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Regulatory Chill in a Warming World: The Threat to Climate Policy Posed by Investor-State Dispute Settlement

  • Kyla Tienhaara (a1)

The system of investor-state dispute settlement (ISDS) found in over 3,000 bilateral investment treaties and numerous regional trade agreements has been criticized for interfering with the rights of sovereign states to regulate investment in the public interest, for example, to protect the environment and public health. This article argues that while much of the public debate around ISDS has focused on a small number of cases that have arisen over the regulation of tobacco packaging, there is a far greater threat posed by the potential use of ISDS by the fossil fuel industry to stall action on climate change. It is hypothesized that fossil fuel corporations will emulate a tactic employed by the tobacco industry – that of using ISDS to induce cross-border regulatory chill: the delay in policy uptake in jurisdictions outside the jurisdiction in which the ISDS claim is brought. Importantly, fossil fuel corporations do not have to win any ISDS cases for this strategy to be effective; they only have to be willing to launch them. The article concludes with three options to reform trade and investment agreements to better align them with climate change mitigation efforts: (i) exclude ISDS provisions; (ii) prohibit fossil fuel industries from accessing ISDS; or (iii) carve out all government measures taken in pursuit of international obligations (for example, under the Paris Agreement on climate change) from challenge under ISDS.

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I would like to acknowledge the feedback on earlier drafts of this article received from participants at the Global Governance and the Trans-Pacific Partnership (TPP) Symposium at the University at Buffalo, NY (United States (US)) in Nov. 2016, as well as from two anonymous reviewers for TEL.

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1 Paris (France), 13 Dec. 2015, in force 4 Nov. 2016, available at:

2 New York, NY (US), 9 May 1992, in force 21 Mar. 1994, available at:

3 McGlade, C. & Ekins, P., ‘The Geographical Distribution of Fossil Fuels Unused when Limiting Global Warming to 2°C’ (2015) 517(7533) Nature, pp. 186190 , at 187.

4 Ottawa, ON (Canada), Mexico City (Mexico), Washington, DC (US), 17 Dec. 1992, in force 1 Jan. 1994, available at:

6 Negotiations pending; see at:

8 Comprehensive Economic and Trade Agreement between Canada, of the one part, and the European Union and its Member States, of the other part (CETA), Brussels (Belgium), 14 Sept. 2016, not in force, available at:

9 The CETA contains a modified version of ISDS which has been referred to as an investment court system: European Commission, ‘A Future Multilateral Investment Court – Factsheet’, 13 Dec. 2016, available at:

10 UNCTAD, ‘Investment Dispute Settlement Navigator’, updated 1 Jan. 2017, available at:

11 Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No. ARB/10/7, available at:; Philip Morris Asia Ltd v. The Commonwealth of Australia, UNCITRAL, PCA Case No. 2012-12, available at:

12 ICSID ‘The ICSID Caseload – Statistics’ (2015), available at:

13 See further K. Tienhaara & C. Downie, ‘Risky Business: The Energy Charter Treaty, Renewable Energy and Investor-State Disputes’, Global Governance (forthcoming).

14 Ibid.

15 Miles, K., The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press, 2013), p. 202 .

16 ‘Italy’s Ban on Oil and Gas Development Near Its Coastline Leads to Investment Treaty Arbitration Claim’, IAReporter, 23 Mar. 2017, available at:

17 N. Bernasconi, ‘Background Paper on Vattenfall v. Germany Arbitration’, International Institute for Sustainable Development, July 2009, available at:

18 Lone Pine Inc. v. Government of Canada, ICSID Case No. UNCT/15/2, available at:

19 TransCanada Corporation and TransCanada Pipelines Ltd v. United States of America, ICSID Case No. ARV/16/21.

20 According to the ICSID website, the case was discontinued on 24 Mar. 2017, available at:

21 C. Mooney, ‘How Obama’s Keystone XL Rejection Adds Momentum to the Paris Climate Talks’, The Washington Post, 6 Nov. 2015, available at:

22 L. Krugel, ‘TransCanada NAFTA Challenge Could Break U.S. Winning Streak, Experts Say’, CTV News, 7 Jan. 2016, available at:

23 Tienhaara, K., ‘Regulatory Chill and the Threat of Arbitration: A View from Political Science’, in C. Brown & K. Miles (eds), Evolution in Investment Treaty Law and Arbitration (Cambridge University Press, 2011), pp. 606628 , at 615.

