Banning oil and gas activities under international investment law: a problem of indeterminacy

Climate change is calling for a swift and strong response from states to reduce carbon emissions. At the same time, concerns regarding legal challenges posed by international investment law have been widely expressed.1 The United Nations Conference on Trade and Development has recently summarized the issue, emphasizing that ‘[t]he urgency of climate action has added to the need to reform the international investment agreements … regime’ and that ‘[t]he risk of investor-state dispute settlement … being used to challenge climate policies is a major concern’.2 Several proposals have thus extensively focused on treaty-based changes to bolster a stronger compatibility between international investment law and climate policy, such as ensuring that investment agreements preserve the right of states to regulate or promote climate-friendly investments.3 In parallel to these concerns and proposals, we are currently witnessing concrete developments regarding climate policy in international investment arbitration. Amidst various cases pertaining to fossil fuels and renewable energy,4 two decisions specifically dealing with governmental actions pursuant to a ban of oil and gas exploration and exploitation activities have been rendered in 2022.5 In Rockhopper Exploration PLC, Rockhopper Italia SPA, and Rockhopper Mediterranean LTD v Italian Republic, the denial of an application for a production concession shortly after the adoption of a legislation banning the exploration and the exploitation of oil and gas within a 12-miles limit of Italian shores was considered as an unlawful expropriation under the Energy Charter Treaty (ECT).6 In Lone Pine Resources Inc v Government of Canada, the claimant alleged that the revocation of some of its exploration permits following the adoption of a legislation to limit oil and gas activities in the St Lawrence River amounted to an unlawful expropriation and a violation of the minimum standard of treatment under the North American Free Trade Agreement (NAFTA).7 In that case, the tribunal dismissed all claims.8 What are the implications of these two arbitral awards for the future of banning oil and gas exploration and exploitation activities under international investment law? Of course, these cases are marked by factual differences that should not be overlooked. For example, in Lone Pine v Canada, the fact that the claimant owned other permits that were not impacted by the regulatory measure played a significant role when assessing the expropriation claim.9 Yet, these factual differences do not fully explain the diverging outcomes, let alone the implications of these awards for the future of banning oil and gas activities. This article provides a critical analysis of both decisions through the lenses of Martti Koskenniemi’s work on the politics of international law.10 It argues that the diverging outcomes cannot be considered as the consequence of the mere application of international rules to assess the liability of states under international investment law. Rather, they result from political choices that were made by each tribunal at crucially important steps of their reasoning. To be sure, the objective of the article is not to assess the (in)compatibility of international investment arbitration with regulatory measures prohibiting oil and gas exploration and exploitation activities. What the analysis of the two decisions at hand demonstrates is a fundamental indeterminacy of international investment law when it comes to regulatory changes that encapsulate such a prohibition. The article argues that, despite a common legal rhetoric among arbitral decisions, the legality of measures that are pressingly needed to fight climate change ultimately hinges at political choices that are made by tribunals. It is this indeterminacy of international investment law that constitutes a significant threat for the future of banning oil and gas exploration and exploitation activities, and climate policy more generally. The article proceeds in four steps. First, it establishes the theoretical framework of the analysis by presenting Koskenniemi’s twofold requirements for the objectivity of international law and the resulting fundamental indeterminacy. Second, the article advances that the decision in Rockhopper v Italy constitutes an example of ‘utopia’. It scrutinizes several excerpts where the tribunal expressly provided the understanding of its task as being strictly limited to the application of legal rules to the facts of the case, seeking to distance itself from political interests underlying the dispute. Third, the article presents the decision in Lone Pine v Canada as an example of ‘apology’. It highlights various instances where the tribunal focused on agreements among the parties to the dispute to articulate and apply legal standards. Fourth, the article identifies one specific diverging point—ie, the assessment of political motivations underlying the regulatory changes—for which each tribunal made political choices that significantly impacted the outcome of the dispute. In an article published in 1990 and entitled ‘The Politics of International Law’, Koskenniemi provides a critique of international law based on the indeterminacy inherent to international legal argument.11 In a nutshell, he argues that international law is rooted in a liberal impulse to escape international politics, which are often considered as leading into anarchy.12 Such an idealized version of an international rule of law is nevertheless problematic, as it obscures the fact that social conflicts are inevitably solved by political means. Even if international lawyers rely on a ‘common legal rhetoric’, political choices are routinely made to justify the outcome to any international