Climate Change and International Investment Agreements Aaron Cosbey Second Annual Forum of Developing Country Investment Negotiators Marrakech, November 3-4, 2008

Outline The need for climate-related investment The types of policies that might be used Potential conflicts with standard investment law provisions

The Need for Clean Energy Investment Development perspective: 2.4 billion still using traditional biomass 1.6 billion no grid electricity Environmental perspective: IEA estimates need for $27 trillion in incremental investment in developing countries by 2050 to reach IPCC targets

What types of policies might be needed? Regulation of existing power suppliers, high- energy use facilities Outright closures Demand for significant retrofit investment Discrimination in favour of clean new technologies Adaptation-related policies Water rationing, reallocation Requirements for energy access

Regulation of existing facilities Assume significant impacts from regulation First requirement: no discrimination (national treatment) But even if no discrimination, outcome uncertain. Which legal interpretation of expropriation do we use? Police powers carve-out, or sole effects doctrine? Is there a stabilization clause? If so, regulation might be seen as a breach of contract. Or a breach of F&E treatment.

Discrimination in favour of clean energy First question: are there pre-establishment rights? If so, NT is important. No infant industry development. Next: are clean and dirty energy providers in like circumstances? Probably, but not certain. Are different types of clean energy providers (e.g., solar vs. wind) in like circumstances? Probably, but not certain.

Adaptation-related policies The need for such policies in future is clear, but the specifics are hazy IPCC: African agriculture “severely affected” by changing weather patterns. In some countries 50% of rainfed ag gone by IPCC: Himalayan glacial retreat to affect 1.3 billion people. Indus, Ganges, Brahmaputra to become seasonal by Mekong, Yangzi, Yellow rivers also affected. IPCC: Sea level rise to create 35m refugees in Bangladesh delta by 2050.

Adaptation-related policies It’s not clear what types of policies will be needed. Among them might be: Water rationing or reallocation: expropriation concerns, fair and equitable treatment. Energy access requirements: performance requirement restrictions.

Conclusions Climate change will dictate the need for policies with significant economic impacts. IIAs have the potential to restrict some of the policies governments might want to take. Conflict is not necessary, with proper foresight and knowledge. Central message: IIAs do matter.

Thank you Aaron Cosbey