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Global Governance 24 (2018) 451–471
Risky Business? The Energy Charter
Treaty, Renewable Energy,
and Investor-State Disputes
Kyla Tienhaara and Christian Downie
Global energy governance has received increased attention from scholars
and policymakers in recent years. Much of the discussion has focused on the
inadequacy of the current institutional architecture, particularly in light of
the urgent need to decarbonize energy systems. However,little attention has
been given to the capacity of global institutions to promote investment in
renewable energy. This article considers claims by proponents of the Energy
Charter Treaty, the most developed trade and investment treaty in the global
energy architecture, that it can play an important role in this regard. Specif-
ically, it examines the ECT’s investor-state dispute settlement mechanism.
Drawing on scholarship in global governance, law, and economics and an
analysis of recent investor-state disputes, the article argues that there are
problems with the assumptions underlying the claims of the ECT’s propo-
nents. Critically, there is still a lack of evidence that the ECT has a positive
impact on ows of investment in any sector, including the renewable energy
sector. There isalso a risk that ISDS could be used by the fossil fuel industry
to impede a clean energy transition. States should approach accession to the
ECT with caution and consider other mechanisms to reduce risk for renewable
energy investors. KEYWORDS: energy, foreign investment, climate change.
GLOBAL ENERGY GOVERNANCE HAS RECEIVED GROWING ATTENTION IN INTERNA-
tional aairs, and there is now widespread recognition among scholars and pol-
icymakers that the existing institutional architecture is inadequate. International
relations scholars have pointed to institutional failures such as the lack of coor-
dination 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.1Both
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).2Policymakers 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 rst
time discussed reform of the international energy architecture, including the
IEA.3
452 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
One of the main challenges for global energy governance is how to achieve a
dramatic transformation of our energy system. e IEAhas long argued that cur-
rent global trends in energy markets “are patently unsustainable” and that “what
is needed is nothing short of an energy revolution.”4In the context of climate
change and ever more dire predictions from scientists,5an 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 IEAprojects 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 discus-
sion 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 ow 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 Settle-
ment 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.
ere 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 (“fracking”); and the Barack Obama administration’s rejection of a
proposal by TransCanada Corporation to build the Keystone XLpipeline to trans-
port oil produced from Alberta’s tar sands to various reneries in the United
States. e 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.
e mere threat of such cases may deter governments from taking action
on climate change, and this is an area of inquiry worth further investigation.8
However, in this article we address the reverse proposition—that ISDS might aid
Kyla Tienhaara and Christian Downie 453
the transition to renewable energy and, thereby, the mitigation of climate change.
We do so in response to a growing number of commentators who are making this
argument, the most prominent being David Rivkin, president of the International
Bar Association. In a side event at the Paris climate conference in 2015, Rivkin
devoted the majority of his speech to a vigorous defense of ISDS and argued that
“it is vital that a neutral, eective mechanism exist for resolving disputes between
investors and states, particularly in order to incentivize foreign investment in
renewable energy.”9International arbitrator Edna Sussman has also made this
argument with specic reference to the ECT.10
Drawing on scholarship in global governance, law, and economics and an
analysis of recent investor claims in ISDS, we argue that there is currently no
evidence that the investment provisions of the ECT facilitate investment into
clean energy technologies. e analysis we present suggests that the three key
(interrelated) assumptions that underpin the arguments of proponents of ISDS
are misplaced, in particular that: (1) political risk is a signicant impediment to
renewable energy investment; (2) ISDS is an eective countermeasure to polit-
ical risk; and (3) if states agree to ISDS under the ECT, it will increase ows
of foreign direct investment (FDI) in renewable energy. While more research is
warranted, the burden of proof lies with the ECT’s proponents. In the absence of
evidence that the ECT’s investment regime will contribute to improved global
energy governance, states should be cautious about its further expansion.
is article is organized as follows. First, we consider the existing interna-
tional energy architecture and the transformations taking place in global energy
markets. Next, we introduce the ECT and its ISDS provisions. en, we provide
a critical examination of the three key assumptions that support the use of ISDS.
We conclude with a discussion of the current uncertainty around the future of
ISDS in Europe and beyond, and consideration of some of the other mechanisms
that states are exploring to reduce risk for renewable energy investors.
Governing Global Energy
At the G-20 summit in 2014, world leaders for the rst time acknowledged that
the “international energy architecture needs to reect better the changing reali-
ties of the world energy landscape.”11 e changing reality reects two trends.