disputes.13 According to Koskenniemi, efforts to preserve the objectivity of international law imply two requirements: ensuring the concreteness of the law as something that can be distanced from theories of natural justice and preserving the normativity of the law as being different from the interests of states.14 However, by arguing that a legal argument is valid because it is either concrete or normative, international lawyers can be accused of being either too apologetic (ie, dependent on the political power of states and international actors) or too utopian (ie, based on a moralistic character of international law).15 As summarized by Koskenniemi, ‘[t]he dynamics of international legal argument are provided by the constant effort of lawyers to show that their law is either concrete or normative and their becoming thus vulnerable to the charge that such law is in fact political because apologist or utopian’.16 While the requirements of concreteness and normativity inherently constitute the objectivity of international law, they conclusively ‘cancel each other out’.17 As a result, international law is marked by a ‘fundamental indeterminacy’. Rather than leading to a ‘relatively indeterminate’ content of international rules,18 the coexistence of the two requirements for international law’s objectivity implies that indeterminacy is a ‘structural property of the international language itself’.19 In other words, even without semantic ambivalence in legal the on which international law is based implies that it The critique of international law provided by Koskenniemi thus that it is to the outcome of an international dispute without political the or is not a of rules on one as or Koskenniemi has more recently a critique international investment law and dispute and in the International on Koskenniemi the of international investment law and its to Rather, he argues that dispute settlement not a … of in the international as of … of a specific of and by that has for the of among and between This argument extensively Koskenniemi’s of the need to from a analysis of the indeterminacy of international law to its which was in an article published after ‘The Politics of International In other words, one that on the fundamental indeterminacy of international investment law by on cases to a critique of the Yet, it is that the fundamental indeterminacy underlying the of actions pursuant to the of oil and gas exploration and exploitation activities in with this of dispute Even if Koskenniemi for on the and the and actions of the analysis that is provided in the article a critique of the of that with the interests of Of course, the analysis of a need for more of the of and on the political choices made by in these two that was in of the one that was in of the a critique of international investment law to the ultimately constitutes an for states to regulatory changes to climate The fundamental indeterminacy that is by the of these two investment is for states can their right to regulate in international investment law. While the is even more in a of climate the that when an arbitral tribunal a regulatory change is with international investment law the by the to in a that is with the that the of international investment agreements has to that investment arbitration awards result from political choices of regarding the to reform the investment by The mere outcome of the Rockhopper v Italy constitutes a strong for any states that be to ban oil and gas exploration and exploitation activities. In Italy a law that and exploitation of oil and gas within a distance of the Italian The law an by that been to valid for the of the In pursuant to the regulatory Italy the application by Rockhopper Italia for an production concession of and gas on the the that Italy its to and treatment to of the investment and not to To be sure, the not the production concession when the ban was and the ban not any for Yet, the tribunal that they a right to be the production concession to the adoption of the and that the denial of the application without the of amounted to an unlawful The fact that Italy was to of and of to the in to for by the and of the of the advances to the International for of is a of the by international investment law on climate the outcome of the dispute and its is is the to which the language used by the tribunal with the of normativity by the the tribunal efforts to a distance from the decision made by Italy and to strictly apply legal rules to the facts of the The decision in Rockhopper v Italy thus several political choices that were made by the tribunal and that can be as a utopian to with the ban of oil and gas activities under international investment law. of the normativity underlying the decision of the tribunal can be at the of the In a that from other the tribunal the need to its that ‘[t]he and for the to is or not the are entitled to pursuant to international law a of the for actions of the its the tribunal the ban in the following was a decision made by Italy and the at the that it should not be in any to either or that decision from either a political or to such based on its inherent and was its to However, that or or decision is not of Italy with it a consequence to pursuant to it made to from its being a to the at the The tribunal thus to limit the of the at hand by to the of a It considered that the dispute be by the application of international rules provided in the content of an international investment by the The tribunal that several 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the were entitled to implies a from international legal rules to legal Rather than on the regulatory change by the in was with international under investment law, the of unlawful expropriation was on the of legal rules regarding the of a production concession under Italian In