Combating climate change and securing electricity supply: The role of investment protection law

European Environmental Law Review

Volumn 16, Issue 8-9, 2007, Pages 227-248

  Boute, Anatole ^a  

^a UNIVERSITY OF GRONINGEN   (Netherlands)

Author keywords

[No Author keywords available]

Indexed keywords

CLIMATE CHANGE; ELECTRICITY SUPPLY; ENVIRONMENTAL LEGISLATION; ENVIRONMENTAL POLICY; INVESTMENT;

EID: 34548809080     PISSN: 09661646     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (223)

1. Green Paper of the European Commission COM(2006) 105 final of 8 March 2006 on A European Strategy for Sustainable, Competitive and Secure Energy, p. 4 (hereafter "Green Paper on Sustainable, Competitive and Secure Energy"). The Ministers of the Member countries of the International Energy Agency refer to the "twin energy-related challenges we confront".
2. See Press Release (07)11 of the Meeting of the Governing Board at Ministerial Level of the International Energy Agency of 17 May 2007, Paris.
3. The European Commission considers that an amount of €900 billion will have to be invested over the next 25 years in power generation capacity alone. Communication of the European Commission COM(2007)1 final of 10 January 2007 on An Energy Policy for Europe, p. 4 (hereafter "Communication on An Energy Policy for Europe).
4. See also High Level Group on Competitiveness, Energy and the Environment, Second Report on Long Term Energy Futures and Investment in Power Generation and Energy Efficiency (October 2006), p. 1;
5. Eurelectric, Ensuring Investments in a Liberalised Electricity Sector (2004), p. 50;
6. Capgemini, European Energy Markets Observatory 2006; At world level, the International Energy Agency estimates that investments in the energy-supply infrastructure of over $30 trillion are needed over 2005-2030. International Energy Agency, World Energy Outlook 2006.
7. See also the 2006 G8 Summit's Declaration on Global Energy Security, http://en.g8russia.ru/docs/11.html.
8. Helm, "European Energy Policy: Securing Supplies and Meeting the Challenge of Climate Change" [2005] Paper prepared for the UK Presidency of the European Union, p. 3 (hereafter "European Energy Policy").
9. Ibid., p. 3.
10. See World Bank, Clean Energy and Development: Towards an Investment Framework, (2006), p. 3. The World Bank notes that "[t]he global community today is working toward a potential 'double dividend". This means meeting the needs that are essential for economic growth and fighting poverty, while at the same time leaving a smaller environmental footprint. Strategies to support clean energy and a low carbon economy are essential to fulfill this promise."
11. Helm provides in this view that "The challenge is not simply to reduce carbon emissions, but to do so in a way which does not prejudice the other objectives. An energy policy designed to meet multiple objectives is a much more complex problem, which is likely to require multiple instruments". Helm, "Climate Change and Energy Policy", in Helm (ed.), Climate Change Policy, (Oxford University Press: Oxford, 2005), p. 323.
12. See also Blyth and Hamilton, Aligning Climate and Energy Policy - Creating Incentives to Invest in Low Carbon Technologies in the Context of Linked Markets fir Fossil Fuel, Electricity and Carbon, (Chatham House: 2006);
13. Blyth and Lefevre, Energy Security and Climate Change Policy Interactions - An assessment Framework, (International Energy Agency Information Paper: 2004).
14. For the initiative of the United Kingdom in this view see Hobday, "The Energy Review: Balancing Climate Change With the United Kingdom's Energy Security Challenge", International Energy Law and Taxation Review [2006], 7, pp. 195-198.
15. Eurelectric, Security of Electricity Supply - Roles, Responsibilities and Experiences within the EU, (2006), p. 15;
16. Roggenkamp, "Re-regulating Electricity Supply in the Netherlands: A Balancing Act between Energy Security and Liberalisation", in Barton, Redgwell, Ronne and Zillman (eds), Energy Security: Managing Risk in a Dynamic Legal and Regulatory Environment, (Oxford University Press: 2004), p. 279.
17. Boute, "De Handhaving van de Voorzieningszekerheid in de Europese Elektriciteitsmarkt: Wat is de Toegevoegde Waarde van Richtlijn 2005/89/ EG ten opzichte van de Elektriciteitsrichtlijn 2003/54/EG", Milieu en Energierecht [2006], Vol. 2, pp. 111-112.
18. International Energy Agency, Power Generation Investment in Electricity Markets, (2003), pp. 89-93.
19. Joint Paper by the Energy Charter Secretariat and the International Energy Agency presented to the 1998 G8 Energy Ministerial in Moscow. See also Eurelectric, Ensuring Investments in a Liberalised Electricity Sector, op cit., p. 55. According to Eurelectric, "[t]he aspect of regulatory certainty cannot be overstated. Governments must ensure a stable, reliable and long-term framework for investments - not a situation in which the parameters of the economic environment are changed every couple of years."
20. 2006 G8 Summit's Declaration on Global Energy Security, op. cit., p. 2.
21. OJ 4.02.2006 L33/22, in the following the "Directive 2005/89/EC on Security of Electricity Supply".
22. See Art. 3 §1 and §2 (b) of Directive 2005/89/EC on Security of Electricity Supply.
23. Sullivan and Blyth, Climate Change Policy Uncertainty and the Electricity Industry: Implications and Unintended Consequences, (Chatham House Briefing Paper: 2006), p. 2;
24. Blyth and Yang, Impact of Climate Change policy Uncertainty in Power Investment, (International Energy Agency Working Paper Series: 2006).