24 Negotiators from 11 countries met in Sydney (Australia) in Aug. 2017 in an attempt to revive the agreement: ‘TPP Countries Consider Amendments to Stalled Trade Deal: Sources’, Reuters, 29 Aug. 2017, available at:

25 E.g., Friends of the Earth Europe, ‘Unfair Privileges for Investors’, available at:

26 Bonnitcha, J., Substantive Protection under Investment Treaties: A Legal and Economic Analysis (Cambridge University Press, 2014), p. 114 .

27 Tienhaara, n. 23 above, p. 615; UNCTAD, ‘Recent Developments in Investor-State Dispute Settlement’, IIA Issues Note, No. 1, Apr. 2014, available at:

28 Bonnitcha, n. 26 above; Miles, n. 15 above; Tienhaara, n. 23 above.

29 Tienhaara, n. 23 above, p. 610.

30 Bonnitcha, n. 26 above.

31 Ibid., p. 115.

32 C. Côté, ‘A Chilling Effect? The Impact of International Investment Agreements on National Regulatory Autonomy in the Areas of Health, Safety and the Environment’ (PhD thesis, London School of Economics, Feb. 2014).

33 Van Harten, G. & Scott, D.N., ‘Investment Treaties and the Internal Vetting of Regulatory Proposals: A Case Study from Canada’ (2016) 7(1) Journal of International Dispute Settlement, pp. 125 .

34 Ibid.

35 Quoted in J. Hill, ‘ISDS: The Devil in the Trade Deal’, Background Briefing, ABC Radio National Australia, 26 July 2015, available at:

36 UNCTAD, Investor-State Disputes: Prevention and Alternatives to Arbitration, UNCTAD Series on International Investment Policies for Development (United Nations, 2010), available at:

37 Bonnitcha, n. 26 above; Côté, n. 32 above.

38 UNCTAD, n. 36 above.

39 See, e.g., Bonnitcha, n. 26 above; Van Harten & Scott, n. 33 above.

40 Tienhaara, n. 23 above.

41 M. Coleman et al., ‘Foreign Investors’ Options to Deal with Regulatory Changes in the Renewable Energy Sector’, Steptoe & Johnson LLP, 23 Sept. 2014, available at:

42 Coe, J. & Rubins, N., ‘Regulatory Expropriation and the Tecmed Case: Context and Contributions’, in T. Weiler (ed.), International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (Cameron May, 2005), pp. 597667 , at 599; Schill, S., ‘Do Investment Treaties Chill Unilateral State Regulation to Mitigate Climate Change?’ (2007) 24(5) Journal of International Arbitration, pp. 469477 , at 470.

43 Tienhaara, n. 23 above; Poulsen argues that bounded rationality also explains why developing countries agree to sign investment treaties in the first place: Poulsen, L., Bounded Rationality and Economic Diplomacy: The Politics of Investment (Cambridge University Press, 2015).

44 D. Gaukrodger & K. Gordon, ‘Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community’, Organization for Economic Cooperation and Development (OECD), Working Papers on International Investment, No. 2012/3, available at:

45 Miles, n. 15 above, p. 187.

46 Gross, S., ‘Inordinate Chill: BITS, Non-NAFTA MITS, and Host-State Regulatory Freedom: An Indonesian Case Study’ (2003) 24(3) Michigan Journal of International Law, pp. 893960 ; Tienhaara, K., The Expropriation of Environmental Governance: Protecting Foreign Investors at the Expense of Public Policy (Cambridge University Press, 2009), pp. 217–27.