First, the rise of Brazil, Russia, India, and China (BRIC) is transforming global
energy markets. China has now overtaken the United States as the world’s largest
energy consumer and India will be the principal driver of energy consumption
within Asia from 2020 on. By the mid-2030s, it is expected that Brazil will be
the world’s sixth-largest oil producer and China will become the largest oil-
consuming country in the world overtaking the United States.12 Second, rising
energy consumption in the BRIC countries is driving an increase in greenhouse
gas emissions including from the energy sector, which is the source of two-thirds
of the world’s greenhouse gas emissions.13 e IEAexpects that even with policy
454 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
changes and market developments that drastically reduce fossil fuel consumption,
the world is “on a path consistent with a long-term global average temperature
increase of 3.6 °C.”14 As the UN Intergovernmental Panel on Climate Change
has made clear, the results of such a trajectory would be catastrophic, rendering
parts of the globe uninhabitable.15
In this context, governing global energy is more important than ever. Yet
it is widely agreed that the global system has not adapted to the changing real-
ity wrought by the rise of the BRICs and climate change.16 For example, today
the majority of global energy consumption takes place in countries that are not
members of the IEA, the principal international energy organization. Indeed, not
one member of the BRICs is a member of the IEA despite the fact that China is
the world’s largest energy consumer.17 It is perhaps an understatement to con-
clude, as the previous executive director of the IEA, Nobuo Tanaka, did in 2010,
that the IEA’s “relevance is under question.”18 Of course, the IEA represents
only part of the patchwork of organizations that govern global energy. ere is
no shortage of organizations and most scholars would agree that there are “too
many.”19 However, it is not just the number of organizations that is the prob-
lem, or that there is little cooperation between them, though this is improving.
Rather, it is that the existing organizations tend to preserve the divide between
developed and developing countries, as epitomized by the IEA and its perceived
adversarial relationship with the Organization of Petroleum Exporting Coun-
tries (OPEC). Further, many of these organizations remain overly focused on oil
and gas markets and not the challenges posed by rising greenhouse gas emis-
sions in the energy sector.e creation of the International Renewable Energy
Agency (IRENA) in 2009, led by the German government, is the latest attempt
to rectify the global governance gap generated by an institutional architec-
ture unduly focused on the energy challenges of the past century, and not this
one.20
The Energy Charter Treaty
Since 2010, the Energy Charter has been undergoing a process of reform and
modernization in an attempt to carve out a central governing role in the new
energy landscape. e Energy Charter encompasses the European Energy Char-
ter of 1991, the ECT of 1994, and the International Energy Charter (IEC) of 2015.
e Energy Charter was originally designed to promote energy sector investment
in Eastern Europe in the aftermath of the Cold War.21 At the time, the stated aim
was to establish a legal framework to “promote long-term co-operation in the
energy eld based on complementary and mutual benets,”22 but it has long been
viewed as skewed toward the interests of its Western European members. Caro-
line Kuzemko, Michael F. Keating, and Andreas Goldthau describe the Energy
Charter as the “most ambitious example” of an attempt by “Western powers to
formally institutionalise neo-liberal (pro-market) rules in energy trade.”23 is is
Kyla Tienhaara and Christian Downie 455
particularly evident in the lopsided rules for investment protection, which provide
investors with rights but not obligations.
As a result of its history and membership, the Energy Charter has for most
of its existence been concerned with Euro-Russian relations.24 However, Rus-
sia never formally ratied the ECT and withdrew from it altogether in 2009,25
threatening the future of the institution and leading some to write it o as a failed
experiment.26 Instead of fading into obscurity, in 2010 the Energy Charter Confer-
ence adopted a “Road Map for the Modernization of the Energy Charter Process”
(hereafter Road Map).27 In its attempt to ensure the continued relevance of the
charter and to bypass the polarized framework of relations between the European
Union (EU) and Russia, the rst priority for the institution was geographical
expansion.28 In 2015 in e Hague, seventy-ve countries signed the new IEC,
which is considered a stepping-stone to accession to the ECT (the number of
signatories has since risen to eighty-three). As noted by one observer, “Many
hope the declaration in e Hague will set the stage for a more coherent global
governance structure for energy markets—and make the ECT the international
benchmark for others to follow.”29 Nathalie Bernasconi-Osterwalder points out
that the Energy Charter Secretariat has been actively recruiting new IEC members
in Africa and also has established Energy Charter liaison embassies in Iran and
Pakistan.30
e participation of the United States and China in the IEC is certainly a
signicant achievement.31 However, at the same time the institution has lost Italy,
which withdrew from the ECT only weeks before the IEC was announced.32
Australia, Canada, and Indonesia—large fossil fuel–producing and –consuming
countries—also abstained from adopting the IEC despite having signed the orig-
inal European Energy Charter.33 As for the other BRICs, both Brazil and India
were invited to the IEC negotiations, but neither chose to sign on to the nal
agreement. As such, the Energy Charter has yet to secure the participation of the
most important players in the new energy landscape.
With regard to climate change, the Road Map acknowledged that the shift to
low-carbon sources of energy was something that needed to be addressed by the
institution more comprehensively.e focus was placed squarely on the role to
be played by the binding ECT and, specically, its chapter on investment (similar
to many stand-alone bilateral investment treaties), which many consider to be the
“cornerstone” of the treaty.34 Crucially, this chapter provides foreign investors
access to ISDS. In recent years, proponents of ISDS have begun to argue that it
has an important role to play in protecting and promoting investment in clean
energy technologies by reducing risk for investors.35 is may be a strategy to
counter the onslaught of public criticism that the ISDS system has received, but
it cannot be summarily dismissed. is is especially the case in light of the raft
of renewable energy disputes that have been launched under the auspices of the
ECT since 2011. In fact, at the same time as government representatives were
meeting in e Hague to sign the IEC, arbitrators in at least twenty-three cases
456 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
were convening behind closed doors to hear claims against Spain, the Czech
Republic, and Italy for changes in their subsidy schemes for renewable energy.