25. See also Institutional Investors Group on Climate Change, Investor Statement on Climate Change, (2007), available at http:// www.insightinvestment.-com.
26. Kyoto Protocol to the United Nations Framework Convention on Climate Change, (1997), entry into force on 16 February 2005, thereafter the "Kyoto Protocol".
27. See Art. 3 of the Kyoto Protocol.
28. See Directive 2003/87/EC of the European Parliament and of the Council of 13 October 2003 Establishing a Scheme for Greenhouse Gas Emission Allowance Trading within the Community and Amending Council Directive 96/ 61/EC, OJ 2003 L275/32, amended by Directive 2004/101/EC of the European Parliament and of the Council of 27 October 2004, OJ 2004 L338 (hereafter "Emissions Trading Directive").
29. See Helm, Hepburn and Mash, "Credible Carbon Policy", Oxford Review of Economic Policy, Vol. 19, p. 440, n. 3.
30. See also Petterson, "Investing in Renewables: Can We Trust the Subsidies?", presentation given at the Energy Forum conference on Investing and Financing Long Term Power Supply (2006).
31. Wagner, "International Investment, Expropriation and Environmental Protection", Golden Gate University Law Review, (1999), Vol. 465, p. 465.
32. In accordance with Annex I of the Emissions Trading Directive, combustion installations with a rated thermal input exceeding 20 MW are covered by the European Emissions Trading Scheme.
33. See Directive 2001/77/EC of 27 September 2001 on the Promotion of Electricity Produced from Renewable Energy Sources in the Internal Electricity Market, OJ 27.10.2001 L283/33 (hereafter "Directive 2001/77/ EC on Renewable Electricity");
34. Directive 2004/8/EC of 11 February 2004 on the Promotion of Cogeneration based on a Useful Heat Demand in the Internal Energy Market and Amending Directive 92/42/EEC, OJ 21.02.2004 L52/50 (hereafter "Directive 2004/8/EC on High-Efficiency Cogeneration").
35. See, among others, Directive 2006/32/EC of 5 April 2006 on Energy End-Use Efficiency and Energy Services and Repealing Council Directive 93/76/EEC, OJ 27.4.2006 L114/64 (hereafter "Directive 2006/32/EC on Energy End-Use Efficiency").
36. See hereunder as regards the large interpretation of the notion of "possessions" given by the European Court of Human Rights.
37. Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature on 20 March 1952 (hereafter the "First additional Protocol to the ECHR"); Convention for the Protection of Human Rights and Fundamental Freedoms, opened for signature on 4 November 1950 (hereafter the "European Convention on Human Rights") available at http://conventions.coe.int/treaty/EN/ cadreprincipal.htm (hereafter the "ECHR").
38. Judgment Sporrong and Lonnroth v. Sweden of 23 September 1982, ECHR [1982] Serie A nr. 52, at 24.
39. Judgment Sporrong and Lonnroth v. Sweden, op cit., at 26. The European Court of Human Rights provided in this view that "[t]he search for this balance [contained in the first rule] is inherent in the whole of the Convention and is also reflected in the structure of Article 1".
40. Fabri, "The Approach Taken by the European Court of Human Rights to the Assessment of Compensation for 'Regulatory Expropriations' of the Property of Foreign Investors", N. Y. U. Environmental Law Journal, [2002], Vol. 11, p. 163.
41. Ibid., at 26.
42. Judgment James v. United Kingdom of 21 February 1986, ECHR [1986] Serie A, nr 98, at 34.
43. Mountfield, "Regulatory Expropriations in Europe: The Approach of the European Court of Human Rights", N.Y. U. Environmental Law Journal, (2002), Vol. 11, p. 146.
44. See also Betten and Grief, EU Law and Human Rights (Longman: 1998), p. 106.
45. See Case 44/79 Hauer v. Land Rheinland-Pfalz, judgment of 13 December 1979, ECR [1979] 3727.
46. See also Art. 295 of the Treaty Establishing the European Community providing that "[t]his Treaty shall in no way prejudice the rules in Member States governing the system of property ownership."
47. Case 59/83 SA Biovilac NV v. European Economic Community, judgment of 6 December 1984, ECR [1984] 4057.
48. It must be noted that the principles of legal certainty and protection of legitimate expectations, as well as the principles of non-discrimination and equal treatment could be considered as "standards of treatment" of investors. This conceptual category can be distinguished from the "deprivation of property rights" as such. See Fietta, "Expropriation and the "Fair and Equitable" Standard - The Developing Role of Investors" "Expectations" in International Investment Arbitration, Journal of International Arbitration, (2006), Vol. 23(5), pp. 376-377.