47 C. Hamby, ‘The Billion Dollar Ultimatum’, BuzzFeed News, 30 Aug. 2016, available at:

48 Jensen, N., Nation-States and the Multinational Corporation: A Political Economy of Foreign Direct Investment (Princeton University Press, 2006), p. 78 ; Mosely, L., Global Capital and National Governments (Cambridge University Press, 2003), p. 29 .

49 Mitchell, A. & Studdert, D., ‘Plain Packaging of Tobacco Products in Australia: A Novel Regulation Faces Legal Challenge’ (2012) 307(3) Journal of the American Medical Association, pp. 261262 .

50 A. Schram, R. Labonté & A. Ruckert, ‘Philip Morris v Australia: A Crushing Blow to Big Tobacco or a Deferral of Sentencing for Plain Packaging?’, Healthy Policies Blog, 3 Feb. 2016, available at:

51 N. 11 above.

52 See, e.g., N. Lavrnos, ‘After Philip Morris II: States Maintain Their Regulatory Powers to Control the Plain Packaging of Cigarettes’, Practical Law Arbitration Blog, 15 Aug. 2016, available at:

53 S. Tavernise, ‘Tobacco Firms’ Strategy Limits Poorer Nations’ Smoking Laws’, The New York Times, 13 Dec. 2013, available at:

54 Mitchell & Studdert, n. 49 above, p. 262; Voon, T. & Mitchell, A., ‘Implications of International Investment Law for Plain Tobacco Packaging: Lessons from the Hong Kong-Australia BIT’, in T. Voon, A. Mitchell & J. Lieberman (eds), Public Health and Plain Packaging of Cigarettes: Legal Issues (Edward Elgar, 2012), pp. 137172 , at 172.

55 M. Chan, ‘The Changed Face of the Tobacco Industry’, Keynote Address at the 15th World Conference on Tobacco and Health, Singapore, 20 Mar. 2012, available at:

56 Gruszczynski, L., ‘Australian Plain Packaging Law, International Litigations and Regulatory Chilling Effect’ (2014) 5(2) European Journal of Risk Regulation, pp. 242247 , at 244.

57 Ibid.; Bonnitcha, n. 26 above.

60 L. Peterson, ‘Dow Suit is Seminal NAFTA Chapter 11 Test’, Embassy Magazine, 15 Apr. 2009; H. Mann, ‘DOWning NAFTA?’, Investment Treaty News, 2 May 2009, available at:

61 Mann, ibid.; Cooper, K. et al., ‘Seeking a Regulatory Chill in Canada: The Dow Agrosciences NAFTA Chapter 11 Challenge to the Quebec Pesticides Management Code’ (2014) 7(1) Golden Gate University Environmental Law Journal, pp. 552 .

62 See, e.g., Nesbit, J., Poison Tea: How Big Oil and Big Tobacco Invented the Tea Party and Captured the GOP (Thomas Dunne, 2016).

63 Oreskes, N. & Conway, E., Merchants of Doubt (Bloomsbury Press, 2010).

64 CIEL, ‘Smoke and Fumes’, available at:

65 R. Reavy, ‘Survival is Victory: Lessons from the Tobacco Wars’, Presentation to the 111th RMCMI Convention and Annual Meeting, Snowmass, CO (US), 28–30 Jun. 2015, available at:

66 Democracy Center, ‘Bechtel vs Bolivia: Details of the Case and the Campaign’, available at:

67 Geneva (Switzerland), 21 May 2003, available at:

68 G20 Leaders Statement, Pittsburgh Summit, Pittsburgh, PA (US), 24–25 Sept. 2009, para 24, available at:

69 Baumgartner, J., Treaty Shopping in International Investment Law (Oxford University Press, 2016).

70 ‘Submission of Philip Morris International in Response to the Request for Comments concerning the Proposed Trans-Pacific Partnership Trade Agreement’, 25 Jan. 2010, (on file with the author).