Only three months later, this number had risen to thirty-three.36 If one includes
disputes over hydroelectric and biomass projects, as of November 2016 renew-
able energy disputes accounted for half of the 100 ISDS cases launched under
the ECT (see the Annex).
Unlike the renewable energy disputes that have emerged under the World
Trade Organization (WTO), which have led some to question whether the inter-
national trade regime is compatible with climate policy,37 most ISDS disputes
involving investors in the renewable energy sector have arisen as a result of gov-
ernments reducing or rolling back renewable energy incentive schemes. In other
words, trade disputes have questioned the legality of green subsidy schemes
while most investment disputes are instead addressing whether changes to these
schemes (that negatively impact investors) are acceptable.
On the surface, it would appear that advocates of an energy transition should
welcome this development. However, ISDS is controversial. Critics have pointed
to a range of issues including: the limited transparency in international arbitra-
tion, the lack of impartiality of arbitrators, the excessive costs of the system, and
the potential for cases that challenge public policy measures to lead to “regula-
tory chill.”38 e Energy Charter Conference is considering some of these issues
and the discussions may eventually result in minor reforms to the ECT’s ISDS
procedures. However, the Road Map makes it clear that the ECT “investment
provisions should remain untouched in their fundamentals.”39
The Energy Charter Treaty and Clean Energy Investment
Only four cases related to renewable energy under the ECT had concluded at
the time of this writing and, as a result of the limited transparency in the ISDS
process, there is little information publicly available about most cases other than
the names of the investor claimants and the date when each arbitration proceeding
commenced. Although we discuss some of the context surrounding the Spanish
solar disputes below, we do not make any attempt to predict the outcome of the
remaining cases. Instead, we focus here on the question of how the ECT and other
investment treaties could help to facilitate the transition to low-carbon renewable
sources of energy such as wind and solar power. Specically, we address three
assumptions made by proponents of ISDS, namely that: (1) political risk is a
major impediment to investment in renewable energy; (2) ISDS is an eective
countermeasure to deal with political risk; and (3) if states agree to ISDS under a
treaty such as the ECT, it will help them to attract FDI in renewable energy. We
consider each of these assumptions in turn.
Kyla Tienhaara and Christian Downie 457
Political Risk
e assumption that political risk is a major impediment to investment in renew-
able energy appears reasonable at the outset. Renewable energy rms face a
number of dierent kinds of risk. Financial risk tops the list of concerns by exec-
utives in the sector, but political or regulatory risk—the risk of a change in public
policy around renewables—is not far behind.40 One of the main reasons cited for
this is the current dependence of renewable energy investors on incentive schemes
such as feed-in taris (FITs) and renewable energy targets. Such schemes are
meant to reduce nancial and regulatory risk by guaranteeing renewable energy
producers a set price for their energy over a xed period of time, or by mandating
that a specic proportion of electricity provided by utilities companies comes
from the renewables sector. However, while they provide increased security, such
schemes are not immune from political risk. Kim Talus argues that a reliance on
subsidies makes renewable energy investors particularly vulnerable to policy
change.41 Changes in government or unexpected cost escalations can undermine
support for schemes. Furthermore, as Leah Stokes points out, unlike other gov-
ernment subsidies (e.g., for the fossil fuel industry), renewable energy schemes
are highly visible and, therefore, more easily targeted when a country’s scal
situation deteriorates.42
e risk in the form of changes to incentive schemes appears to be quite high
at present in some countries. However, political risk of this particular variety
is becoming much less of an impediment to renewable energy for the simple
reason that politics is being overtaken by economics. Miguel Mendonça, David
Jacobs, and Benjamin K. Sovacool noted in 2010 that the costs of renewable
energy would eventually fall below the price of conventionally produced elec-
tricity and that once this “tipping point” had been reached “FITs will have done
their job, and will only be needed on a limited basis, if at all.”43 Several studies
suggest that onshore wind can now provide electricity competitively compared to
fossil fuel–red power generation without nancial support in some parts of the
world.44 Solar photovoltaic (PV), generally considered the most expensive form
of renewable energy, is not far behind. Another report suggests that industrial
rms in many developing countries are currently paying more for electricity from
traditional sources than the cost of producing it with onshore wind and solar PV.45
Although there are certainly limitations to the methods employed in these studies,
which often do not account for many real-world usage considerations, the impor-
tant point is that the cost of renewable energy is continually declining. As such,
although incentive schemes such as FITs have played an important role in the
past, they will eventually be unnecessary to create a business case for investment
in renewables. When government support is no longer needed, the case for ISDS
as a protection against changes in subsidies will evaporate.
