Energy Transition, Climate Change, and Energy Disputes: No Time to Wind Down

Crina, what types of obligations do you consider that states have in relation to the ongoing climate change?

States have two main types of obligations in relation to climate change: 1) climate change mitigation obligations which imply that States would address the cause of climate change by, for example, reducing greenhouse gas emissions, and 2) climate change adaptation obligations, by which states endeavour to implement measures to manage climate change consequences, such as for example flood prevention mechanisms.

What would you say are the recent developments regarding state’s obligations in the area of climate change?

The human rights aspect is probably the most striking one in terms of its meteoric evolution. Human rights treaties create not only negative obligations for states, i.e., to refrain from violating human rights, but also, more importantly within the climate change framework, they create positive obligations to fulfil and protect human rights. On this note, on 28 July 2022, the United Nations General Assembly declared the right to a clean, healthy, and sustainable environment as a universal human right, where its promotion requires full implementation of the environmental agreements under the principles of environmental law. Furthermore, on 29 March 2023, the United Nations General Assembly decided to request the International Court of Justice to render an opinion on the obligations of States under international law to ensure that the climate system is protected from emissions of greenhouse gases. The opinion will also cover the States’ legal obligations when they cause significant harm to the climate system .

The rapid developments in the context of human rights and climate change emergency, are apparent from the European Court of Human Rights case law. The Court is currently considering several cases dealing with States’ positive obligations to mitigate the effects of climate change, as well as their obligations under the Paris Agreement, for example, Verein KlimaSeniorinnen Schweiz and Others v. Switzerland, Careme v. France, and Duarte Agostinho v. Portugal. In addition, litigations before the national courts are increasing in number and frequency, such as the Urgenda case before the Supreme Court of the Netherlands and the Bundes Klimaschutzgesetz case before the German Federal Constitutional Court, which both involved claims regarding greenhouse emissions. 

How does the current climate crisis affect the investment landscape?

One cannot talk about climate emergency and climate change mitigation and adaptation without mentioning the increased need for investments. At COP 27, the Sharm-el-Sheik Implementation Plan expressly noted that USD 4 trillion per year has to be invested in renewable energy by 2030 to be able to reach net zero emissions, and that USD 4-6 trillion per year is required for a global transformation to a low carbon economy. Often, we think about energy transition in terms of the shutting down of fossil fuel energy investments, but these appear to be the most manageable costs. A recently released report by the World Bank and the Energy Charter Secretariat on “Enabling Foreign Direct Investment in the Renewable Energy Sector – Reducing Regulatory Risks and Preventing Investor-State Conflicts” highlights that the renewables in relation to the total electricity generation is expected to increase globally from 28% in 2021 to 61% in 2030, and 88% in 2050. As the role of the public sector in these investments is limited, private investments will be increasingly required in these renewable energy projects, generally characterized by high upfront costs.

One last question, which role do you see for arbitration when it comes to climate change disputes?

The 2022 Energy Arbitration Survey by Queen Mary University of London and Pinset Masons has found arbitration as the most suitable forum for resolving energy disputes. Pursuant to the Survey, climate change was ranked in the top ten causes of energy disputes in the past five years, with arbitration being considered by over 25% of the respondents as a suitable dispute resolution mechanism for climate change disputes. It is without doubt that arbitration can further develop as a preferred dispute resolution in relation to climate change disputes.

In the interview series The SCC spotlight talk, SCC meets practitioners to discuss current issues, challenges, and opportunities in commercial dispute resolution of today.