49. Esteban, The Rule of Law in the European Constitution, (Kluwer: 1999), p. 161.
50. See Case 95-98/74 Union Nationale des Coopératives Agricoles de Céráles and others v. Commission, judgment of 10 December 1975, ECR [1975] 1615;
51. Case 228/84 Pauvert v. Court of Auditors, judgment of 20 July 1985, ECR [1985] 1973.
52. The Court of Justice ruled in this respect that: "an administrative measure conferring individual rights on the person concerned cannot in principle be withdrawn, if it is a lawful measure; in that case, since the individual right is vested, the need to safeguard confidence in the stability of the situation thus created prevails over the interests of an administration desirous of reversing its decision". Cases 7/56 and 3-7/57, Algera v. Common Assembly, judgment of 12 July 1957 ECR [1957] 56,
53. quoted in Snodgrass, "Protecting Investors' Legitimate Expectations: Recognizing and Delimiting a General Principle", ICSID Review Foreign Investment Law Journal, [2006], Vol. 21(1), p. 26.
54. See also Esteban, The Rule of Law in the European Constitution, op cit., p. 162.
55. 2). See Art. 3(a) of the Emissions Trading Directive.
56. According to Art. 12, para. 3 of the Emissions Trading Directive, each year operators of the installations covered by the Emissions Trading Scheme (see Annex I) shall surrender a number of allowances equal to the total of their emissions during the preceding year.
57. Article 9 of the Emissions Trading Directive provides that the National Allocation Plans should be notified to the European Commission, that may reject them, or any aspect thereof, in case of incompatibility with Art. 10 or Annex III of the Directive.
58. So, in its assessment of the first set of National Allocation Plans for the period 2008-2012, the European Commission reduced the emissions rights by almost seven per cent below the emissions proposed by Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden and the United Kingdom. See Press Release IP/06/1650 of 29 November 2006, Emissions Trading: Commission Decides on First Set of National Allocation Plans for the 2008-2012 Trading Period.
59. In its assessment of the Czech and Polish National Allocation Plans, the Commission required a reduction of the proposed emission rights of respectively 14.8% and 26.7%. See Press Release IP/07/412 of 26 March 2007, Emissions Trading: Commission Decides on Czech and Polish National Allocation Plans for 2008-2012.
60. For an overview of the current allocation of emission rights to the power generation sector in Europe see www.econ.cam.ac.uk/research/tsec/ euets/ (updated until 23 January 2006).
61. Point Carbon, Press Release of 29 November 2006, EC decision on NAP "hard to understand", says German government.
62. Action brought on 15 January 2004 by Arcelor S.A. against the European Parliament and Council, Case T-16/04.
63. 2 without any restrictions? Can the threatened sinking of the South Pacific islands be averted by the imposition of restrictions on the European steel industry?" These authors furthermore consider that "the Court will have to verify whether the strains on the European economy are actually in an appropriate proportion to the minor advantages of European emissions trading."
64. Ibid.
65. Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006.
66. French Council of State, Arrest no 287110 of 8 February 2007.
67. Translated from French by the author. Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006, p. 22, no B.16.
68. Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006, p. 21, no B.15.
69. Ibid.
70. See Pending Case T-16/04 Arcelor S.A. v. European Parliament and Council.
71. The Belgian Arbitration Court did not analyse this issue into detail, since it considered that it was not competent to evaluate this claim.
72. Proposal of the European Commission COM (2001) 581 final of 23 October 2001 for a Directive of the European Parliament and of the Council establishing a scheme for greenhouse gas emission allowance trading within the Community and amending Council Directive 96/67/EC, p. 10 (hereafter the "Commission's proposal for an Emissions Trading Directive").
73. Less than one per cent of the EU's total emissions of carbon dioxide in 1990.
74. Commission's proposal for an Emissions Trading Directive, p. 10.
75. Ibid.
76. Translated from French. Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006, p. 22, no B.15.
77. Communication of the European Commission COM(2004) 500 final of 7 August 2004 on Commission Decisions of 7 July 2004 concerning national allocation plans for the allocation of greenhouse gas emission allowances of Austria, Denmark, Germany, Ireland, the Netherlands, Slovenia, Sweden, and the United Kingdom in accordance with Directive 2003/87/EC, p. 7. It must be noted that this Decision is challenged by Germany before the Tribunal of First Instance.
78. See Action brought on 20 September 2004 by the Federal Republic of Germany against the Commission of the European Communities, Case T-374/ 04. Germany considers that the prohibition of "ex-post adjustments downwards" is in breach of Art. 9(3) of the Emissions Trading Directive in conjunction with Annex III thereto. It also alleges a breach of Art. 176 of the Treaty Establishing the European Community.
79. Ibid., pp. 7-8.
80. See also Marr and Schafhausen, "Emission Allowance Trading in Germany: A New Environmental Regime is Taking Shape", Journal of European Environmental and Planning Law [2004] 1, pp. 23-25.
81. The European Commission specifies its preference by noting that "retaining allowances following closures is expected to create incentives for investment in clean and efficient installations." Ibid., p. 8.
82. See Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006, no B.19 - 35.
83. For an analysis see Pâques, "L'Emission Trading à la Cour d'Arbitrage", Aménagement-Environnement [2006] 4, pp. 185-188.
84. A fundamental distinction has indeed to be made between the decision on the amount of emission rights that will be allocated for each trading period (this decision is contained in the National Allocation Plans) and the effective yearly transfer of those rights to the account of the operators in the national registries (see Art. 11, 4 of the Emissions Trading Directive).
85. Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006, p. 27, no B.27.1.
86. Furthermore, the Belgian Arbitration Court considered that the withdrawal of emissions rights in case of plant closure does not prohibit the operators to apply for such rights in other Member States. The availability of emissions rights in these countries will depend on their regulation.
