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Die Energiewende and TTIP: Fodder for ISDS or a Legitimate Exercise of Police Powers?

Die Energiewende and TTIP: Fodder for ISDS or a Legitimate Exercise of Police Powers?

Amanda Quinlan

To achieve great success in renewable energy and help tackle climate change, policymakers need to identify how international trade and investment law is both promoting and inhibiting state policies.[1] This Note explores one trade and investment agreement: the Transatlantic Trade and Investment Partnership (TTIP) between the European Union (EU) and the United States. Critics of TTIP argue the EU’s proposed Energy Chapter for TTIP undermines renewable energy regimes.[2] The proposal calls for (1) non-discriminatory access to transmission systems at (2) cost-reflective tariffs.[3] However, renewable energy policies give preference to renewables—thus discriminating between types of energy—and often subsidize renewable energy sources, which skews prices.[4] TTIP skeptics believe the Energy Chapter proposal guarantees that states with renewable energy regimes will violate TTIP.[5] If a state violates TTIP, an investor could seek compensation under a claim of indirect expropriation.[6] To claim indirectexpropriation, the investor would invoke TTIP’s investor state dispute settlement (ISDS) provision—another controversial element of TTIP.[7] The investor would challenge the state legislation that rendered the investment moot.[8] Critics claim these ISDS challenges undermine democratic principles and give investors too much influence over state legislation.[9]

Critics construct a flawed argument when claiming the EU’s proposed Energy Chapter vitiates renewable energy regimes. The argument discounts the right-to-regulate provision in TTIP and overstates the power of investors that bring challenges to state policies before international arbitration tribunals. This Note argues that renewable energy policies like Germany’s “Energiewende” fall under a state’s right to address legitimate policy objectives. This Note argues the right-to-regulate provision supersedes the language of the Energy Chapter proposal—but only when the state policy objectives are legitimate.[10]

Determining what constitutes a legitimate policy objective is not an easy exercise.[11] For decades, international arbitration tribunals have tried to draw the line between legitimate policy objectives and state measures that indirectly expropriate investments.[12] This Note outlines four factors international arbitration tribunals have relied on to delineate legitimate policy objectives from indirect expropriation: (1) the impact of the measure; (2) investors’ legitimate expectations and stability; (3) the nature, objectives, and character of the measure; and (4) proportionality.[13] This Note demonstrates that Germany’s Energiewende meets the test of a legitimate policy objective, and the proposed Energy Chapter to TTIP will not subvert state efforts to facilitate renewable energy.

Questions and inquiries regarding this Note may be forwarded to the author at LawReview@vermontlaw.edu.


[1] See Elizabeth Whitsitt & Nigel Bankes, The Evolution of International Investment Law and its Application to the Energy Sector, 51 Alberta L. Rev. 207, 208 (2013) (“[U]nderstanding how arbitrators are giving effect to the protections for investors, while at the same time balancing the interests of host states to regulate in the public interest, is of paramount importance to today’s global energy sector.”).

[2] Stefan Schultz, TTIP könnte deutsche Energiewende abwürgen, Spiegel Online (July 11, 2016), http://www.spiegel.de/wirtschaft/soziales/ttip-plaene-der-eu-gefaehrden-deutsche-energiewende-a-1102099.html; Arthur Nelsen, Leaked TTIP energy proposal could “sabotage” EU climate policy, The Guardian (July 11, 2016), https://www.theguardian.com/environment/2016/jul/11/leaked-ttip-energy-proposal-could-sabotage-eu-climate-policy.

[3] European Commission Directorate-General for Trade, EU’s Proposal for a Chapter on Energy and Raw Materials in TTIP (2016), https://www.greenpeace.de/sites/www.greenpeace.de/files/publications/20160711_greenpeace_ttipleaks_energy_papers.pdf (hereinafter EU’s Proposal for a Chapter on Energy); Art. II, EU Proposal for Investment Protection and Resolution of Investment Disputes, Transatlantic Trade and Investment Partnership (Nov. 12, 2015) (hereinafter EU Proposal for Investment Protection and Resolution of Investment Disputes).

[4] Schultz, supra note 2; Nelsen, supra note 2; Lincoln L. Davies & Kirsten Allen, Feed-in Tariffs in Turmoil, 116 W.Va. L. Rev. 937, 963 (2014).

[5] Schultz, supra note 2.

[6] Id.; Mark Weaver, The Proposed Transatlantic Trade and Investment Partnership (TTIP): ISDS Provisions, Reconciliation, and Future Trade Implications, 29 Emory Int’l L. Rev. 225, 236 (2014).

(“[E]xpropriation provisions seek to protect foreign investors from a nation enacting domestic law aimed at directly or indirectly changing investment contracts between the nation and the foreign investor.”)

[7] Weaver, supra note 6, at 235.

[8] Id.

[9] Hendrik Kafsack, Über das Chlorhühnchen ist noch nicht entschieden, Frankfurter Allgemeine Zeitung (Feb. 2, 2015), http://www.faz.net/aktuell/wirtschaft/ttip-und-freihandel/ttip-freihandelsabkommen-ueber-das-chlorhuehnchen-ist-noch-nicht-entschieden-13403922.html; Protestmarsch gegen Freihandelsabkommen und Gentechnik, Frankfurter Allgemeine Zeitung, Oct. 13, 2014, at 30.

[10] Art. II, EU Proposal for Investment Protection and Resolution of Investment Disputes, Transatlantic Trade and Investment Partnership (Nov. 12, 2015).

[11] See Federico Ortino, Defining Indirect Expropriation: The TTIP Approach and the (Elusive) Search for ‘Greater Certainty’ 1 (King’s College London Dickson Poon School of Law, Research Paper Series No. 2016–17, 2016) (“The debate over the definition of what constitutes indirect expropriation represents one of the key controversial issues in international investment law.”).

[12] Gary Born, A New Generation of International Adjudication, 61 Duke L. J. 775, 826–28 (2012).

[13] Whitsitt, supra note 1, at 226–31.

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