71 E. Scott, Letter from Edward B. Scott, Vice President and General Counsel, Chevron Upstream Oil and Gas to Mr Douglas Bell, Chairman of the Trade Policy Staff Committee, Office of the US Trade Representative, 7 May 2013, available at:

72 A. Nelsen, ‘TTIP: Chevron Lobbied for Controversial Legal Right as “Environmental Deterrent”’, The Guardian, 26 Apr. 2016, available at:

73 Allen and Overy LLP, ‘New Investment Protections Offered in Ground-Breaking Trans-Pacific Partnership’, 23 Dec. 2016, available at:; L. Johnson & L. Sachs, ‘The TPP’s Investment Chapter: Entrenching, Rather than Reforming, a Flawed System’, Columbia Center on Sustainable Investment (CCSI) Policy Paper, Nov. 2015, available at:; Tienhaara, K. & Tucker, T., ‘Regulating Foreign Investment: Methanex Revisited’, in C.L. Lim (ed.), Alternative Visions in the International Law on Foreign Investment: Essays in Honour of M. Sornarajah (Cambridge University Press, 2016), pp. 255288 .

74 Emphasis added.

75 Miles, K., ‘Sustainable Development, National Treatment and Like Circumstances in Investment Law’, in M. Cordonier Segger, M. Gehring & A. Newcombe (eds), Sustainable Development in World Investment Law (Kluwer Law International, 2011), pp. 261294 .

76 Wilensky, M., ‘Reconciling International Investment Law and Climate Change Policy: Potential Liability for Climate Measures under the Trans-Pacific Partnership’ (2015) 45 Environmental Law Reporter, pp. 1068310698 .

77 Miles, n. 75 above.

78 Ibid.

79 Bilcon of Delaware et al. v. Government of Canada, Award on Jurisdiction and Liability, 17 Mar. 2015, available at:

80 Johnson & Sachs, n. 73 above.

81 TPP, n. 5 above, Ch. 9, n. 14.

82 Johnson & Sachs, n. 73 above, p. 10.

83 Emilio Agustín Maffezini v. The Kingdom of Spain, ICSID Case No. ARB/97/7, Award, 13 Nov. 2000.

84 C. Salomon & S. Friedrich, ‘How Most Favoured Nation Clauses in Bilateral Investment Treaties Affect Arbitration’ (2013) Practical Law Arbitration, available at:

85 CETA, n. 8 above, Art. 8.7(4).

87 P. Ranjan, ‘The White Industries Arbitration: Implications for India’s Investment Treaty Program’, Investment Treaty News, 13 Apr. 2012, available at:

88 J. Hill, ‘TPP’s Clauses that Let Australia Be Sued Are Weapons of Legal Destruction, Says Lawyer’, The Guardian, 10 Nov. 2015, available at:

89 UNCTAD, Fair and Equitable Treatment, UNCTAD/ITE/IIT/11(Vol.III) (United Nations, 1999).

90 N. 4 above.

91 NAFTA Free Trade Commission, ‘Notes of Interpretation of Certain Chapter 11 Provisions’, 31 July 2001, available at:

92 Government of Canada, ‘Bilcon v Canada Case Summary’, available at:

93 TPP, n. 5 above, Art. 9.6(4).

94 Quoted in ‘TPP Investment Language Aims to Tighten Standard for MST Breach’, Inside U.S. Trade – World Trade Online, 12 Nov. 2015, available at:

95 Johnson & Sachs, n. 73 above, p. 4.

96 Ibid.

97 UNCTAD, ‘Taking of Property’, UNCTAD/ITE/IIT/15 (United Nations, 2000).

98 Fortier, Y. & Drymer, S., ‘Indirect Expropriation in the Law of International Investment: I Know It When I See It, or Caveat Investor’ (2004) 19(2) ICSID Review: Foreign Investment Law Journal, pp. 293327 , at 300.

