A Climate Change Carve-Out for Investment Treaties

This article responds to the growing risk of Investor–State Dispute Settlement (ISDS) claims arising from states’ measures to mitigate climate change, such as fossil fuel phase-outs. It proposes a carve-out that would cover measures that are adopted in good faith and have a reasonable causal nexus with reducing and stabilizing greenhouse gas emissions (e.g. measures ‘related to’ this aim). Depending on states’ preferences, the carve-out could be designed as a treaty-wide exclusion from international investment agreements (IIAs) or as a carve-out that only removes such measures from ISDS procedures. Importantly, we propose a process to govern the application of the carve-out that prevents this issue being determined by ISDS tribunals. We argue that questions concerning the carve-out’s application to specific investor claims should initially be subject to joint determination by the treaty parties’ environmental authorities. Where these authorities cannot agree, we propose that this issue should be referred to a State–State tribunal that includes members with climate-related expertise. This article advances the specific debate about a climate carve-out for IIAs and wider debates about strategies for protecting regulatory space under IIAs through its detailed examination of carve-outs, drawing on examples from a range of subject areas.