Working Paper: CEPR ID: DP17928
Authors: Henrik Horn
Abstract: State-to-state investment protection treaties, and the Energy Charter Treaty in particular, are alleged to dissuade host countries from regulating foreign-owned investment with adverse climate impact. This paper examines implications of treaty reforms that have been proposed as remedies for such regulatory chill. It finds that an increased carve-out, and reduced compensation in case of regulation, can address the stranded investment problem, but might not be accepted by both parties to the agreement. Disallowing investor-state dispute settlement (ISDS) solves the chill less effectively, but is more acceptable to both parties. Shortening of a sunset period applicable to unilateral withdrawal will tend to worsen the problem.
Keywords: climate; investment treaties; stranded assets; regulatory chill
JEL Codes: F21; F23; F53; K33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state-to-state investment protection treaties (F21) | regulatory chill (L51) |
| Energy Charter Treaty (F15) | regulatory chill (L51) |
| compensation obligations (M52) | regulatory chill (L51) |
| increasing carveout from compensation requirements (M52) | host countries regulating without compensation (H13) |
| larger carveout (Y60) | policy space for host countries (O24) |
| excluding ISDS (L59) | regulatory chill (L51) |
| shortening sunset periods (Y60) | regulatory chill (L51) |