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ANALYSING SYNERGIES OF INTERNATIONAL ARBITRATION IN ALTERNATIVE ENERGY AND CLIMATE CHANGE - INSIGHT INTO ADVANCEMENT OF THE LEGAL FRAMEWORK
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ANALYSING SYNERGIES OF INTERNATIONAL
ARBITRATION IN ALTERNATIVE ENERGY AND CLIMATE CHANGE - INSIGHT INTO ADVANCEMENT
OF THE LEGAL FRAMEWORK”
CHRIST DEEMED TO BE UNIVERSITY
Alternative energy and climate change have been two socio-legal sectors
that have gained attention on a global
scale in recent times. The dilemma of climate change and the need for the
transition to alternative energy
sources is urgent. The operations of the businesses in these sectors lead to the commencement of complex and intricate disputes
as those functioning in this industry
have a multifaceted array of
technological, legal, regulatory, and financial risks. This research paper
endeavors to recognize the present legal position of climate change in India
and map a future of arbitration as a much more suitable redressal forum for
disputes arising in the climate change sector. Numerous investor-state, contractual, and
technological disputes arising in the
said sectors have made arbitration a potential redressal forum. Furthermore,
this paper underscores that climate change will have a strong footing in the
coming future and the legal strategy that will flourish is arbitration. The reasons for the significance of
arbitration lie in its characteristics such as
confidentiality, expertise, and absoluteness which have been comparatively analyzed
with other redressal modes in this paper. Therefore,
this paper also emphasizes the edge arbitration has over the conventional redressal modes in the arena of climate
change dispute resolution. From a legal
perspective, The Indian Council of Arbitration (ICA)[2]
can serve as a suitable stand-in for climate change disputes because of its close relationship with the
effort undertaken by the International Chamber of Commerce (ICC)[3]. To achieve this purpose,
a doctrinal approach is employed. Mitigating climate
change can be achieved through
the successful adoption of alternative
energy sources. To fully harness its potential, arbitration must be backed by
strong legal frameworks that have
the capability to dispose of disputes of high complexity. By examining the interplay between legal structures
and societal considerations, this study offers valuable insights into the
evolving landscape of international arbitration, paving the way for a more
nuanced understanding of its role in shaping sustainable and equitable
solutions for the challenges posed by alternative energy and climate change.
Keywords: Arbitration, Alternative, Climate,
Disputes, International, Framework
The confluence of climate change, alternative energy, and international
arbitration creates an intriguing environment that necessitates close attention
to legal details as well as a deep comprehension of socio-legal dynamics. As the global community grapples with the imperative
to transition towards sustainable energy sources amidst escalating environmental
challenges, the role of international legal frameworks becomes paramount.
Most number of cases related
to climate change
disputes have fallen beneath the
radar but in recent years, several high-stake claims have been fought very publicly before the highest
courts and regularly in the courts of public opinion. This paper provides
clarity as to how arbitration can be the most recommended form of legal aid in
the sector of climate change and renewable energy. The judiciary and the legal
fraternity will play a key role in molding the interpretation of legalities
revolving around climate change with the ever-increasing economic activities
affecting various socio factors.
The energy sector generates a
significant number of disputes, and it continues to dominate the caseload of
such institutions. Energy projects
are typically lengthy, intricate, and money-intensive. When it comes to dispute resolution, arbitration
has emerged as the standard practice, particularly on an international scale. Political shifts, environmental legislation, and geological
phenomena impact these industries at
large. Recent developments in the industry with respect to the establishment
of international courts, regulation of its functioning, summits, and conferences such as the COP 27[4],
Dublin Conference[5],
etc. have substantiated the legal
attention paid to this sector.
India being one of the major
developing economies and growing economies has become a vital player in climate
change politics. Nevertheless, it appears that India's legal system is not
keeping up with the rapidly shifting environment lacking a competent system to
combat disputes arising in this sector. With the increasing population of this
nation, the legal system must formulate efficient laws to tackle the issue of climate
change disputes. To understand the gaps in dealing with these disputes, this
paper draws comparisons with the legal systems of other nations. This analysis
is both necessary and timely since it tackles the complex and ever-changing
socio-legal environment of today while aiming to create a resilient and
peaceful world in the future.