87. See Art. 3 of the Emission Allowances Single Trade Agreement for the EU Scheme, Version of 26 August 2006 drafted by the International Emissions Trading Association.
88. See also Brouhns, "Aspects Juridiques du Commerce des Quotas d'Emissions de CO2", Aménagement-Environnement [2006] 1, p. 13.
89. See Pâques, "L'Emission Trading à la Cour d'Arbitrage", op cit., p. 189.
90. Heringa, "Artikel 1 Eerste Protocol EVRM: het eigendomsrecht", in Heringa (ed.), Eigendom in het milieurecht, Centrum voor omgevingsrecht en Beleid/NILOS, Utrecht, 19.
91. See Judgment Broniowski v. Poland of 28 September 2005, n. 38.
92. See also Pâques, "L'Emission Trading à la Cour d'Arbitrage", op cit., p. 189.
93. See Belgian Arbitration Court, Arrest no 92/2006 of 7 June 2006, p. 27, no B.27.1.
94. See however Pâques, "L'Emission Trading à la Cour d'Arbitrage", op cit., p. 189.
95. It must be noted that the issues analysed in this chapter do not directly relate to the notion of investment protection as such. However, the proposed outcome is to a large extent based on the principle of non-discrimination and has therefore been included in the present article.
96. Case 59/83 SA Biovilac NV v. European Economic Community, Judgment of 6 December 1984, ECR [1984] 4057, paras 28-29.
97. "New entrants" are defined under Art. 3(h) of the Emissions Trading Directive as "any installation carrying out one or more of the activities indicated in Annex I, which has obtained a greenhouse gas emissions permit or an update of [it] because of a change in the nature or functioning or an extension of the installation, subsequent to the notification to the Commission of the national allocation plan."
98. Translated from German. Background Paper of the 2008-2012 National Allocation Plan [2006] p. 4.
99. Commission Decision of 29 November 2006 on the national allocation plans of Germany, p. 12.
100. It must be precised that, according to criterion 6 of Annex III of the Emissions Trading Directive a difference of treatment can be applied between new entrants and comparable existing installations, provided this difference is limited to a given trading period. See Commission Decision of 29 November 2006 on the national allocation plans of Germany, p. 12.
101. Moreover, based on the conclusions of the Climate Change Committee, the European Commission considered that this long-term guarantee could " lead to serious distortions of competition in the internal market". Furthermore, the European Commission argued that, from an environmental point of view, the guarantees may "create incentives to invest in carbon-intensive production modes thereby limiting the options for the needed further reductions in greenhouse gas emissions post-2012." Moreover, it considered that "[a]t the same time any type of allocation guarantee beyond 2012 limits the scope for further harmonization of the allocation methodology across the internal market in the context of the EU ETS review." See Communication of the European Commission COM(2006) 725 of 29 November 2006 on the assessment of national allocation plans for the allocation of greenhouse gas emission allowances in the second period of the EU Emissions Trading Scheme accompanying Commission Decisions of 29 November 2006 on the national allocation plans of Germany, Greece, Ireland, Latvia, Lithuania, Luxembourg, Malta, Slovakia, Sweden and the United Kingdom in accordance with Directive 2003/87/EC, pp. 10-11.
102. Commission Decision of 29 November 2006 on the national allocation plans of Germany, p. 12.
103. The German environment minister for instance provided that: "The Commission's dismissive attitude would imply that neither the power plants built in 2005 and 2006, nor the planned new builds through 2012 could rely on long-term investment certainty." Press Release from Point Carbon of 27 November 2006, Germany will fight for free allocation quarantee.
104. Rausch-Becker, "Unternehmen verklagen Brüssel wegen Emissionszertifikaten", 9 February 2007, available at www.finanzen.net (consulted on 3 May 2007).
105. Ibid.
106. Communication of the European Commission COM(2006) 676 final of 13 November 2006 on Building a Global Carbon Market - Report Pursuant to Art. 30 of Directive 2003/87/EC, p. 8.
107. This analysis is shared by most market players. It appears indeed from a review of the application of the Emissions Trading Scheme that companies and industry associations "seek clarity and long-term stability regarding the rules; and this, over longer periods. This would ensure a stable climate for investments and the renewal of asset portfolios. The main reason is that asset lifetimes in capital-intensive industries are roughly between 20 and 60 years, with construction times spanning several years." McKinsey and Ecofys, Review of EU Emissions Trading Scheme - Survey Results (August 2006), p. 4.
108. See also High Level Group on Competitiveness, Energy and the Environment, First Report on the Functioning if the Energy Market, Access to Energy, Energy Efficiency and the EU Emissions Trading Scheme (June 2006), p. 10
109. and High Level Group on Competitiveness, Energy and the Environment, Second Report on Long Term Energy Futures and Investment in Power Generation and Energy Efficiency (October 2006).
110. It must be noted that the concept of "new entrants" is used here in the meaning of Art 3(h) of the Emissions Trading Directive. It must be distinguished from the notion of "new comers" on the electricity markets, which refers to new players competing with the "incumbent" (or historical player) on the liberalised electricity markets.
111. 2 cost pass-through and windfall profits in the power sector", Climate Policy, [2006] Vol. 6, pp. 49-72.
