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  The Role of Investment Protection Law in
  Securing Electricity Supply and Combating
  Climate Change


Anatole Boute / Groningen Centre for Energy Law
                Janson Baugniet

Climate Change and Energy Security – Major Challenges of EU Policy
Université Catholique de Louvain, 15-16 December 2008
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I. Security of supply and climate protection
investments: coincidence in timing
› Electricity landscape of the 21st century: massive
  investments needed
      - to replace ageing infrastructure and meet
      demand;
      - to reorganise the sector around more climate-
      friendly patterns.
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II. Security of supply and climate protection
investments: common need for stability
› Most basic rule underlying investment decisions:
     returns should be proportionate to the investment risks

   Perceived instability/uncertainty ---> higher risk premiums --->
   higher returns

   Increased stability / predictability ---> lower returns required --->
   higher investment flows

› Guarantee of investment stability as a way of investment
  promotion
› Dilemma: stability v. flexibility
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 III. Regulatory risks and uncertainties
› Climate protection policies:
      - (still) absence of LT cap on emissions /
      modification of allocation of allowances;
      - potential change of support schemes for RES.
› Liberalisation of electricity (and gas) markets:
      - change in general rules of the game;
      - interference in price formation;
      - network issues.
› Stability of the general domestic investment climate?
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IV. Investment protection law
› Sources of law:
      - National law;
      - European Convention on Human Rights (ECHR);
      - Bilateral investment treaties;
      - The Energy Charter Treaty (ECT).


› Investment regime:
      - protection of property / expropriation (regulatory takings);
      - ex post discriminatory treatment;
      - breach of investment contract (pacta sunt servanda).
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IV. Investment protection law (cont.)
› Adequate protection against financial / regulatory
  changes of support schemes?
  - Green Certificates / Promise of Feed-in-Tariff as property rights?

  - Refusal to issue the GC / change of the scheme / change of the FIT
  / refusal to pay the FIT as legally sanctioned “possession takings”?

  - Refusal to pay the FIT as contractual breach?
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IV. Investment protection law (cont.)
 Nykomb v. The Republic of Latvia (Award SCC, IIC 182, 2003)

     - Latvia: deficit in capacity and climate policy;
     - FIT to promote high-efficiency cogeneration;
     - Change of and refusal to pay FIT to foreign company;
     - Award: limited to non-discrimination: Latvia continued to
     pay the FIT to other (Latvian) companies;
     - Rejected expropriation claim: refusal to pay the Feed-in
     would not be a “possession taking”;
     - No contractual breach although FIT considered as
     “statutory and contractually acquired right”.
IV. Investment protection law (cont.)
› Protection against imposition of or changes in cap of
  emissions?

  Pending cases: Arcelor v. France (C-127/07) and Arcelor v.
  European Parliament and Council: Does the ETS Directive
  infringe right of property, right to pursue an economic
  activity, legal certainty and non-discrimination?

  Perverse effect: use of investment protection law against and
  not in support of climate policy.
V. Stability and predictability as future
principles of climate and electricity law?
› Directive 2005/89 on Security of electricity supply:
  “the importance of a stable regulatory framework”
› COM 2007(528) on Internal electricity market:
   “stable regulatory framework”
› COM proposal 2008/16 on modification of EU ETS:
  “Certainty”, “long-term predictability”, “confidence in and
  credibility of the EU ETS”
V. Stability and predictability as future
principles of climate and electricity law ?
(cont.)
› Directive 2004/8 on CHP (recital 30):
  “Need for a stabile administrative environment for
  investments”
› COM (2005) 627 on the Support of Electricity from RES:
   Increase legislative stability and reduce investment risk
  Draft of COM2008(19) on RES (art 18):
  “In desiging and managing support schemes MS shall
  aim to provide LT stability” BUT not in final version.
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V. Conclusion
› Current application of investment law inadequate
  against regulatory instability for climate and
  electricity investments;
› Attempts to use it against climate policy;
› Therefore need to integrate strong investment
  provisions in:
      - EU climate, RES and electricity Directives;
      - the Kyoto Protocol.
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Thank you for your attention