Fossil Fuel Phase Out And Climate Regulation In Investor-State Arbitration: Rethinking Permanent Sovereignty Over Natural Resources
Anjali Kumari, LLM, NALSAR University of Law
ABSTRACT
International energy investment law and international climate law face an imminent conflict. An investor-state arbitral tribunal granted the claimant about €190 million after Italy refused to extend an offshore oil exploration license because it violated their energy transition program without examining Italy’s Paris Agreement obligations or its sovereign right to decide how to use its natural resources according to the Permanent Sovereignty over Natural Resources principle. The research investigates whether states can use existing international investment law under its correct interpretation to phase out fossil fuel extraction for climate change protection and presents a legal solution.
The question matters because the energy transition is not merely a policy ambition it is a legal obligation. States must gradually decrease their reliance on fossil fuels to achieve the 1.5°C temperature target established by the Paris Agreement, while the International Energy Agency determined that the current fossil fuel field development needs to stop for a net-zero transition. The United States has over 3,000 bilateral investment treaties, together with the Energy Charter Treaty, which allow foreign investors to file ISDS claims worth billions of dollars against countries that implement climate-related regulatory reforms. The legal framework for energy transition creates a regulatory vice which prevents energy transition legal costs from being affordable, this issue stands as the most critical challenge obstructing the energy trade and investment legal system.
The research uses doctrinal legal research as its method to solve the legal problem. The legal system interprets UNGA Resolution 1803 (1962), the Paris Agreement, the Energy Charter Treaty, and the ILC Articles on State Responsibility through the Vienna Convention's Article 31(3)(c) systemic integration principle while the researcher examines how Rockhopper, Vattenfall, RWE, Methanex, Saluka, and Philip Morris v. Uruguay arbitral jurisprudence have developed investment law doctrinal resources. The paper reaches three conclusions. The PSNR treaty gives people the “conservation dimension” right to stop all fossil fuel extraction activities which has become a customary international law norm because the Paris Agreement. The post- Paris world environment makes fossil fuel licensing investor expectations about regulatory continuation no longer legally “legitimate” because climate-motivated phase-out emerged as an international requirement. The paper develops a “climate necessity doctrine” which combines systemic integration and police powers doctrine and necessity defense and proportionality review through four qualifying criteria. The law delivers all necessary tools through its existing text.