112. See European Commission DG Competition Report on Energy Sector Inquiry SEC(2006) 1724 of 10 January 2007, p. 199-202,
113. 2 allowances were allocated for free or had to be bought on the market." See also the intervention of the Bundeskartellamt in RWE/E-ON, December 2006, referred by Slotboom, "Antitrust Rules and the Sector Inquiry", Presentation given at the European Energy Law Seminar 2007, organised on 29-30 May 2007 at Noordwijk aan Zee.
114. 2-handel van energiebedrijven in allocatieplan aanpakken", www.emissierechten.nl (consulted on 3 May 2007).
115. The Energy Sector Inquiry, op cit., p. 201.
116. In accordance with Art. 5, §2, a) of Directive 2005/89 security of electricity supply, Member States may take "provisions facilitating new generation capacity and the entry of new generation companies to the market".
117. Annex IV of the Emissions Trading Scheme concerning the principles for monitoring and reporting provides indeed that the emission factor for biomass shall be zero.
118. Communication of the European Commission COM(2007) 2 final of 10 January 2007 on Limiting Global Climate Change to 2 Degrees Celsius - The Way Ahead for 20250 and Beyond, p. 5.
119. Green Paper of the European Commission COM(2006)105 final of 8 March 2006 on A European Strategy for Sustainable, Competitive and Secure Energy; Green Paper of the European Commission COM(2000) 769 final of 29 November 2000 on Towards a European Strategy for the security of energy supply.
120. Directive 2003/54/EC of 26 June 2003 concerning common rules for the internal market in electricity, OJ 15.7.2003 L176/37 (hereafter "Directive 2003/54/EC on the internal electricity market").
121. See Art. 3, para. 2(e), Art. 3, para. 3(c) and Art. 5, para. 2(e) and (f) of Directive 2005/89/EC on Security of Electricity Supply. It has to be noted that the reference to alternative modes of electricity production and energy efficiency in the final version of Directive 2005/ 89/EC on Security of Electricity Supply has been drastically diluted in comparison to the proposal of the European Commission.
122. See Boute, "De Handhaving van de Voorzieningszekerheid in de Europese Elektriciteitsmarkt", op cit., pp. 118-119.
123. Recital 1 of Directive 2001/77/EC on Renewable Electricity refers to the "double dividend" of electricity production from renewable energy sources to justify the necessity of action at the European level by providing that "[t]he Community recognises the need to promote renewable energy sources as a priority measure given that their exploitation contributes to environmental protection and sustainable development. In addition this can also [...] contribute to security of supply and make it possible to meet Kyoto targets more quickly."
124. Directive 2004/8/EC of 11 February 2004 on the promotion of cogeneration based on a useful heat demand in the internal energy market and amending Directive 92/42/EEC, OJ 21.02.2004 L52/50 (hereafter "Directive 2004/8/EC on High-Efficiency Cogeneration").
125. The "double dividend" of high-efficiency cogeneration is explicitly underscored in Art. 1 of Directive 2004/8/EC on High-Efficiency Cogeneration providing that the "the purpose of this Directive is to increase energy efficiency and improve security of supply."
126. 2 and other greenhouse gas emissions and thereby to the prevention of dangerous climate change."
127. It must be noted that the issue of ex ante investment security does not directly relate to investment protection law as such. This analysis has been included within the scope of this article given the fact that it intrinsically relates to the issue of ex post investment security of support schemes.
128. Communication of the European Commission COM(2005) 627 final of 7 December 2005 on The Support of Electricity from Renewable Energy Sources, pp. 4-5, thereafter the "Communication on the Support of Renewable Electricity";
129. See also Eurelectric, A Quantitative Assessment of Direct Support Schemes for Renewables, 1st Edn., (2004), p. 9.
130. Sawin, National Policy Instruments Policy Lessons for the Advancement & Diffusion of Renewable Energy Technologies Around the World Thematic Background Paper, (January 2004), p. 6.
131. Van Dijk, Beurkens, Boots, Kaal, De Lange, Sambeek and Uyterlinde, Renewable Energy Policies and Market Developments, ECN, (2003), p. 20;
132. Van der Linden, Uyterlinde, Vrolijk, Nilsson, Khan, Astrand, Ericsson and Wiser, Review of International Experience with Renewable Energy Obligation Support Mechanisms, ECN, (2005), p. 7.
133. "Communication on the Support of Renewable Electricity", op cit., p. 5.
134. Van Dijk, Beurkens, Boots, Kaal, De Lange, Sambeek and Uyterlinde, op cit., p. 20.
135. These concerns are not purely hypothetic. In 2006, for instance, the Walloon Region decided to reduce the amount of certificates initially granted to existing high-efficiency cogeneration installations. Although the Walloon Region limited the applied reduction factor to installations existing before the implementation of the scheme, it nevertheless suddenly modified a commitment enacted by legislative Decree.
136. Modifications and withdrawals of support schemes after assessment of the European Commission are not analysed in this paper. See therefore Gunst, "Impact of European Law on the Validity and Tenure of National Support Schemes for Power Generation from Renewable Energy Sources", Journal of Energy and Natural Resources Law [2005] Vol. 23, pp. 95-119, n. 2.
