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Applying Investment Agreements to Climate Measures

Boute analyzes whether international and national government support schemes for renewable energy qualify as investments.[1] The Salini test, developed on the basis of the Convention on the Settlement of Investment Disputes Between States and Nationals of Other States (the ICSID Convention), defines an “investment” according to four criteria: contributions by the investor; certain duration of performance; the existence of operational risks; and the contribution to the economic development of the host State.[2] Boute argues that some regulatory and contractual rights relating to national subsidies for low-carbon investments could qualify as “investments,” and thus qualify for protection under international investment agreements. State withdrawal of financial support for low-carbon investment is unlikely to constitute a measure tantamount to expropriation, since it would not destroy the economic value of the overall investment or deprive investors of full ownership and control of their assets. However, while contractual rights may not be compensable on their own, where rights can be sold independently on the international carbon market and thus have intrinsic economic value, Boute argues that State interference may constitute partial expropriation.[3] However, Boute does not analyze whether withdrawal of subsidies would constitute measures “relating to” investment.

The issue of whether contractual rights constitute investments does not resolve the issue ofwhether climate change regulations relate to an investment. While there may be an issue of what constitutes an investment, this is not the real issue in the case of regulation. With genuine climate change measures that are based on available scientific evidence and are designed and applied in a nondiscriminatory fashion, the more important issue in determining the applicability of IIAs is whether the measures relate to climate change mitigation or adaptation and are thus not investment measures. If climate change regulations are not investment measures, it does not matter whether there is an investment that is affected by those measures. In this Section, we briefly address the circumstances in which contractual rights may be compensable, before addressing the issue ofwhether a measure relates to investment.

  • [1] Boute, “Combatting Climate Change” 628—36.
  • [2] Boute, “Combatting Climate Change” 625—7; Convention on the Settlement of InvestmentDisputes Between States and Nationals of Other States, opened for signature 18 March 1965, 575UNTS 159 (entered into force 14 October 1966) art. 1; Salini Costrutorri S.p.A. andItalstrade S.p.A. v.Kingdom of Morocco, ICSID Case No. ARB/00/4, Decision on Jurisdiction (July 23, 2001), (2004) 6ICSID Rep. 400; Fedax N.V. v. Republic of Venezuela, ICSID Case No. ARB/96/3, Decision onObjections to Jurisdiction (July 11, 1997), (2002) 5 ICSID Rep. 186; Anna Turinov, “ ‘Investment’and ‘Investor’ in Energy Charter Treaty Arbitration: Uncertain Jurisdiction” (2009) 26 Journal ofInternational Arbitration 1. The Energy Charter Treaty definition of “investment” refers to “anyinvestment associated with an Economic Activity in the Energy Sector and to investments or classes ofinvestments designated by a Contracting Party in its Area as ‘Charter efficiency projects’ and so notifiedto the Secretariat.” Energy Charter Treaty (1994) art. 1(6). (accessed March 13, 2013).
  • [3] Boute, “Combatting Climate Change” 628—36; Waste Management, Inc. v. United MexicanStates, ICSID Case No. ARB(AF)/00/3, Award (April 30, 2004), (2004) 43 ILM 967; UrsulaKriebaum, “Partial Expropriation” (2007) 8 Journal of World Investment and Trade 69.
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