Other forms of risk may be more persistent. For example, local opposition
to renewable energy developments, particularly wind farms, has proven a sub-
stantial impediment to investment in many jurisdictions. Although this is often
458 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
categorized as not in my backyard (NIMBY) behavior, research suggests that this
oversimplies a much more complex phenomenon.46 e term NIMBY is widely
viewed as pejorative and representative of essentially selsh behavior. Genuine
NIMBY behavior would require opponents of a wind farm in their community to
generally be in favor of the technology, which often is not the case.47 Opponents
of wind energy express a wide range of concerns, from potential health impacts
(for which there is no scientic basis), to the impact on birds and other wildlife,
to purely aesthetic issues. Other issues that frequently arise in complaints about
wind farms are the undemocratic nature of planning and approval processes and
a lack of meaningful community consultation.48
The Role of ISDS
e second assumption of ECT proponents (that ISDS is an eective counter-
measure to deal with political risk) is grounded in the notion that ISDS acts both
as a deterrent to states and as an insurance policy for investors. If a state changes
the rules of the game after an investment has been made, the investor can seek
monetary compensation in ISDS. e threat of such action may, in some cases, be
sucient to deter a state from making changes in the rst place. While deterrence
would benet all renewable investors, ISDS plays an eective insurance role
for only a select group of investors, specically large foreign investors that have
the resources to launch a case and have standing under a treaty (or the ability to
restructure their investment to gain such standing).
In 2008, the government of Spain made a series of changes to the country’s
FIT that were detrimental to both new and existing investors in the sector.49 e
changes were, in part, a response to the global nancial crisis.50 However, another
critical factor was the dramatic fall in hardware costs for solar modules (about a 60
percent drop between 2008 and 2011). is drop in costs led to a surge of invest-
ment that stretched the capacity of FITs and other support schemes in several
countries.51 is factor could have been accommodated if the Spanish FIT had
been better designed; however, it was both overgenerous and inexible.52 As a
result, the system “overcompensated solar PV and failed to reduce compensation
in response to the technology’s rapidly declining costs.”53
When Spain moved to scale back the FIT, foreign investors turned to the
ECT. Small-scale domestic investors and private citizens aected by the changes
in Spain’s FITdo not have standing in international arbitration. e only domestic
rms that have been able to pursue cases are large multinationals, such as Aben-
goa and Isolux, who have used their foreign aliates to gain access to the ECT.
A signicant number of claimants are actually not energycompanies at all, but
private equity funds. More importantly, some of the companies involved in the
ISDS cases only started investing in Spain after 2009 and continued increasing
their portfolios throughout 2010 and 2011 (i.e., when the country was in crisis
and some changes to the FIT had already been made) and some of them have
continued to invest even after bringing an ISDS case.54 is suggests that some in
Kyla Tienhaara and Christian Downie 459
the select group of investors that can access ISDS view it not only as an insurance
policy, but also as an additional source of prot.
In January 2016, the rst award was issued in an ISDS case pertaining to
Spain’s FIT. e tribunal in Charanne BV and Construction Investments SARLv.
Spain (a case that commenced in 2012) ruled in favor of the state and required the
investors to pay €1.3 million of the government’s legal costs. In coming to the
decision, the arbitrators determined (by majority) that because Spain had never
made a “specic commitment” to investors about the stabilization of the FIT,
they could not have a “legitimate expectation” that the regulatory framework
would not change.55 e tribunal also noted that the Spanish supreme court had
already found that changes to the FIT were permissible under Spanish law before
the companies in this case had invested.56 A second award was made (but not
released publicly) in July 2016 in Isolux Infrastructure Netherlands v. Spain. As
with Charanne, two of the three arbitrators sided with Spain.57 A similar outcome
occurred in Blusun S.A. v. Italy.58
In May 2017, an award in a third Spanish case—Eiser Infrastructure Limited
and Energia Solar Luxembourg v. Spain—was released. is time Spain lost and
was required to provide €128 million in compensation to the investors. Eiser
diered from Charanne insofar as it covered more recent changes to the scal
regime, which had the most detrimental impacts on investments. However, these
changes were also covered in Isolux, where the tribunal came to a dierent con-
clusion. Unfortunately, without a published award in Isolux, it is not possible to
compare the reasoning of each tribunal. What is clear is that, as in so many mod-
ern ISDS disputes, the outcome of Eiser hinged on the tribunal’s interpretation
of the “fair and equitable treatment” standard.59 e Eiser tribunal determined
that unlike in Charanne, the investor did have a “legitimate expectation” that the
regulatory regime would not be completely transformed, even in the absence of
any specic commitment by the Spanish government.
It is unsurprising that Spain has had a mixed experience with its ECT ISDS
cases. ere is no precedent in ISDS. While arbitrators often rely on past deci-
sions, they are not obliged to do so and the system has been criticized for its
inconsistency and unpredictability.e existing body of awards demonstrates
that arbitrators can come to very dierent conclusions about how vague pro-
visions such as the need to provide “fair and equitable treatment” should be
interpreted.