137. See Gunst, "Impact of European Law on the Validity and Tenure of National Support Schemes", op cit., pp. 116-119.
138. Communication on the Support of Renewable Electricity op cit., pp. 16-17.
139. Heringa, "Artikel 1 Eerste Protocol EVRM: het eigendomsrecht", in Heringa (ed.), Eigendom in het milieurecht, Centrum voor omgevingsrecht en Beleid/NILOS, Utrecht, p. 19.
140. See judgment Van Marle e.a v. The Netherlands of 26 June 1986, Serie A, n. 101.
141. See also judgment Pressos Compania Naviera v. Belgium of 20 November 1995, Serie A, n. 332.
142. See judgment Broniowski v. Poland of 28 September 2005, n. 38.
143. It is referred here to the Clean Development Mechanism (see Art. 12 of the Kyoto Protocol) and Joint Implementation (see Art. 6 of the Kyoto Protocol). For a legal analysis see Freestone and Streck, Legal Aspects of Implementing the Kyoto Protocol Mechanisms - Making Kyoto Work, (Oxford University Press: 2005).
144. See Verhoosel, "Foreign Direct Investment and Legal Constraints on Domestic Environmental Policies: Striking a 'Reasonable' Balance Between Stability and Change", Law and Policy in International Business, [1998] Vol. 29, p. 453.
145. World Bank, Clean Energy and Development: Towards an Investment Framework (April 2006), p. 24.
146. Fankhauser and Lavric, The Investment Climate for Climate Investments: Joint Implementation in Transition Countries, (2003), p. 22. These authors consider that there is "a clear negative relationship between the scope for JI and the general business environment. This makes intuitive sense, as the countries with the worst investment climate will have attracted the lowest amount of (foreign or domestic) investment. Such investments generally increase resources efficiency and upgrade the capital stock: actions that usually lead to a reduction in greenhouse gas emissions."
147. Signature in December 1994, entry into force April 1998.
148. Signature in December 1992, entry into force in January 1994.
149. See Konoplyanik and Wälde, "Energy Charter Treaty and its Role in International Energy", Journal of Energy and Natural resources Law, [2006], Vol. 24, n. 4;
150. Wälde, "International Investment Under the 1994 Energy Charter Treaty", in Wälde (ed.), The Energy Charter Treaty - An East-West Gateway for Investment and Trade,(1996), pp. 251-314.
151. See Art. 1110 of Chapter 11 of NAFTA.
152. See, for instance, Arts 1102 and 1103 of NAFTA. A similar formulation of
153. See Chapter XI, Art. 1115-1138, of the North American Free Trade Agreement, establishing a similar "investor-state arbitration" mechanism.
154. This analysis is limited to the post-establishment phase of investments. Thus, it does not tackle issues related to the access for foreign investors to host countries. Moreover, it does not examine the prohibitions on performance requirements. See Werksman, Baumert and Dubash, "Will International Investment Rules Obstruct Climate Protection Policies?", World Resources Institute Climate Notes [2001].
155. It must be noted that an analysis of the potential conflict between climate regulations and security of electricity supply from the perspective of "pre-investment" rights is of high importance. The recent claim of an American group of electric utilities against the refusal of local authorities to authorise a coal-fired power station on the basis of climate concerns illustrates the relevance of such an analysis. See PacifiCorp and UAMPS, Utilities File Notice of Lawsuit over IPP Unit 3, Press release of 18 July 2007.
156. Beauvais, "Regulatory expropriations under NAFTA : emerging principles & lingering doubts", New York University Law Review, [2002] Vol. 245, p. 3;
157. See also Cho and Dubash, "Will Investment Rules Shrink Policy Space for Sustainable Development? Evidence from the Electricity Sector", World Resources Institute Working Paper, (2003), p. 5. Cho and Dubash consider that "active social and environmental policies in the electricity sector may conflict with the principles guiding investment rules."
158. Metalclad Corporation v. United Mexican States, ICSID Case n. ARB(AF)/97/ 1, 30 August 2000, (hereafter "Metalclad"). Metalclad Corp., a US waste management company, had received a permit from the federal Mexican authorities to develop a hazardous waste landfill facility. However, the municipality denied a building permit to the company. Thereafter, the Governor of the state declared the concerned area natural reserve. The company considered that this obstruction constituted an expropriation of its property.
159. Metalclad, para. 50.
160. See Wagner, op cit., p. 465.
161. Pope and Talbot Inc. v. Canada, UNCITRAL-NAFTA, 20 January 2000, available at http://www.dfait-maeci.gc.ca/tna-nac/Award_Merits-e.pdf, (hereafter "Pope and Tal-bot"). Pope & Talbot, a US company with a subsidiary in Canada, challenged the limitation of export quotas established by Canada for certain provinces in application of the Softwood Lumber Agreement. The company claimed that as this export regime imposed different obligations on producers manufacturing in different Canadian provinces, it had a discriminatory impact. Moreover it alleged that the Canadian administration of the Softwood Lumber Agreement was a measure "tantamount to"expropriation as it led to a loss of ability to sell to its traditional market.
162. Ibid., para. 96, 104;
163. Sedco, Inc. v. National Iranian Oil Co., Interlocutory Award 9 Iran-U.S. Cl. Trib. Rep. 248, (1985), quoted in Wagner, op cit, p. 509;
164. This principle received confirmation in other decisions, mainly within the Iran-U.S. Claims Tribunal. See Aldrich, "What constitutes a Compensable Taking of Property? The Decisions of the Iran-United States Claims Tribunal", 88 American Journal of International Law, 585, (1994);
165. "[N]o compensation is due when the measure is necessary in order to protect the public from a danger arising from the property."; Dolzer, "Indirect Expropriation of Alien Property", ICSID Review - Foreign Investment Law Journal [1986] Vol. 41, p. 62.
