Originally from World Arbitration and Mediation Review (WAMR)

PREVIEW

ABSTRACT

Regulatory reforms of the renewable energy support regimes in Spain, Italy, and the Czech Republic have provoked many treaty arbitrations in the past decade. These arbitration cases followed the inconsistent criteria applied in the assessment of the legitimacy of regulatory renewal that was subject to protection standards enshrined in investment treaties. Consequently, investment protection standards, such as the fair and equitable treatment or the umbrella clause, have evolved into a set of “elastic” rules whereunder the legitimacy of roll-back policies to renewable incentives is subject to a black box at the early design stage. From a treaty compliance perspective, better knowledge of the elasticity of investment treaties will shed light on the reshaping of renewable energy policies in the broader international law landscape. To this end, treaty arbitrations brought against renewable energy regulatory reforms this past decade have provided the most valuable lessons for policymakers regarding the renovation of incentive schemes for renewable energy production.

I.     INTRODUCTION

The adoption of the Kyoto Protocol in 1997 significantly facilitated the development of incentive regimes for the electricity produced from renewable energy sources in the following decade. Signatories designed and enacted many support mechanisms to attract investment in green electricity sectors. Many foreign investments poured into domestic markets during this period, and some renewable sectors witnessed higher-than-expected growth under the nurture of incentive regimes. Along with over-expanding renewables sectors, the financial burden accumulating over the years became increasingly unbearable to host states and triggered a series of regulatory reforms. The reforms in Spain, the Czech Republic, and Italy caused simmering resentment among foreign investors who once had benefited from the original system.

During the last decade, foreign investors commenced many arbitrations through investor-state dispute settlement (“ISDS”) mechanisms against host States for relief under investment protection treaties. Some cases led to compensations worth millions of US Dollars  that were then blamed for creating a “chilling effect” on regulatory reforms.  There is considerable concern that investment treaties impede States’ efforts to upgrade the renewable energy regulatory framework, which could also trigger unexpected consequences, such as States withdrawing from investment treaties.

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Through the lens of renewable energy investor-State cases brought during the last decade, this article intends to figure out what the regulatory space for the proper operation and revision of green energy regimes under investment treaties might be, thereby shedding light on future regulatory reforms.

For that purpose, as a first step, this article considers the underlying unsustainability of green electricity incentives that became popular during the early twenty-first century and the regulatory reforms that were launched a few years later that led to a spike in renewable energy arbitration claims (II). Second, this article then examines the most invoked investment protection standards in renewable energy cases. It explores tribunals’ inconsistent criteria when applying these standards (III). Third, this article discusses the lessons learned from investment arbitration brought against renewable energy regulatory reforms. which, fourth, as the next section illustrates might help states comply with their treaty obligations when making renewable energy policies (IV).  The article closes in section (V).