Whether Spain’s experience will deter other countries from changing their
renewable energy incentive schemes is an open question. e fact that the Spanish
government has not backed down in the face of so many disputes suggests that
either it is condent that it can win the majority of them or that it anticipates
that the costs of reinstating the subsidies would be greater than any compensa-
tion it might have to pay investors. In terms of the insurance role of ISDS, the
early evidence suggests while some investors may prevail in their cases, there
is certainly no guarantee of a positive outcome. Other mechanisms to mitigate
460 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
risk for investors are likely to be more reliable. For example, the Overseas Pri-
vate Investment Corporation (OPIC) has specically tailored risk insurance for
the renewable energy sector that explicitly covers “material changes to feed-in-
taris.”60
Whether ISDS is able to provide eective protection against other types of
political risk that did not arise in the Spanish cases, such as local opposition to
renewable energy development, is also unclear. Governments are more likely
to respond to local opposition at the planning stage, rather than after an invest-
ment has been made, and most investment treaties (including the ECT) do not
cover “preestablishment.” However, there has been one successful claim of this
nature under the investment chapter of the North American Free Trade Agree-
ment (NAFTA), which does cover preestablishment. e American company
Windstream launched a challenge against Canada in 2012 after the province of
Ontario imposed a moratorium on oshore wind projects in the Great Lakes. e
company argued that the moratorium was put in place to placate local opponents
to wind energy in an election year, whereas the government of Ontario claimed
that it was taking a precautionary approach, given an absence of scientic data on
the impacts of oshore wind projects in freshwater environments. In September
2016, Windstream won C$28 million (28 million Canadian dollars; or US$ 21
million) in compensation and legal costs.61 is was far below the approximately
US$350 million that the company had sought. e tribunal accepted that the gov-
ernment did have genuine concerns about the lack of scientic studies. However,
it found that the government’s failure to commission research to address this gap
left the investor in a “legal and contractual limbo,” which constituted a breach of
the fair and equitable treatment standard in NAFTA.62
As evident from the Windstream Energy LLC v. Government of Canada
award and others, it is not easy for an investor to establish that a government took
action for political reasons. Furthermore, political motivation for an action will
not necessarily be viewed as sucient evidence of a breach of an investment
treaty. In some ISDS cases tribunals have sanctioned governments for taking
measures that harmed investors in response to public demand, but in other cases
arbitrators have made it clear that this is not their role. For example, the tribunal in
Electrabel v.Hungary noted that “politics is what democratic governments neces-
sarily address; and it is not, ipso facto, evidence of irrational or arbitrary conduct
for a government to take into account political or even populist controversies in a
democracy subject to the rule of law.”63
In any event, there are much more desirable ways to deal with local oppo-
sition to renewable energy projects than legal action. Research suggests that
nancial benet arrangements, including community prot sharing, or direct
involvement of communities in wind farm projects are likely to quell or at least
limit opposition in many cases.64
Kyla Tienhaara and Christian Downie 461
Promoting Investment in Renewables?
e nal assumption of ECT proponents is based on a logical combination of the
rst two assumptions: if political risk is a major barrier to investment and agreeing
to ISDS under a treaty such as the ECT reduces this risk, then it should follow
that investment ows will increase to those states that sign treaties. While this is
how investment treaties should operate in theory, there is no strong evidence that
this plays out in practice. Anumber of scholars have employed econometrics to
examine the question of whether there is a causal link between the existence of an
investment treaty and increased ows of FDI. e results have been unconvinc-
ing.65 Many early studies that demonstrated a positive eect have been criticized
on methodological grounds.66 Some recent studies have addressed one “endo-
geneity problem” (omitted variables), but none have accounted for the issue of
reverse causality (i.e., that states might choose to sign treaties when they see
that investment ows are increasing).67 In any case, proving correlation is not
the same as proving causation. Furthermore, quantitative studies in this area are
based on highly aggregate investment data, which makes it dicult to assess their
relevance to specic sectors (e.g., renewable energy).68
To a lesser extent, qualitative studies have also been employed to address the
relationship between investment treaties and FDI. Lauge N. Skovgaard Poulsen
concludes that existing surveys of corporate executives suggest that “for the
vast majority of investors, [bilateral investment treaties] do not appear to be
important—directly or indirectly—when determining where, and how much, to
invest abroad.”69 However, he notes that it is possible that investment treaties are
more important in some sectors than others.
While more research in this area is warranted, existing evidence does not
indicate that renewable energy is a “special case.” For example, the UN Con-
ference on Trade and Development (UNCTAD) 2010 World Investment Report
notes that while investment treaties “might have a particular relevance for attract-
ing low-carbon foreign investment,” by and large this type of investment follows
the same economic determinants as foreign investment in general (e.g., access to
markets and resources).70 A 2014 ClimateScope report that mapped the “fron-
tiers” of clean energy investment found Brazil (a country that has never ratied a
bilateral investment treaty) to be the second most attractive developing country
for renewable energy investment (out of fty-ve countries studied).71 e study
employed fty-ve indicators in the assessment of country attractiveness; the
presence of an investment treaty was not one of them.72 In short, there currently
is no evidence that the ECT is helping to facilitate investment into renewable
energy.
Conclusion
It is widely agreed that the international energy architecture needs to be reformed.
In the context of climate change, one objective of any reformed institutional
462 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
architecture must be to promote investment in clean energy technologies. On the
surface, the ECT seems to have the potential to play this role by providing legal
protection to investors in the renewable energy sector.However, when one delves
a bit deeper, the arguments begin to unravel. e political risk associated with
changes in subsidies is of declining signicance for the renewable energy sector,
given the rapidly falling costs of wind and solar technologies. Furthermore, even
if the risk of subsidy changes was to remain signicant in the long term, it is
not evident that ISDS provisions eectively ameliorate it. eoretically, ISDS
could play some role in deterring states from responding to local opposition to
renewable energy developments, but not under the ECT because the preestab-
lishment phase of investment is not covered. Finally, and most importantly, there
currently is no strong quantitative or qualitative data to show that providing legal
protection to investors through ISDS translates into increased investment ows
in the renewable energy sector, or in any other sector for that matter.