166. See also Wagner, op cit., p. 516. The author concludes his chapter about "indirect expropriation in international law" by the following statement: "This discussion demonstrates that international law does not require compensation for the economic impact of regulations that are a legitimate exercise of government police power."
167. S.D. Myers, Inc. v. Government of Canada, UNCITRAL-NAFTA, November 2000 (hereafter "S.D. Myers"). S.D. Myers, a US hazardous waste disposal company with offices in Canada claimed that a Canadian export ban of PCB waste to the United States violated the provisions of Chapter 11 of the North American Free Trade Agreement. It alleged that the ban was taken to favour domestic PCB waste disposers and thus constituted a violation of Canada's non discrimination obligation. It claimed that it had not received fair and equitable treatment because it was denied due process. The Company stated also that it was entitled to damages as the act caused losses of business opportunities and thus was "tantamount to" expropriation.
168. S.D. Myers, para. 280.
169. "An expropriation usually amounts to a lasting removal of the ability of an owner to make use of its economic rights". Ibid., para. 283;
170. Ibid., para. 282.
171. Methanex Corp. v. United States, UNCITRAL-NAFTA, 7 August 2005, available athttp://naftaclaims.com/Disputes/USA/Methanex/ Methanex_Final_Award.pdf. In March 1999, California banned MTBE in gasoline based on a research that concluded that it constituted a significant risk for the environment. Methanex, a Canadian company manufacturing methanol, which is a constituent of MTBE, claimed that this ban violated the investment protection provisions of Chapter 11 of the North American Free Trade Agreement. The company alleged that the measure constitutes an expropriation as it interferes with its sales and goes far beyond what is necessary to protect the environment. Following the company, other measures are better appropriated to attain the objectives. It also considered that California intentionally sought to discriminate the company. For an analysis of the Methanex case see Mann, "The Final Decision in Methanex v. United States: Some New Wine in Some New Bottles", International Institute for Sustainable Development, [2005].
172. Newcombe, "The Boundaries of Regulatory Expropriation in International Law", ICSID Review-Foreign Investment Law Journal, [2005] Vol. 20, n. 1.
173. Douglas, "Nothing if Not Critical for Investment Treaty Arbitration: Occidental, Eureko and Methanex, Arbitration International, [2006], Vol. 22, n. 1;
174. Subedi, "The Challenge of Reconciling the Competing Principles within the Law of Foreign Investment with Special Reference to the Recent Trend in the Interpretation of the Tenn 'Expropriation"', The International Lawyer, [2006] Vol. 40, n. 1.
175. Beauvais, op cit., p. 3;
176. Gantz, "Potential conflicts between investor rights and environmental regulation under NAFTA's Chapter 11", George Washington International Law Review [2001];
177. Brower, "Investor-state Disputes under NAFTA: A Tale of Fear and Equilibrium", Pepperdine Law Review, [2001] Vol. 43.
178. Newcombe, op cit., pp. 35-36.
179. The requirement of non-discrimination is further examined hereunder.
180. Thus, unlike what has been alleged by the non governmental opposition movement to the Multilateral Agreement on Investment (MAI) negotiated in the framework of the Organisation for Economic Cooperation and Development (OECD), expropriation should not be the major issue of concern. After this overview, we can indeed state, in the same line as other scholars, that the challenge to the regulatory sovereignty of states does not lay in the drafting of an expropriation clause in an international investment agreement. Brower, op cit., p. 10;
181. Kolo and Wälde, op cit., p. 846;
182. Sampliner, "Arbitration of Expropriation Cases Under U.S. Investment Treaties - A Threat to Democracy or the Dog that Didn't Bark?", ICSID Review - Foreign Investment Law Journal, [2003] Vol. 42. p. 43.
183. Kolo and Wälde, op cit., p. 846.
184. Sands, Principles of International Environmental Law, (Cambridge University Press: 2003), pp. 279-285.
185. See S.D. Myers.
186. See S.D. Myers, para. 250. The arbitral tribunal considered that "the assessment of "like circumstances" must also take into account circumstances that would justify governmental regulations that treat them differently in order to protect the public interest".
187. See S.D. Myers, para. 116.
188. In the S.D. Myers case, the arbitral tribunal established a difference in treatment, but considered that the environmental purpose pursued by the concerned regulation was legitimate. It nevertheless ruled that it was not sufficient to justify the export ban as several legitimate alternatives were available to achieve this goal. The proposed alternatives were to grant subsidies to the Canadian industry and to source all government requirements. These appear however to violate certain WTO provisions of the Agreement on Subsidies and Countervailing Measures and the Government Procurement Agreement. Gantz., op cit., p. 318.
189. Occidental Exploration and Production Company v. The Republic of Ecuador,1 July 2004, para 183, available at www.asil.org/ilib/ OEPC-Ecuador.pdf, quoted in Snodgrass, "Protecting Investors' Legitimate Expectations: Recognizing and Delimiting a General Principle", ICSID Review Foreign Investment Law Journal [2006] Vol. 21(1), p. 7.
