutch government decided to ban coal-based power generation by 2030, part of the measures needed to implement the Paris Agreement. The ban would force Uniper to close its coal-fire plant after it was opened in the Netherlands in 2016 (the projected lifespan of the plant is 40 years).

In light of the increasing urgency to fight climate change, it can be expected that more states will adopt an increasing number of more drastic measures in order to achieve the aims of the Paris Agreement. This in turn could lead to unfair and inequitable treatment, or to (indirect) expropriation, which can form the basis for ISDS claims.

At the same time, more recent trade and investment agreements, such as CETA, contain extensive public policy exceptions. These essentially shield states from claims involving measures allegedly adopted for the protection of the environment. For example, CETA’s paragraph 3 of Annex 8-A on Expropriation reads as follows:

For greater certainty, except in the rare circumstance when the impact of a measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.

However, it is also possible that an investor could bring a claim against a state for failing to implement its national, or for that matter, international, environmental obligations. This is highlighted by the Peter Allard v Barbados case, which was brought under the Canada Barbados bilateral investment treaty (BIT) in 2012. This case concerned Mr. Allard’s investment of C$18.8 million in the acquisition and development of an eco-tourism site in Barbados. He claimed that Barbados failed to take reasonable and necessary environmental protection measures and, through its organs and agents, had directly contributed to the contamination of the eco-tourism site, thereby destroying the value of his investment. He also claimed that these actions and omissions violated Barbados’ international obligations to Canadian investors under the BIT. Although, the arbitral tribunal dismissed the case on the merits and thus did not elaborate on Mr. Allard’s arguments, it seems prima facie a logical and reasonable argument.

Indeed, in my view, there is significant potential for bringing ISDS claims against states for their failure to meet their international environmental obligations, for example, meeting the CO2 reduction targets of the Paris Agreement. In fact, the threat of high-volume ISDS claims could force states to do more than they have done so far.

The question is whether arbitral tribunals will be receptive towards these kinds of environmental law related claims.

In addition, the increased possibility of NGOs participating in ISDS arbitrations through the submission of amicus curiae briefs could be another useful tool in increasing the pressure on states to implement the Paris Agreement.

Finally, it is also worth noting that the interface between arbitration and the Paris Agreement has been recognised in the context of international commercial arbitration. In particular, reference can be made to the work of the ICC task force on Arbitration of Climate Change Related Disputes (November 2019).

In sum, it will be interesting to see how the interaction between the Paris Agreement and arbitration will evolve at the international level, but the examples mentioned above at the domestic level clearly indicate that the Paris Agreement could have more teeth than many had anticipated.

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