However, arbitrations have not yet been dealt with by a COP. At COP23 in 2017, several arbitration institutions, in collaboration with the International Bar Association (IBA), took the opportunity to raise awareness of the potential of arbitration in the field of climate change. The next COP, COP26, will take place in Glasgow in November and is the most important climate summit since the signing of the Paris Agreement in 2015. In addition, in accordance with Article 12 of the Kyoto Protocol, the CDM allows each State to meet its emission limits, including through support measures in a developing country. As a result, an industrialized country that finances emission reduction projects in a developing country receives credits, called certified emission reduction credits (“CERs”). IETA has also published a Standard CdM Code of Conditions, which also includes proposals for arbitration clauses (and offers a choice between ICC, PCA, UNCITRAL and ad hoc arbitration).48 This arbitration clause provides that the arbitration will be based in London, UK, with an arbitrator and the PCA Secretary General acting as appointing authority.49 Discussions at COP23 increasingly focused on the following mechanisms: who can enable implementation.49 In the COP23 discussions, there was an increasing focus on mechanisms that can enable implementation. and promoting compliance with the Paris Agreement. In line with this objective, the event explored how arbitration, arbitration and conciliation can promote and support the work of the parties to the Paris Agreement. Panelists discussed the different options of the UNFCCC and the Paris Agreement, as well as the agreements, decisions and treaties used to implement them, allowing States Parties and other actors to use dispute settlement mechanisms. In addition to these cases, various investment arbitration proceedings have been filed in recent years against countries such as Spain, Italy and the Czech Republic, as a result of these countries` legal reforms in the field of renewable energy.38 These cases are most often heard under the Energy Charter Treaty.
For example, in Eiser Infrastructure Limited and Energia Solar Luxembourg v. Spain, in an arbitral award rendered in May 2017, the Tribunal found that the Spanish legal reforms of 2013 and 2014 constituted a violation of the standards of treatment provided for in the Energy Charter Treaty and deprived investors of the full value of their investment (but this award was annulled in its entirety in June 2020).39aa (a) Compañia del Desarrollo de Santa Elena S.A.c. Republic of Costa Rica.31 In 1995, the Compañía del Desarrollo de Santa Elena, S.A., a Costa Rican company whose majority shareholders were United States citizens, initiated arbitration proceedings against Costa Rica under the Convention of the International Centre for Settlement of Investment Disputes (“ICSID”) on the Expropriation of Property Known as “Santa Elena” and compensation due as a result of such expropriation. The Santa Elena property covered more than 15,000 hectares of land, including 30 kilometers of Pacific coast, dry rainforest and numerous rivers, springs, mountains and valleys. On May 5, 1978, Costa Rica issued an expropriation decree for Santa Elena to convert the property into a national park. The Tribunal, approximately 22 years after the issuance of the 1978 decree, found Costa Rica guilty of paying compensation for expropriation measures, even if they had been taken with the legitimate aim of protecting the environment. “Any dispute arising out of, outside or in connection with this Agreement shall be resolved by arbitration. The language of the arbitration is [*Insert details (e.B. English)]. The appointing authority is the [*insert information (e.B. Secretary-General of the Permanent Court of Arbitration)]. The number of arbitrators is [*Insert details (e.B.
three)]. The place of arbitration is [*Insert details (e.B. London)], and the applicable arbitration rules are [*insert details (e.B. the Optional Rules for the Settlement of Disputes Relating to Natural Resources and/or the Environment of the Permanent Court of Arbitration). 47 (b) Trail Smelter Arbitration.20 The Trail Smelter Arbitration, which dates back to 1938-1941, concerned a dispute between the United States and Canada over air pollution caused by sulphur emissions from a smelter in Canada (at the U.S. border). The arbitral tribunal found Canada liable for damage related to air pollution. In summary, it will be interesting to see how the interaction between the Paris Agreement and arbitration develops at the international level, but the above examples at the national level clearly show that the Paris Agreement may have more teeth than many had anticipated. Climate change is leading to new economic realities and new legal frameworks to which all governments and businesses must adapt. Conflicts related to climate change and sustainability are the new reality for business. There is no need to worry – no transaction is risk-free.
However, the parties are well advised to consider strategies to mitigate and resolve disputes at the beginning of each transaction. As a neutral forum for parties to elect experts, arbitration is well positioned to play a leading role as an arena for resolving many climate change and sustainability disputes arising from contractual relationships, investment treaties or intergovernmental commitments. In addition, it has the potential to fill an existing gap and become a key mechanism for the application of international environmental law. However, if such a consensus is reached, arbitration is well placed to close the breach, not least because it is a neutral and impartial forum. Other climate change protocols that adopt arbitration as a means of resolving disputes include: The flexibility of arbitration makes it an ideal forum for making quick decisions in climate change-related disputes, if supported by the right legislation. Anti-ISDS advocates warn of the “deterrent effect” of ISDS on regulatory measures in the public interest. This deterrent effect is often wrongly attributed to ISDS as a system and is often distorted or exaggerated. A deterrent effect would not be the result of arbitration as a process, but the result of the substantive terms agreed in the BITs. In general, BITs uphold the right of States to pursue legitimate political objectives, such as the protection of public order, security, morality and health, and taxation, among others.
More recent BITs, such as the draft Dutch Model BIT, explicitly refer to the right of States to regulate and address environmental and human rights issues. .