In 1972, Prime Minister Indira
Gandhi’s speech at the first-ever United Nations Conference on Human
Environment in Stockholm marked a crucial date in the history of climate change
disputes. Her speech, which examined ecological challenges in development and
environmental issues from the perspective of development, is remembered as a
turning point in history. When climate change became a major global concern in
the 1990s, it was presented as a diplomatic challenge for India, supported by a
story about climate ethics that highlighted India's negligible contribution to
the build-up of greenhouse gases (GHGs). Regarding climate change in India, the
most significant piece of legislation is the Environmental Protection Act of
1986. The primary goal of the Act is to empower the federal and state
governments to safeguard and enhance the quality of the environment. Secondly,
mitigating and preventing pollution to the environment. The establishment of
international agreements like the United Nations Framework Convention on
Climate Change (UNFCCC)[6] in 1992 marked the first significant
turning point. The foundation for collaborative efforts to address climate
change globally was laid by this historic agreement. At the same time, the
renewable energy industry began to take off, propelled by developments in
technology and a growing realization of the limited availability of
conventional energy sources.
Each State in India is required by
the "Directive Principles of State Policy" to "seek to preserve
and enhance the environment and to protect the forests and wildlife of the
nation." Furthermore, "to protect and improve the natural environment
including forests, lakes, rivers, and wildlife and to have compassion for
living creatures" is a fundamental duty owed by every citizen. India's
(activist) judiciary has been at the forefront of environmental policy
development since the late 1980s and early 1990s. This trend has not abated.
Judicial interpretation has extended the fundamental right to life guaranteed
by Article 21 of the Constitution to encompass the right to a clean, healthy,
and pollution-free environment. A recurrent theme in India's development
philosophy is sustainable development, which is further reinforced by the
National Environment Policy, which was adopted in 2006 and has remained
unchanged since then. Sustainable development is broadly understood to mean
improving human well-being. The historical
trajectory brings us to the present juncture, where the intersection of
international arbitration, alternative energy, and climate change stands as a
critical arena demanding nuanced analysis.
The elastic nature of arbitration makes it an exemplary platform
for achieving prompt resolutions
in climate change and alternative energy conflicts. These disputes not only
have far-reaching impacts on the
conflicting parties but also on the lives of the public at large.13 Certain areas of law such as national,
international, administrative, contractual, constitutional, human rights, etc. are affected during
conflicts. Specific arbitration institutions such as the International Centre for Settlement of Investment Conflicts
(ICSID)[7]
have been set up to address the
enormous multitude of issues, thus mandating a Climate and Alternative energy arbitration court set
only to resolve these disputes.
Among the other
ascendancies, the parties who want to keep sensitive information, proprietary technology, or
trade secrets out of the public eye, arbitration processes are often private and confidential, making it the most
ideal form of dispute resolution for them along with the certitude that it is more cost-effective and is brisker
than compared to traditional litigation. At present, 169 nations have ratified the United Nations Convention on the Recognition and Enforcement of Foreign
Arbitral Awards due to which, there is a significant
likelihood that arbitral judgments will be upheld, and assuring that decisions
are enforceable on a worldwide scale might be vital for
parties involved.[8]
In the realm of international arbitration
for addressing matters concerning climate change and alternative energy sources, a significant avenue
exists for securing interim measures both prior to the constitution of the arbitral tribunal and throughout the
arbitration process, underscoring the procedural dynamism
inherent in this context, certain irreparable issues are causing permanent
harm which require immediate attention. Nevertheless, these conflicts typically require
initial adjudication that cannot be postponed, injunctive relief can be obtained immediately in Arbitration which makes it
a viable option. While arbitrators are not morally bound to deliver "pro-environment" verdicts, their
responsibility lies in fostering informed discussions that lay
the groundwork for more rational reactions; within this framework, Alternative Dispute Resolution (ADR)
facilitates a gradual yet impactful momentum toward addressing climate change.16
IV.
POTENTIAL
OF ARBITRATION IN THE CURRENT LEGAL SCENARIO
A task
force on "Arbitration of Climate Change Related Disputes" has been
established by the ICC Commission on Arbitration and ADR with the assistance of
the ICC Commission on Environment and Energy. For the Task Force and this
Report, a valid and enforceable arbitration agreement must exist between the
parties before a dispute involving climate change can be resolved.
The
Task Force was provided with the following
duties:
1.
To
determine whether and, if so, how conflicts connected to climate change are currently resolved using ICC Arbitration and other dispute
resolution systems.
2.
To
determine whether any qualities are necessary for a conflict resolution system
to successfully resolve
issues linked to climate change.
3.
Review the ICC Mediation Rules, Expert Rules, and Dispute Board Rules in the context
of disputes relating
to climate change
to determine whether
it would be appropriate for ICC to provide any additional guidance
and offer model language for dispute resolution clauses and procedures.