A regime that appears to fail to live up to the hopes of its proponents is
lamentable. However, of greater concern is that the ECT may not just fail to facil-
itate a clean energy transition, but also may actively impede it. Although we have
not explored the issue in this article, it is important to reiterate that incumbent
industries could use the ISDS provisions in the ECT to challenge government
measures to combat climate change and reduce dependence on fossil fuels. Of
particular concern in this regard are the Energy Charter Secretariat’s initiatives to
expand the coverage of the ECT intoAfrica and Asia.As Bernasconi-Osterwalder
notes, the legal implications of signing the ECT might not be well understood in
many developing countries, particularly given the fact that it is “a common prac-
tice for countries to designate their energy ministries as the competent agencies
to decide whether or not to join” and these ministries are not typically involved
with the negotiation of investment treaties or the resolution of ISDS cases.73
Further research in this area will help to inform policy at a time when the
future of ISDS provisions, including those in the ECT, is unclear. It is worth noting
that since acquiring competence over investment in the 2009 Treaty of Lisbon,
the European Commission has consistently objected to the application of the ECT
to “intra-EU” disputes.74 Further, the European Commission has proposed to
move away from the ECT-style system of ISDS in new treaties, and will instead
refer disputes to an investment court.75 Whether other countries will accept such
a system (so far, only Canada and Vietnam have) remains to be seen, but it could
present a path for further reform of the ECT.
However, even if the ECT was reformed to radically improve its ISDS mech-
anism, it is not clear that there would be any resulting benets in terms of spurring
a renewable energy revolution. Clearer rules would not resolve the fundamental
problem that investment treaties do not appear to promote FDI. Areformed ISDS
system or investment court that better protected government policy space and
provided greater transparency and independent adjudicators would, if anything,
be less likely to provide a strong attraction for investors.
Kyla Tienhaara and Christian Downie 463
For these reasons, any expansion of the ECT under the auspices of the new
IEC should be considered with caution, and the burden of proving that the benets
of ISDS outweigh the risks should be placed on those seeking to expand its use.
While political risk will remain an issue for some renewable investors in the short
to medium term, there are other means through which this risk can be addressed.
Notably, governments and international nancial institutions can oer renewable
energy investors tailored political risk insurance policies on favorable terms.
e global community could also acknowledge that some level of political risk
will always be present for foreign investors in any sector and focus instead on
decreasing other forms of risk for renewable energy investors. At the top of the
list is nancial risk, which is a subject recently addressed by the G-20 with a
proposal to create a “renewable energy specic risk mitigation facility” to allow
companies to secure access to aordable nancing.76 Also noteworthy is the
Indian government’s consideration of a currency risk guarantee fund to address
the high costs of hedging currency risks in renewable energy projects, which arise
when the project has revenue in one currency and loan payments in another.77
Such endeavors appear more worthy of the attention of global leaders than the
continued expansion and entrenchment of the ECT.
Annex: Known Investor-State Disputes Related to Renewable
Energy, up to June 2017
Claimant Investor Respondent
State
Energy
Type
Treaty Year
Initiated
Outcome
Mesa Canada Wind NAFTA 2011 State win
Gamesa Syria Wind Spain-Syria
BIT
2011 Investor win
PV Investors Spain Solar ECT 2011 Pending
Mercer Canada Biomass NAFTA 2012 Pending
Windstream Canada Wind NAFTA 2013 Investor win
Charanne Spain Solar ECT 2013 State win
Antaris Solar Czech Republic Solar ECT 2013 Pending
Isolux Infrastructure Spain Solar ECT 2013 State win
CSP Equity Investment Spain Solar ECT 2013 Pending
RREEF Infrastructure Spain Solar ECT 2013 Pending
Antin Infrastructure Spain Solar ECT 2013 Pending
Eiser Infrastructure Spain Solar ECT 2013 Investor win
Natland Investment
Group
Czech Republic Solar ECT 2013 Pending
Voltaic Network Czech Republic Solar ECT 2013 Pending
ICW Investments Czech Republic Solar ECT 2013 Pending
Photovoltaik Knopf
Betriebs-GmbH
Czech Republic Solar ECT 2013 Pending
continues
464 The Energy Charter Treaty, Renewable Energy, Investor-State Disputes
continued
Claimant Investor Respondent
State
Energy
Type
Treaty Year
Initiated
Outcome
WA Investments
Europa-Nova
Czech Republic Solar ECT 2013 Pending
Wirtgens and JSW Solar Czech Republic Solar ECT 2013 Pending
EVN Bulgaria Electricity
supply
ECT &
Austria-
Bulgaria
BIT
2013 Pending
Masdar Solar Spain Solar ECT 2014 Pending
Blusun SA Italy Solar ECT 2014 State win
NextEra Energy Spain Solar ECT 2014 Pending
Infrared Environmental
Infrastructure
Spain Solar ECT 2014 Pending
RENERGY Spain Solar ECT 2014 Pending
RWE Innogy Spain Solar ECT 2014 Pending
Albaniabeg Ambient
Sh.p.k.