99 Ibid.

100 Tienhaara & Tucker, n. 73 above.

101 Agreement between New Zealand and the Separate Customs Territory of Taiwan, Penghu, Kinmen, and Matsu on Economic Cooperation, 10 July 2013, in force 1 Dec. 2013, Annex 5, para 3, available at:

102 Seoul (South Korea), 11 Mar. 2014, in force 1 Jan. 2015, Ch. 8, Annex 8-B, para. (b), available at: (emphasis added).

103 Tienhaara & Tucker, n. 73 above.

104 TPP, n. 5 above, Annex 9-B, n. 36.

105 Sornarajah, M., Resistance and Change in the International Law on Foreign Investment (Cambridge University Press, 2015).

106 Ibid., p. 211.

107 Washington, DC (US), 28 May 2004, in force 1 Jan 2009, available at:

108 Edsall, R., ‘Indirect Expropriation under NAFTA and DR-CAFTA: Potential Inconsistencies in the Treatment of State Public Welfare Regulations’ (2006) 86 Boston University Law Review, pp. 931962 , at 958.

109 US Government, US Article 10.20.2 Submission in Spence v. Costa Rica, ICSID Case No. UNCT/13/2, 17 Apr. 2015, available at: (emphasis added).

111 Hirono, K., Gleeson, D. & Freeman, V., ‘To What Extent Does a Tobacco Carve-Out Protect Public Health in the Trans-Pacific Partnership Agreement?’ (2016) 26(2) Public Health Research Practice, pp. 13 , at 1.

112 Johnson & Sachs, n. 73 above; J. Surowiecki, ‘The Corporate-Friendly World of the TPP’, The New Yorker, 6 Oct. 2015, available at:

113 Australia and Singapore, Agreement to Amend the Singapore–Australia Free Trade Agreement, 13 Oct. 2016, available at:

114 Puig, S. & Shaffer, G., ‘A Breakthrough with the TPP: The Tobacco Carve-out’ (2016) 16(2) Yale Journal of Health, Policy and Ethics, pp. 327333 ; Sinclair, S., ‘The TPP and Health Care’, in S. Sinclair & S. Trew (eds), The Trans Pacific Partnership and Canada: A Citizen’s Guide (James Lorimer & Co. Ltd, 2016), pp. 4665 , at 55.

115 V. Needham, ‘Tobacco “Carve-Out” Sparks Bid to Sink TPP’, The Hill, 8 Oct. 2016, available at:; J. Diamond & D. Bash, ‘Trump Signs Order Withdrawing from TPP, Reinstate “Mexico City Policy” on Abortion’, CNN, 23 Jan. 2017, available at:

116 B. Mercurio, ‘Australia Needs Precision Tools in Drafting Trade Agreements, Not a Sledgehammer’, The Conversation, 27 Jan. 2017, available at:

117 Hirono, Gleeson & Freeman, n. 111 above; Sinclair, n. 118 above; CHOICE, ‘Trans-Pacific Partnership Agreement: Submission to the Joint Standing Committee on Treaties’, 11 Mar. 2016, available at:

118 A. Hammond, ‘The Pain Will be Shared if Donald Trump Torpedoes “Worst Ever” Trade Deal’, The Telegraph, 15 Aug. 2017, available at:

119 European Parliament Resolution 2015/2112(INI, 14 Oct. 2015, ‘Towards a New International Climate Agreement in Paris’, available at: See also The Council of Canadians, ‘EU Parliament Adopts Robust Mechanism Needed for Paris Climate Talks. Are European National Leaders Ready to Act?, 16 Oct. 2015, available at:

120 N. 67 above.

121 N. 113 above.

I would like to acknowledge the feedback on earlier drafts of this article received from participants at the Global Governance and the Trans-Pacific Partnership (TPP) Symposium at the University at Buffalo, NY (United States (US)) in Nov. 2016, as well as from two anonymous reviewers for TEL.

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