190. Occidental Exploration and Production Company, op cit., para. 191.
191. Snodgrass, op cit., p. 47.
192. ILM 679.
193. Verhoosel, "The Use of Investor-state Arbitration under Bilateral Investment Treaties to Seek Relief for Breaches of WTO Law", Journal of International Economic Law (June 2003), p. 496.
194. Ibid.
195. Konoplyanik and Wälde, op cit., p. 524. See also Lubbers, "Forword", in Wälde, The Energy Charter Treaty, op cit., p. xiii-xvii.
196. Bradbrook, "Significance of the Energy Charter Treaty", Applied Energy, [1999], Vol. 64, p. 251-262.
197. Nykomb Synergetics Technology Holding AB v. Republic of Latvia, 16 December 2003. For a thorough analysis of this arbitral award see "The First Energy Charter Treaty Arbitral Award", Journal of International Arbitration, [2005] Vol. 22., n. 2, p. 83-104;
198. Wetterfors, "The First Investor-State Arbitration Award Under the 1994 Energy Charter-Nykomb Synergetics Technology Holding AB, Sweden ('Nykomb') vs the Republic of Latvia", Transnational Dispute Management, [2005] Vol. 2, n. 1;
199. Hobér, "Investment Arbitration in Eastern Europe: Recent Cases on Expropriation", American Review of International Arbitration, [20031 Vol. 14, p. 438-442.
200. See Nykomb, Chapter 3.1; Wälde and Hobér, op cit., p. 85:
201. Wetterfors, op cit.
202. Nykomb, Chapter 3.5.10.
203. Nykomb, Chapter 3.8.
204. Nykomb, Chapter 4.2.
205. See also Wälde and Hobér, op cit., p. 92.
206. Nykomb, Chapter 4.3.3, point (c).
207. Nykomb, Chapter 4.3.1.
208. Wetterfors, op cit., p. 10.
209. See Fortier and Drymer, "Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor", ICSID Review - Foreign Investment Law Journal, [2004] Vol. 19, pp. 304-306.
210. Wälde and Hobér, op cit., p. 98.
211. Fortier and Drymer, op cit., p. 306.
212. Ibid.
213. Wälde and Kolo, op cit., p. 824, quoted in Forter and Drymer, op cit., p. 309.
214. See Fietta, "Expropriation and the "Fair and Equitable" Standard - The Developing Role of Investors" "Expectations" in International Investment Arbitration, Journal of International Arbitration (2006) Vol. 23(5), pp. 399.
215. Técnicas Medioambientos Tectned, SA v. United Mexican States, Award of 29 May 2003, para. 154, available at www.worldbank.org/icsid/cases/laudo-051903%20-English.pdf. The tribunal further provided that: "the foreign investor expects the host State to act in a consistent manner, free from ambiguity and totally transparently in its relations with the foreign investor, so that it may know beforehand any and all rules and regulations that will govern its investments, as well as the goals of the relevant policies and administrative practice or directives, to be able to plan its investments and comply with such regulations. [...] The foreign investor also expects the host State to act consistently, i.e. without arbitrarily revoking any preexisting decisions or permits issued by the state that were relied upon by the investor to assume its commitments as well as to plan and launch its commercial and business activities." The concept of "legitimate expectations" has been further defined in the NAFTA context as relating to "a situation where a Contracting Party's conduct creates reasonable and justifiable expectations on the part of an investor (or investment) to act in reliance on said conduct, such that a failure by the NAFTA Party to honour those expectations could cause the investor (or investment) to suffer damages." International Thunderbird Givning Corporation v. United Mexican States, award of 26 January 2006, para. 147, available at http://ita/law.uvic.ca/documents/Thunderbird/Award.pdf. For a thorough analysis of this principle see Snodgrass, "Protecting Investors' Legitimate Expectations", op cit.
216. See in particular the acute debate around the use of palm-oil for electricity generation.
217. See also International Institute for Sustainable Development, Rethinking Climate Change as a Sustainable Investment Regime, available at http://www.iisd.org/investment/sectoral_issues, consulted on 15 March 2007;
218. Van Asselt, Gupta and Biermann, "Advancing the Climate Agenda: Exploiting Material and Institutional Linkages to Develop a Menu of Policy Options", Review of European Community and International Environmental Law [2005] Vol. 14, n. 3, p. 262;
219. More generally see Mann, von Moltke, Peterson and Cosbey, IISD Model International Agreement on Investment for Sustainable Development - Negotiators' Handbook Second Edition, IISD, (2006).
220. High-Level Group on Competitiveness, Energy and the Environment, First Report on Contributing to an Integrated Approach on Competitiveness, Energy and Environment Policies - The Functioning of the Energy Markets, Access to Energy, Energy Efficiency and the EU Emissions Trading Scheme, (2 June 2006), p. 10.
221. See also High-Level Group on Competitiveness, Energy and the Environment, Second Report - Long Term Energy Futures and Investment in Power Generation and Energy Efficiency, (30 October 2006).
222. Council of the European Union, Presidency Conclusions, 8-9 March 2007, p. 12.
223. See also the "binding" objectives to achieve 20% of primary energy savings by 2020 and to achieve a 20% share of renewable energies in overall European energy consumption by 2020.