Defending Climate Action in Investor-State Dispute Settlement (ISDS): An Analysis of Fair and Equitable Treatment (FET) and the Right to Regulate in the Age of the Energy Transition

Abstract

The urgent global challenge of climate change necessitates a reevaluation of the interaction between climate action and international investment law, particularly within the context of Investor-State Dispute Settlement (ISDS). Focusing on Fair and Equitable Treatment (FET), this article delves into the tension between foreign investor protection and the pursuit of measures aimed at mitigating climate change. By delving into the nuances of FET’s components – legitimate expectations, transparency, and arbitrary treatment – this article scrutinises the potential for creating a ‘safe harbour’ for defending climate action and the inadvertent chilling effect on regulation. The article furthermore analyses the ‘right to regulate’ as a pivotal tool for defending climate action in ISDS. Through thorough analysis of this right, the article explores its potential to counterbalance foreign investor protection and the right of the state to take measures to mitigate climate change. The article finally addresses the issues surrounding the modernisation of International Investment Agreements (IIAs) to align them with the imperatives of climate action. Through these explorations, the paper offers insights into recalibrating the ISDS regime to ensure a balanced and equitable approach to defending climate action in the age of the energy transition.