4.
To compile a report that summarizes the
Task Force's conclusions, keeping in mind that this output may include a description of
the issues raised and recommendations for potential remedies
for consideration by parties, potential
parties, lawyers, and tribunals.
Business
representatives, attorneys, arbitrators, arbitral institutions, in-house
counsel, NGO representatives, business and industry groups, and academics are among
the Task Force participants.
A broad range of business sectors,
including manufacturing, heavy industry, agriculture, public sector operations,
and service industries, are covered by the ICC cases. In recent years, the
greatest number of cases were related to construction and energy. Specifically,
engineering and construction comprised 23 percent of the 186 newly filed cases
in 2017. With 155 new cases in 2017, the energy sector closely followed the
aforementioned trend, accounting for 19% of all new cases. About 6% of cases
were in the areas of telecommunications and specialized technologies, finance
and insurance, general trade and distribution, industrial equipment, and
health, pharmaceuticals, and cosmetics[9]. The Task Force projects that
dispute related to climate change will rise exponentially based on the current
and anticipated growth of investments in climate change related by States and
the private sector in an attempt to meet the goals of the Paris Agreement.
V.
TYPES OF DISPUTES
The scope of climate change and
sustainability disputes that have been brought to court so far is enormous. This study seeks to divide
debates over climate change and alternative energy sources based on nature.
1. NATURE:
a)
Joint
venture/contractual issues - A large number of stakeholders are involved in an investment
that is considerable and long-term. These complex agreements may lead to disputes
among stakeholders. This is mainly due to the fact that many investments and projects
will include a range of novel components, including brand-new infrastructure,
systems, and partnerships with non-traditional partners like energy and technology
companies.
b)
Claims
arising from weather conditions - The weather, which can be unpredictable and challenging to
predict and is growing more so as the consequences of climate change become
more obvious, is a major factor in the majority of alternative energy endeavors.
As a result, arguments over who is to blame for unfavorable weather may occur
between the parties. This gives rise to delays, contract violations, and force-
majeure claims.
c)
Technology-related
disputes - The likelihood
of failure for parties is increased by the possibility that new technology has
not been fully tested. When new technology doesn't live up to expectations,
disagreements may develop. Parties are subject to allegations of negligence,
fraud, or breach of contract. In the case of Mt Hojgaard A/S v. E.On Climate
and Alternates UK Robin Rigg East Ltd and Others[10], the court
determined that the contractor was required under the fitness for purpose
obligation to ensure that the foundations will survive for 20 years. The ruling
confirms that generally speaking, courts are prepared to fully enforce a demand
that a product correspond to the contractual obligations. As with any new
technology, there can also be disagreements over who is the rightful owner of the
intellectual property and licensing rights.
d) Investor-state
disputes - Due to circumstances
like the COVID-19 pandemic, governments have been obliged to look for economic
recovery solutions that involve reducing financial incentives or subsidies.
This deficit has been bridged by private investment, particularly foreign
direct investment (FDI). The significant number of claims, or around 40, lodged
against Spain under the Energy Charter Treaty (ECT)[11] as a
result of modifications to Spain's alternative energy policies provide one
excellent case. One frequently cited instance in the area of the environment is
the Indus Waters Kishenganga arbitration (Pakistan v. India, PCA 2011-01),[12] which was
initiated under the Indus Waters Treaty. Undoubtedly, arbitration might play a similar
role in disputes between states over the environment.
e) Legal
action as a means of seeking financial redress – Claims
brought against companies primarily to receive compensation for direct or indirect
consequences of climate change on the claimant's property. For instance, take a
look at the several high-profile lawsuits US cities and localities have brought
against oil and gas majors in federal and state US courts.
1.
The
UNFCCC (United Nations Framework Convention on Climate Change)[13]- The UNFCCC was established in March 1994, with
an almost global membership today. The key feature of Article 14 addresses
the mode and methodology of dispute
resolution.
a) The first
subclause under Settlement of Disputes states that the respective parties will seek
to resolve their dispute through negotiations or any other peaceful manner of their
choice first.
b) The parties
are obliged to submit the dispute either to ICJ or Arbitration in consonance with
the approach stated under the Conference of Parties (COP).
c) At the
request of either of the parties, a conciliation commission ought to be
created, granting a recommendary reward which must be accepted by the parties
in good faith.
d) The
stipulations outlined in this Article shall apply to any associated legal instrument
that the Conference of the Parties may decide upon unless the said instrument specifies
otherwise.
f) Articles 13
and 14[15] of the
UNFCC discuss the various methods of dispute resolution mechanisms.