Albania Waste-to-
energy
ECT 2014 Pending
Kuivallik Latvia Wind Estonia-
Latvia BIT
2014 Pending
Stadtwerke München
GmbH
Spain Solar ECT 2015 Pending
STEAG GmbH Spain Solar ECT 2015 Pending
9REN Holdings Spain Solar ECT 2015 Pending
Baywa r.e. Renewable
Energy
Spain Solar ECT 2015 Pending
Cube Infrastructure et al. Spain Solar ECT 2015 Pending
Matthias Kruk et al. Spain Solar ECT 2015 Pending
KS Invest GmbH Spain Solar ECT 2015 Pending
JGC Corp Spain Solar ECT 2015 Pending
Cavalum SGPS Spain Solar ECT 2015 Pending
E.ON SE Spain Solar,
wind,
hydro
ECT 2015 Pending
Greentech Energy Italy Solar ECT 2015 Pending
OperaFund Eco-Invest Spain Solar ECT 2015 Pending
Silver Ridge Power Italy Solar ECT 2015 Pending
SoIEs Badajoz GmbH Spain Solar ECT 2015 Pending
Belenergia Italy Solar ECT 2015 Pending
Hydro Energy Spain Solar ECT 2015 Pending
Watkins Holdings et al. Spain Wind ECT 2015 Pending
Landesbank Baden-
Württemberg et al.
Spain Solar ECT 2015 Pending
Eskosol Italy Solar ECT 2015 Pending
Altin Spain Solar ECT 2015 Pending
Hydro et al. Albania Hydro and
other
Albania-
Italy BIT
2015 Pending
continues
Kyla Tienhaara and Christian Downie 465
continued
Claimant Investor Respondent
State
Energy
Type
Treaty Year
Initiated
Outcome
ENERGO PRO Bulgaria Hydro ECT &
Bulgaria-
Czech
Republic
BIT
2015 Pending
Eurus Spain Solar ECT 2016 Pending
ESPF Beteiligungs
GmbH
Italy Solar ECT 2016 Pending
Sun-Flower Olmeda et
al.
Spain Solar ECT 2016 Pending
Infracapital F1 Spain Solar ECT 2016 Pending
Sevilla Beheer B.V. et al. Spain Solar ECT 2016 Pending
Amlyn Holding Croatia Biomass ECT 2016 Pending
Viaduct d.o.o. Portorož Bosnia and
Herzegovina
Hydro ECT 2016 Pending
VC Holding II S.a.r.l.
and others
Italy Solar ECT 2016 Pending
Portigon A.G. Spain Solar ECT 2017 Pending
Note: NAFTA, NorthAmerican Free Trade Agreement; BIT, bilateral investment treaty; ECT,
Energy Charter Treaty.
Notes
Kyla Tienhaara is assistant professor in the School of Environmental Studies and the
Department of Global Development Studies at Queen’s University. is research was
supported under the Australian Research Council’s Discovery Early Career Researcher
Award funding scheme (Project No. DE120102787). Christian Downie is a fellow at the
School of Regulation and Global Governance, Australian National University.
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Kyla Tienhaara and Christian Downie 467
Politics of Petroleum and the Energy Charter Treaty as an Eective Investment Regime,”
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25.
Russia’s withdrawal was partially linked to the government’s view that the treaty
was largely irrelevant since it had failed to prevent or resolve the gas supply dispute with
the Ukraine, but it has also been suggested that the high-prole investor-state dispute set-
tlement (ISDS) dispute with Yukos was an additional factor in souring the government’s
opinion of the Energy Charter Treaty (ECT). See Bartlomiej Nowak, “Forging the External
Dimension of the Energy Policy of the European Union,” e Electricity Journal 23, no. 1
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26. Kuzemko, Keating, and Goldthau, e Global Energy Challenge.
27.
Energy Charter Conference, “Road Map for the Modernisation of the Energy
Charter Process,” Decision, Brussels, 24 November 2010.
28.
An ocial policy on consolidation, expansion, and outreach (CONEXO) was
adopted in 2012. See https://energycharter.org/what-we-do/conexo/overview/.
29. Iana Dreyer, “Brussels MovesAgainst Intra-EU Investor-state Arbitration Raise
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Nathalie Bernasconi-Osterwalder, “Expansion of the Energy Charter toAfrica
and Asia: Undoing Reform in International Investment Law?”Investment Treaty News,
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energy
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charter
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ect
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africa
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asia
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31.
Daria Nochevnik, “China and the Emerging Global Energy Governance Archi-
tecture,”European Energy Review, 30 June 2015, www.europeanenergyreview.eu/china
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32.
Gaetano Iorio Fiorelli, “Italy Withdraws from Energy CharterTreaty,” Global
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//
globalarbitrationnews.com/italy
-
withdraws
-
from
-
energy
-
charter
-
treaty
-
20150507/. While the ocial reason for the withdrawal was the
need to cut costs (membership in the ECT costs Italy around €370,000 annually), others
have connected the decision to government concerns about exposure to ISDS, particularly
in regard to changes it has made to solar energy subsidies.
