THE AUTHOR:
María Paulina Rojas, LLM Candidate at Georgetown University Law Center
The fourth day of the Washington Arbitration Week (WAW) 4th edition took place on November 30, 2023, coinciding with the first day of the UN Climate Change Conference (COP 28) in the UAE, making the panel on: “International Arbitration in the Era of Climate Change: Renewable energies, geoengineering, and critical mineral industry” timely and relevant. Moderated by Dara Brown (White & Case), with panelists Petr Polášek (White & Case), José Alberro (FTI Consulting), Garret Rush (Secretariat), and Kenneth Kratovil (HKA), the panel presented the issue of climate change as one of the greatest threats to the natural environment.
Ms. Brown initiated the conversation by underscoring climate change as a paramount threat to the natural environment, emphasizing its reverberations in international arbitration disputes. The panel, in turn, dissected this multifaceted issue into three main topics:
- The surge in renewable energy disputes and the future of renewables,
- The impact of the energy transition on critical minerals, and
- The lessons derived from geoengineering.
Renewable Energy Investments: A Fertile Environment for Disputes
In exploring renewable energy disputes, Ms. Brown and Mr. Kratovil provided an overview of the escalating investments. Developing economies surpassed their developed counterparts, with investments in renewable energy projects reaching $303 billion by 2020 and an estimated $500 billion by 2023. However, Mr. Kratovil cautioned that this substantial investment only accounted for a third of what would be needed for countries to meet their climate and carbon emission goals.
Mr. Rush delved into the dynamics that foster disputes within the renewable energy sector. The size of investments, rapid technological changes, and government interventions created a fertile environment for the 52 renewable energy disputes. Using the example of Spain, Mr. Rush explained how the costs associated with solar energy prompted incentives for investors. However, technological advancements in the early 2010s significantly reduced solar energy costs, affecting the value of investments and leading to disputes such as those analyzed in Nextera v. Spain (ICSID Case No. ARB/14/11).
Mr. Kratovil further added another layer to the discussion, underscoring that the renewable energy sector faced significant losses in market capitalization in 2023. Beyond government actions, market conditions were squeezing margins for renewable energy projects, intensifying investors’ concerns. The confluence of increased costs due to market-related factors and reduced government incentives contributed to a surge in disputes, with investors striving to recoup the value of their investments to meet concessions and contract targets.
Mr. Alberro identified indirect effects (i.e. policy) as crucial factors in renewable energy disputes. Using Latin America as an example, he emphasized issues related to the dispatching of energy rather than the solar and wind plants themselves. Mr. Alberro pointed out that the revenues of solar and wind energy power plants were contingent on electricity distribution needs and infrastructure. Diplomatic experiments, like Mexico‘s endeavor to change the energy dispatch regime (e.g. Amendment Decree to the Hydrocarbons Law Article Thirteen (2014), were identified as indirect factors expected to contribute to an increase in renewable energy disputes in the upcoming years.
Critical Minerals in the Extractive Industry
Transitioning to critical minerals, Mr. Rush explained that contrary to expectations, the energy transition did not dematerialize the world or reduce the scope of extractive industries, which currently amount to 25% of all investment arbitration disputes. Most materials essential for the energy transition still required mining and extraction, particularly critical minerals crucial for batteries and electric vehicles. Mr. Polášek highlighted that these critical minerals, mostly found in developing countries, were becoming focal points of disputes. Attempts at nationalization, as seen in Mexico‘s approach to the lithium industry, and export restrictions, exemplified by China‘s measures on graphite, added layers of complexity to investment dynamics in critical minerals.
The Novel Geoengineering Technology to Combat Climate Change
The novel issue of geoengineering was presented by Mr. Polášek, which is a manipulation of the earth’s systems to combat climate change by managing solar radiation, removing CO2 from the atmosphere to store or reuse, and weather modification. Geoengineering is still in scientific development phase and is currently not in use aside from carbon capture. There are currently 40 carbon capture facilities integrated into industrial plants around the world. Today there is no multilateral instrument that incorporates geoengineering, with concerns that its implementation may discourage efforts necessary for climate and carbon emission targets. Geoengineering could be integrated into industrial processes and power generation, but also independently with carbon capture facilities and solar radiation management as business structures. This would signify a new type of climate change investment dispute.
Conclusion
In conclusion, the discussion during WAW spotlighted how climate change mitigation measures have influenced the landscape of investment arbitration. The surge in renewable energy investments, the growing significance of critical minerals, and the potential advent of geoengineering have contributed to an escalation in investment treaty arbitrations. Despite the substantial influx of investment in renewable energy, various factors have made these ventures less lucrative than initially envisioned. The evolving dynamics in technology, market conditions, and government actions are inevitably reshaping the trajectory of investments in the face of climate change.
ABOUT THE AUTHOR:
María Paulina Rojas is an LL.M. Merit Scholar at Georgetown Law pursuing a degree in International Business and Economic Law with a certificate in International Arbitration and Dispute Resolution. She is currently a research assistant at the Georgetown Center for the Advancement of the Rule of Law in the Americas (CAROLA). Paulina holds a J.D. and a B.A. in Economics from Universidad de Los Andes in Colombia. Her academic coursework focuses on investment, trade, dispute resolution, and its relationship with sustainable development in Latin America.