The
Kyoto Protocol was established on 11th December 1997 in Japan at COP 3 and is ratified
by 192 parties. In comparison to the
UNFCC, the Kyoto Protocol imposes
specific obligations on its member states.
The key features of this protocol include:
a)
Article 18 of
the Kyoto Protocol mirrors Article 13[17] of UNFCC. The difference under this treaty was that it was successful in the establishment of a non-compliance mechanism.
b) The
treaty also adopts Article 14[18] of
UNFCC with regard to traditional dispute resolution provisions.
The
Paris Agreement came into force in November at the UN Climate Change Conference in December 2015 and was ratified by
195 countries. The key features of
the Paris Agreement include:
a)
Article 24 of
this agreement replicates
Article 14 of the UNFCC. It elaborates
on the dispute settlement modes.
b)
Only one state has recognized arbitration as a DRM under Article 24 of the Paris Agreement, namely the Netherlands.
The Paris Agreement
does not provide clear or evident guidelines as to what disputes can be addressed through arbitration.
Thus, this leads to vagueness and non-clarity.
The ECT came into force in April 1998 and has been
signed by more than 50 parties.
This treaty stimulates cooperation in the energy
field while safeguarding energy investments.
The Energy Charter entails provisions for the settlement of disputes between contracting parties and investors via
binding International Arbitration. Nonetheless,
it is observed that various
countries like France,
Germany, Poland, and innumerable members
of EU states have withdrawn
from ECT.
This mechanism
displays several shortcomings that call for careful thought when dealing with complicated
and multidimensional subjects. The complex nature of climate change and alternative
energy, which encompasses scientific, environmental, and socioeconomic components,
provides difficulties that could test the established arbitration system:
1. Unconsolidated
parallel proceedings -
Conflicting decisions being made
in various forums are more likely
when processes are ongoing simultaneously. Apart from this, when disputes
are split up across several tribunals or courts, the effectiveness of
arbitration may be hampered. Due to
the frequency of transactions involving several parties and different contracts, as well as the potential for
claims under State contracts and investment treaties to overlap, parallel or
multiple processes are more common in the energy sector. A party is not required to agree to arbitration in every case involving a similar contract. To avoid multiple
lawsuits in several forums, a feasible recommendation would be to include the same dispute resolution clauses in all
such contracts. This is required to streamline future disputes and conserve time and resources by averting several arbitration hearings.
2. Lack of
sufficient expertise - Arbitrators are frequently chosen based on their legal understanding,
prior international arbitration experience, and general business or financial knowledge. In certain situations,
arbitrators could lack the in-depth knowledge necessary to completely appreciate and decide on those matters. Conflicts
involving biotechnology, alternative
energy, climate change, and other specialized industries can entail complex technical intricacies. Arbitrators without the appropriate knowledge may misinterpret these
specifics, which might result in poor or inaccurate awards. Not every
arbitral institution is equipped with a pool of arbitrators that are experts
in the energy sector, and even otherwise, there is a dearth of expertise in this field. An appropriate
solution to this is to provide sufficient
training must be provided to the arbitrators before they hear the matter on the specific case that appear before them.
Resource materials and tests on the subtopic for the selection of the arbitrator for that case ensures expertise.
This establishes a specialized binding mode of
redressal.
3.
Pro-investor - Investor-state disputes frequently involve the selection
of arbitrators from a pool of experts
in both international arbitration and investment law. Although it is believed
that these arbitrators will act partially, there may be an impression
that they benefit investors. This perception results
from elements such as the backgrounds of the arbitrators, the types of cases they have handled
in the past, and the possibility of repeat
appointments by parties or law firms
representing investors. Some have emphasized a potential resource imbalance regarding disputes between
multinational corporations and governments. According
to Global Justice Now's figures, the imbalance can be highlighted.[21]
4.
Reasoning behind arbitral awards is
unknown to the public - First off, the lack of publicly available precedent and legal counsel is a
result of arbitration confidentiality. Due to this, it could be challenging for parties and attorneys to predict
outcomes in cases that are identical.
Second, disagreements involving the environment or alternative energy sources that are of public concern may have
far-reaching effects. Lack of openness may make it more difficult for the public to understand and address these
issues. Thirdly, the secrecy surrounding arbitration can create a perception of unfairness or prejudice when it comes to conflicts between investors and states or other powerful
entities, which can cause the public to lose trust in the process.
5.
