Given global developments, especially in Europe, the laudable objective of decarbonising the economy may face certain challenges under international investment law (IIL), which Indian policymakers need to be alert about.
Prabhash Ranjan, Professor and Vice Dean, Jindal Global Law School, O.P. Jindal Global University, Sonipat, Haryana, India.
Pushkar Anand, Assistant Professor, Faculty of Law, University of Delhi, New Delhi, India.
Since its big climate commitments under the 2015 Paris Agreement, and the United Nations Framework Convention on Climate Change, India has given a big impetus to decarbonising its economy. The Cabinet approval of the national green hydrogen mission is a step in this direction. India is bolstering its renewable energy sector by permitting foreign direct investment (FDI) up to 100% through the automatic route. The country attracted FDI of $1.6 billion in 2021-2022, making it the fastest growing market for renewable energy. Simultaneously, to smoothen this transition, India — as agreed at COP27 — plans to phase down around 81 coal-fired power plants over the next four years.
But there’s a catch. Given global developments, especially in Europe, this laudable objective of decarbonising the economy may face certain challenges under international investment law (IIL), which Indian policymakers need to be alert about. IIL allows foreign investors to sue States before international arbitration tribunals for alleged breaches of bilateral investment treaties (BITs). This is known as investor-State dispute settlement (ISDS).
In Europe, foreign investors have employed ISDS to challenge the climate policies of countries in two ways. First, foreign investors in the fossil fuel sector have challenged decisions to phase out power generation through coal. In 2019, the Netherlands adopted a law prohibiting the use of coal for power generation, aiming at a complete phase-out by 2030. This led to ISDS claims against the Netherlands — RWE v Netherlands, and Uniper v Netherlands. In a recently decided case, Rockhopper v Italy, a British oil firm challenged the decision of the Italian government to ban oil exploration and production within 12 nautical miles owing to environmental, and local communities concerns, and was awarded €190 million in compensation.
Published in: Hindustan Times
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