ABSTRACT
This chapter looks at the importance of striking a balance between the interests of the state and a long-term investor when considering the allocation of economic and technical risk. The energy transition is taking place in conditions of significant financial volatility, reminiscent of the oil price fluctuations of the 20th century. Investment treaties provide investors with protection, and a mechanism to challenge legislation which damages the investor’s rent expectations. The treaty provisions are generic and broadly drafted, resulting in some unforeseen outcomes in arbitration. Fossil fuel companies have been accused of causing “regulatory chill,” deterring states from implementing climate change legislation. However, investment protection is vital to support investment in the energy transition. The chapter argues that investment protection is better negotiated expressly into host government agreements, setting the expectation that the state may change its laws in accordance with international treaties in a fair and transparent manner, but allowing the investor to claim compensation in cases of unfairness through dispute resolution. Such targeted, project-specific allocation of risk should be more acceptable to civil society.