Enforcement of awards and
interference of domestic courts - Parties to arbitration
are frequently from nations with
distinct legal systems. It is challenging to foresee how straightforward it will be to enforce an award in each country
because enforcement methods
and procedures might vary greatly between jurisdictions. In recognition
and enforcement proceedings, some
jurisdictions construe the public policy widely, and thus, it becomes difficult to enforce the awards. An
essential component of the international arbitration framework is the New York Convention on the Recognition and
Enforcement of Foreign Arbitral
Awards. However, not all nations have ratified
the
convention. A party
may object to a specific
government notification or policy that has an impact on price. These challenges typically take the form of lengthy,
unresolved writ petitions in High Courts. Because the outcome of the writ petition
will have an impact on the Arbitral
Tribunal's decision, the arbitration processes suffer as a result. In some circumstances, courts will also issue anti-arbitration injunctions to halt the arbitration.
6. Guidelines
for formulating contracts – A set of rules for the formation
of contracts for specific scenarios
must be established. In various scenarios, such as price reviews, changes in regulations, etc. for shorter periods,
say three years instead of five, may eliminate or at least bring down the need for price reviews, thereby refuting a
significant dispute ground altogether.
7. Seat of
Arbitration - An
international standard schedule
entailing the rules for the applicability of jurisdiction based on the circumstances should
be established and enforced. Various issues, such as joint venture deadlocks, the particular performance of the contract,
etc., may not be subject to
arbitration under the laws of the arbitration seat or the jurisdiction. Such energy conflicts make it difficult to arbitrate on the relevant
issues because the award could
be overturned.
Looking back at the historical
development, it is clear that the problems caused by climate change require an
active legal response. International arbitration has become essential in
resolving the complex energy disputes of today and navigating the landmark
agreements of the late 20th century. This is because environmental disputes are
becoming increasingly complex. The legal
frameworks governing international arbitration must continue to evolve,
recognizing the interconnectedness of global challenges and the imperative to
foster collaboration. Finally, the development of the legal framework in
the areas of climate change, alternative energy, and international arbitration
is not just a legal project; it is a collective project that takes into account
the rights, aspirations, and welfare of societies all over the world. We can
pave the way for a sustainable future where legal systems function as tools for
social justice, environmental stewardship, and justice by adopting this all-encompassing
viewpoint. At a crossroads where climate change is accelerating, the
socio-legal fabric we weave now will surely influence the shape of the world we
leave for future generations.
[3] ICC | International Chamber of Commerce,
ICC - International Chamber of Commerce,
https://iccwbo.org/.
[5] ECCA 2023 - European Conference on
Climate Change Adaptation, CARO,
https://www.caro.ie/training-events/events/ecca-2023-european-conference-on-climate-change-ad.
[7] International
Centre for Settlement of Investment Disputes,
https://icsid.worldbank.org/
[8] International Arbitration: What it
is and How it Works - PON - Program on Negotiation at Harvard Law School,
https://www.pon.harvard.edu/daily/international-negotiation-daily/international-arbitration-what-it-is-
and-how-it-works/ (last visited
Aug 30, 2023).
[9] icc-arbitration-adr-commission-report-on-resolving-climate-change-related-disputes
https://iccwbo.org/wp-content/uploads/sites/3/2019/11/icc-arbitration-adr-commission-report-on-resolving-climate-change-related-disputes-english-version.
[10] The Supreme Court, MT Højgaard
A/S (Respondent) v E.On Climate & Renewables UK Robin Rigg East Limited and
Another (Appellants) - The Supreme Court,
https://www.supremecourt.uk/cases/uksc-2015-0115.html.
[11] Energy Charter Treaty - Energy
Charter, https://www.energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/
[12] Indus Waters Kishenganga arbitration (Pakistan v.
India, PCA 2011-01
[16] Text of the Kyoto Protocol |
UNFCCC,
https://unfccc.int/process-and-meetings/the-kyoto-protocol/history-of-the-kyoto-protocol/text-of-the-kyoto-protocol.
[20] Energy Charter Treaty - Energy
Charter,
https://www.energycharter.org/process/energy-charter-treaty-1994/energy-charter-treaty/.
[21] GLOBAL JUSTICE NOW, https://www.globaljustice.org.uk/news/69-richest-100-entities-planet- arecorporations-not-governments-figures-show/
Article Information
ANALYSING SYNERGIES OF INTERNATIONAL ARBITRATION IN ALTERNATIVE ENERGY AND CLIMATE CHANGE - INSIGHT INTO ADVANCEMENT OF THE LEGAL FRAMEWORK
Authors: SAKSHI JAIN
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/02/28
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
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