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Climate Change and International Investment Agreements

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

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Climate Change and International Investment Agreements

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

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

  3. 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

  4. 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

  5. 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.

  6. 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.

  7. 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 2020. • IPCC: Himalayan glacial retreat to affect 1.3 billion people. Indus, Ganges, Brahmaputra to become seasonal by 2035. Mekong, Yangzi, Yellow rivers also affected. • IPCC: Sea level rise to create 35m refugees in Bangladesh delta by 2050.

  8. 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.

  9. 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.

  10. Thank you Aaron Cosbey acosbey@iisd.ca

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