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As states make significant and often rapid changes in policy and regulation to address the challenges of climate change, private parties are increasingly impacted. They look to both domestic law fora (as discussed elsewhere in our series) but also to international law protections, as discussed below.

Climate change is becoming a prominent issue in international relations, influencing how states engage with one another. This shift is reflected in the international commitments made by states through treaties and other legal mechanisms.

As a result, there is increasing potential for climate change disputes to arise under international law, including disputes between states and between states and private investors. Moreover, there are likely to be increasing numbers of disputes between private parties but which arise in connection with developments at an international law level. Such disputes may arise from state action – or potentially, state inaction – in connection with climate change. In short, developments in the international sphere are set to have increasingly impactful consequences for business, and the way in which international law engages with climate change should not be seen by commercial parties as an academic or abstract concern.

Investment disputes and investment treaty arbitration

Investment treaty arbitration is currently one of the most active fora for disputes under international law arising from or relating to climate change. Foreign investors can use the investor-state dispute settlement (ISDS) mechanisms provided by many bilateral and multilateral investment treaties to bring an arbitration claim against the host state of their investments. These claims allege that the host state has breached the investment protections set out in the treaty, which typically include a requirement to treat investments fairly and equitably and protect against discrimination and expropriation. These claims therefore tend to focus on state actions (or state inaction) and the way that conduct is alleged to have affected foreign investors and their investments.

State responses to climate change have given rise to many claims of this nature to date. Historically, most of these cases have arisen from changes to regulatory frameworks which form part of wider state decarbonisation policies, where the complaint is about the change to or withdrawal of that existing framework. This includes more than 50 claims against various European states such as Spain, Italy, the Czech Republic, Germany and Romania linked to the modification or revocation of incentives and subsidies established to promote the solar or wind energy sectors as part of efforts to meet climate change goals. When these measures were amended or withdrawn, many investors brought claims against those states alleging that they had been induced to make their investments based on the incentives being offered and that the subsequent regulatory changes were in breach of the protections set out in particular investment treaties.

More recently, other investment treaty claims have focused on the effect of new policies introduced by states to address climate concerns. Where states have decided to phase out the use of certain energy sources – especially coal-fired power plants – this has given rise to claims like those against the Netherlands and Canada. In those examples, the claimants had interests in coal-fired power plants affected by the new policies and sought to challenge the implementation of the compensation schemes associated with the phase-outs. This mirrors similar litigation arising in some domestic contexts, for example, litigation in the US against the City of Los Angeles for enacting regulations intended to phase out oil and gas drilling within city limits.

Claims under investment treaties have also been triggered by state actions regarding specific projects, such as the refusal or revocation of project approvals and licences due to climate change considerations. Most of these claims to date have involved energy concessions and pipeline developments (notably the Rockhopper claim against Italy and claims against the US concerning the Keystone XL pipeline).

Similar claims can also arise within a contractual context, involving stabilisation clauses or other guarantees of investment protection found in agreements between commercial entities and state actors. While these disputes may take the form of a contractual dispute resolved through arbitration, they will nevertheless typically touch on international law principles and may interact with parallel investment treaty claims.

State-to-state disputes

There is also significant scope for inter-state disputes to arise under international law in connection with climate change issues. Instruments like the Paris Agreement and the underlying United Nations Framework Convention on Climate Change provide for dispute settlement between states over the fulfilment of their respective obligations under that agreement. As states work to implement Paris Agreement commitments in the years ahead, contentious issues are increasingly expected to surface, including those related to the loss and damage fund established at COP28 to assist vulnerable states in responding to the effects of climate change. Disputes may also arise under trade agreements, where for example states exclude certain products or activities from their trade liberalisation commitments on climate grounds, under treaties addressing liability for transboundary environmental effects, or under agreements seeking to directly address the impacts of climate change, such as that recently concluded between Australia and Tuvalu.

Given this backdrop, it is no surprise that there are efforts being made to clarify the scope of state obligations under international law in respect of climate change – in short, to confirm how far international law requires states to go in addressing climate change and what this means for their domestic policy positions. For example, in 2023, at the impetus of Vanuatu and other small island states, the United Nations General Assembly requested an advisory opinion from the International Court of Justice on the obligations of states in respect of climate change. A similar request for an advisory opinion has been made to the International Tribunal for the Law of the Sea on the obligations of states under the United Nations Convention on the Law of the Sea to prevent, reduce and control pollution of the marine environment in connection with the effects of climate change (among other things).

The International Law Commission at the United Nations has also convened a study group that has reported on how statehood under the Montevideo Convention may be impacted by climate change and rising sea levels. Crucial here is the question: if a state loses some or (in the case of low-lying islands) all of its territory, what status will it have under international law? And will it still be considered an actor in the international legal order? Further, an advisory opinion is pending from the Inter-American Court of Human Rights to clarify the scope of state obligations to respond to the climate emergency within the framework of international human rights law.

International human rights law bodies

Separately, climate change issues have already been a feature of disputes involving states before a range of international human rights bodies. In 2020, for example, the United Nations Human Rights Committee ruled in a complaint against New Zealand that states may not deport individuals to environments where climate change poses a threat to the right to life. This ruling has been seen as opening the way to the development of a broader framework under international law around climate-related displacement. In a subsequent 2022 ruling, the same committee found that Australia had failed to adequately protect the Torres Strait Islands' indigenous populations by not safeguarding them from the detrimental effects of climate change, impacting their cultural practices and rights to privacy, family and home. The appointment in 2022 of a UN Special Rapporteur on human rights in the context of climate change reflects an increasing emphasis on the intersection between climate change and human rights issues under international law.

International law impacts at a domestic level

International law is therefore increasingly engaged with climate change issues, across a vast range of international law bodies and instruments. As this field evolves through treaties, practice, custom and rulings from international courts and tribunals, we can anticipate a clearer understanding of state responsibilities. This evolution will, in turn, lead to more disputes as the limits of state commitments and obligations are tested.

Importantly, these developments under international law are also likely to be reflected in domestic legal systems. There are already many examples of domestic courts referring to and relying on international law in how domestic law and policy in relation to climate change are interpreted. For example, courts including the European Court of Justice have applied international law as part of determining whether government policies concerning climate change comply with state obligations. The Paris Agreement itself has been cited in various global legal decisions, including in the UK. Similarly, the well-known Urgenda case, in which the Dutch courts ruled that the Netherlands' climate change policy as pursued by the Dutch Government was unlawful, relied extensively on customary international law.

The rapid evolution of international law is, therefore, likely to impact not only on how states interact with each other at a supranational level but also how their own courts assess the policies they pursue domestically. This has influenced and will inevitably shape the development of the legal frameworks applicable to commercial parties. The meeting of international law and climate change is far from a theoretical issue for businesses, it is primed to be a driver for major legal change over time on climate change issues, including at a domestic level, and to have increasingly tangible consequences for commercial actors.

To follow the rest of this series on climate change disputes, please subscribe to our ESG blog here or click here to view on our website. You can also subscribe to the HSF public international law blog here

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Louise Barber

Of Counsel (Australia), London

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London Climate Change Dispute Resolution Climate disputes Andrew Cannon Hannah Ambrose Louise Barber