33.
Pami Aalto, “e New International Energy Charter: Instrumental or Incremental
Progress in Governance?”Energy Research and Social Science 11 (2016): 92–96.
34.
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Sussman, “e Energy Charter Treaty’s Investor Protection Provisions”; Bradford
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36.
Cases are listed at “Investment Dispute Settlement Cases,” Energy Charter
Secretariat, www.energycharter.org/what-we-do/dispute-settlement/investment-dispute
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37.
See, for example, Joanna Lewis, “e Rise of Renewable Energy Protection-
ism: Emerging Trade Conicts and Implications for Low Carbon Development,” Global
Environmental Politics 14, no. 4 (2014): 10–35.
38.
Kyla Tienhaara, “Regulatory Chill and the reat ofArbitration: AView from
Political Science,” in Chester Brown and Kate Miles, eds., Evolution in Investment Treaty
Law and Arbitration (Cambridge: Cambridge University Press, 2011), pp. 606–627.
Although discussions of regulatory chill generally focus on the negative impact that ISDS
might have on public policy in areas such as health and the environment, at least one author
has postulated that the phenomenon could have benecial results in the specic case of
renewable energy. SeeAvidan Kent, “Renewable Energy Disputes Before International
Economic Tribunals: A Case for Institutional ‘Greening’?” Oil, Gas and Energy Law
Intelligence 13, no. 3 (2015).
39.
Energy Charter Conference, “Road Map for the Modernisation of the Energy
Charter Process,” p. 6.
40.
e Economist Intelligence Unit, “Managing the Risk in Renewable Energy,”
2011, www.economistinsights.com/sites/default/les/downloads/EIU-SwissRe
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41.
Kim Talus, “Introduction—Renewable Energy Disputes in the Europe and Be-
yond: An Overview of Current Cases,” Oil, Gas and Energy Law Intelligence 13, no. 3
(2015).
42.
Leah Stokes, “e Politics of Renewable Energy Policies: e Case of Feed-in
Taris in Ontario, Canada,”Energy Policy 56 (2013): 490–500, at 491.
43.
Miguel Mendonça, David Jacobs, and Benjamin K. Sovacool, Powering the Green
Economy: e Feed-in Tari Handbook (London: Earthscan, 2010), p. xxiii.
44. International Renewable Energy Agency (IRENA), “Renewable Power Genera-
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tricity,” 2015, www.iea.org/Textbase/npsum/ElecCost2015SUM.pdf; Lazard, “Levelized
Cost of Energy Analysis,Version 8.0,” 2014, www.lazard.com/media/1777/levelized_cost
_of_energy_
-
_version_80.pdf; Bloomberg New Energy Finance, “Wind and Solar Boost
Cost-Competitiveness Versus Fossil Fuels,” 2015, http://about.bnef.com/press-releases
/wind-solar-boost-cost-competitiveness-versus-fossil-fuels/.
45.
Bloomberg New Energy Finance, Multilateral Investment Fund, UK Department
for International Development, and Power Africa, “ClimateScope 2014: Mapping the
Kyla Tienhaara and Christian Downie 469
Global Frontiers for Clean Energy Investment,” 2014, p. 5, http:
//
global
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climatescope
.org/en/download/reports/climatescope-2014-report-en.pdf.
46.
Jamie Baxter, Rakhee Morzaria, and Rachel Hirsch, “ACase-control Study of
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47. Ibid.
48. Ibid.
49.
Joe Tirado, “Renewable Energy Claims Under the Energy Charter Treaty: An
Overview,” Oil, Gas and Energy Law Intelligence 13, no. 3 (2015); Talus “Introduction—
Renewable Energy Disputes in the Europe and Beyond.”
50.
Toby Couture, “Booms, Busts, and Retroactive Cuts: Spain’s RE Odyssey,”Ana-
lytical Brief 3, no. 1 (2011), www.e3analytics.eu/wp
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content/uploads/2012/05/Analytical
_Brief_Vol3_Issue1.pdf.
51.
e Economist Intelligence Unit, “Managing the Risk in Renewable Energy,”
p. 11.
52.
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Investment Bubble” (Geneva: Global Subsidies Initiative and International Institute for
Sustainable Development, 2014), p. 2, www.iisd.org/gsi/sites/default/les/rens_ct_spain
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53. Ibid.
54.
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56.
Herbert Smith Freehills, “Herbert Smith Freehills Secures Victory for Kingdom
of Spain in Investor-state Arbitration,” 26 January 2016, www.herbertsmithfreehills
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hsf
-
secures
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victory
-
for
-
kingdom
-
of
-
spain
-
in
-
investor
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state
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arbitration.
57.
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deem
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against
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total
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and
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For a comprehensive overview of the literature, see Jonathan Bonnitcha, Substan-
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71.
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//
global
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73. Bernasconi-Osterwalder, “Expansion of the Energy Charter toAfrica and Asia.”
Kyla Tienhaara and Christian Downie 471
74.
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