Arbitrating climate change disputes
Climate change is a high priority on the global political and business agendas. As States and private parties become subject to increasing regulation to limit carbon emissions, existing commercial relationships in a range of sectors will be affected, giving rise to the potential for disputes.
On 28 November 2019, the International Chamber of Commerce (the ICC) published a Report on Resolving Climate Change Related Disputes through Arbitration and ADR (the “Report”). The Report is the work of a dedicated task force whose objective was to examine the role of arbitration and ADR in the resolution of international disputes related to climate change. The Report is a response to a 2014 report issued by the IBA Climate Change Justice and Human Rights Task Force which called on “arbitral institutions to take appropriate steps to develop rules and/or expertise specific to the resolution of environmental disputes, including procedures to assist consideration of community perspectives.” The Report also seeks to reflect the growing interest of private practitioners and in-house counsel in managing risk related to CO2 emissions and climate change.
Climate change disputes
According to the Report, in recent years, the ICC together with other major arbitral institutions have seen an increase in disputes which touch on issues of climate change. These disputes cover a range of sectors, including:
- Energy – in particular, the transition away from fossil fuels to renewables, and the growth especially of the solar and wind sectors.
- Finance – carbon trading and green certificates.
- Technology – the drive for efficient power grids, as well as low emission energy and data storage.
The Report defines “climate change related disputes” in broad terms, stating that such disputes include those arising out of or in relation to the effects of climate change and climate change policy, the United Nations Framework Convention on Climate Change (“UNFCCC”) and the Paris Agreement. As the Report notes, given the role of governments in implementing regulatory change, the scope for investment treaty claims is significant. However, private companies are also seeing their commercial contracts being affected, and the Report also provides a number of case studies to illustrate difficulties that may arise in different climate change related scenarios.
The Report explains that the transition to cleaner energy, and to the adoption of less impactful approaches to land use and the environment more generally, will open the door to new investments and new contracts. This in turn is likely to lead to new kinds of contractual and other legal disputes. Key new sources for potential disputes include those arising from specific transition, adaptation or mitigation contracts.
Suitability of arbitration and the ICC
The Report finds that a significant portion of the ICC’s current case load arises from sectors which are impacted by the reduction of carbon emissions. For example, in 2018 alone, 26.6% of all new cases involved arose in the construction and engineering sector, while a further 14.6% of new cases arose in the energy sector. Accordingly, the ICC argues that arbitration and ADR have a unique role to play in disputes that arise from the transition to a greener economy.
The Report analyses a number of the specific features of arbitration which makes it ideally suited to resolving these disputes, including:
- the ability of the parties to choose arbitrators with specialist knowledge of climate change matters;
- the flexibility to incorporate climate change commitments into the dispute resolution procedure itself – one good example of this is the Green Pledge; and
- the use of party-appointed or tribunal appointed experts to opine on specific issues in contention.
On the question of experts, the Report recommends that the ICC establish a list of climate change scientists and other technical experts, such as that already held by the Permanent Court of Arbitration (“PCA”).
While the ICC arbitration rules do not contain any specific provisions regarding environmental disputes, the Report is keen to stress that existing rules such as the emergency procedures, provisions for interim measure and those regarding cost management techniques can all play a role. In 2001, the PCA adopted its Optional Rules for Arbitration of Disputes Relating to the Environment and/or Natural Resources under which tribunals have specific powers to order measures to prevent “serious harm to the environment”.
Certain disputes relating to climate change are likely to generate interest from public interest groups and NGOs. The Report notes that “the lack of transparency in traditional commercial arbitration has been viewed as a barrier to its legitimacy as a satisfactory dispute resolution mechanism for climate change related disputes.” The ICC has sought to address the question of transparency and, since 2019, has provided for the publication of awards two years after notification of the award to the parties, absent any objection by the parties. The Report also notes that there is likely to be increasing pressure on arbitrations involving State actors to adopt, in the appropriate circumstances, enhanced measures for transparency such as those provided for by the United Nations Convention on Transparency in Treaty-based Investor-State Arbitration.
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