Investment law v. supply-side climate policies: insights from Rockhopper v. Italy and Lone Pine v. Canada

Abstract

New fossil fuel developments are inconsistent with keeping global warming below 1.5 °C, and while most climate policies focus on reducing demand for fossil fuels, an emerging transversal consensus promotes efforts to simultaneously reduce supply. In this article, we discuss the obstacles to effective supply-side climate policies posed by international investment treaties that protect corporations against state interventions through investor-state dispute settlement (ISDS). We focus on two recently concluded ISDS cases ( Rockhopper v Italy and Lone Pine v Canada) that concern prohibitions on fossil fuel development in ecologically sensitive areas. Italy was ordered to pay a British firm approximately € 250 million in compensation for a ban on offshore oil developments along the coastline, whereas Canada successfully defended Québec’s ban on gas development in the St. Lawrence River. Arbitrators in both cases reasoned that investors should be compensated when oil and gas exploration permits are revoked (even if such a remedy is not available under domestic law) and expressed antipathy towards civic engagement in the policy process. As companies can seek lost future profits through ISDS, these cases show that the system can engender material costs for states enacting supply-side policies. The threat of ISDS can generate a chilling effect, limiting the potential for supply-side initiatives, particularly in the Global South. Initiators of global efforts to limit further fossil fuel developments must consider the obstacles posed by international investment treaties, support efforts to abolish ISDS, and as an interim measure, promote the interpretation of treaty protections in line with climate objectives.