other words, after that a production concession should have been to Rockhopper Italia the adoption of the the denial of its application was considered as a of the investment and as a the tribunal thus that a violation of law (ie, the to a production concession within a specific amounted to a violation of international investment this from international law to law, the of the tribunal with the of legal rules the normativity Italy that the any resulting from the regulatory change at not international law, the provides that a regulatory measure for a is not and the has made specific to the In response to this the tribunal to the content of and that Italy to all its the of a the consequence of unlawful While expressly on the application of international rules to the facts of the case, the tribunal considered a that have the of to the of their right to be a production The of to strictly rely on the content of the international investment than with international law is an that the of this Even when that the tribunal legal rules to the facts of the case, it is that its on a understanding of the of international law. the of the the tribunal made a political to limit the of international law rules that have the regulatory these instances of by the the on legal rules regarding the of the production concession and the limited of the should be as political choices that to the of a violation of the The is not to that the tribunal with the interests of the and that it should have more into the interests of the the While the tribunal that it was strictly legal rules without the and political underlying the decision to ban exploration and exploitation activities, it a language that its to itself from the interests of the Even if the tribunal that were in with the interests of the the tribunal not expressly the interests the the not as extensively as it to its as strictly legal As as the outcome of the dispute is Lone Pine v Canada from Rockhopper v In this case, Lone Pine Resources exploration permits that were after the adoption of the to and by the in into in the legislation oil and gas exploration and exploitation activities in the St Lawrence expressly that the application of the legislation The claimant on international arbitration to challenge the actions of the Government of arguing that they were with international under (ie, minimum standard of and (ie, While the claimant an of of more than the tribunal dismissed all this different Lone Pine v Canada an of a regarding the of the the The decision of the tribunal with the of concreteness by of a application of legal the tribunal to the interests of the parties to a The by the tribunal in Lone Pine v Canada can thus be considered as an of power between international when the compatibility of actions to a regulatory change banning oil and gas activities under international investment law. The of the tribunal in Lone Pine v Canada was not as as in Rockhopper v In a of the entitled to the the tribunal that it considered the of the as as made in and the character of this it is that the tribunal to on the of the parties to the dispute than a application of the content of the international investment to the facts of the dispute. Of course, the tribunal not the application of and other rules of international The fact that the tribunal its analysis in the of the parties is nevertheless more with an to their interests than a application of legal the tribunal to a between the of the parties than the application of an objective legal standard at steps of its For example, the of the investment was between the While the claimant that the investment for the dispute was limited to permits by Lone Pine Resources Canada that were by the the that such an of the of the investment was to show that the was of its As as its was the tribunal the and that it assess the alleged as by the objective under However, when the of the tribunal considered that the investment in was for its a legal standard that the of a under international it thus that if different of an investment as for the for expropriation be to the investment as a the tribunal dismissed the expropriation by a concession made by the claimant the which that it not that be an expropriation under if that the as a is the The tribunal thus that the for expropriation can be on the of its In other words, of an assessment of the of the investment or the of the of legal the tribunal made a to rely on a common between the claimant and the regarding a of a of the investment for the expropriation to the minimum standard of treatment the tribunal the analysis by the legal its of was the between the parties to the dispute regarding the content of international law minimum standard of treatment for the to the content of and the of arbitral the tribunal to a common based on the arbitral decisions by both the claimant and the to the content of the international law the tribunal the on the v and the as the decision not the to the content of The tribunal nevertheless solved the by that the in response to a from the of the that it with the of the content of the international law minimum standard of treatment for In of presenting the legal standard as something that can be the tribunal ultimately to rely on a of in the of the political that was made by the tribunal when the legal standard of to the of Such are not expressly in the of the tribunal regarding the legal that several have considered as an to into when assessing an alleged violation of the tribunal that the that a In to this and to the legal standard the of the tribunal that is not for the to the the not that any made by … a the of an on the of a legal standard by on the of a violation in the steps of the is a example of the in Lone Pine v Canada is from the of normativity and the on legal when the minimum standard of treatment was by Canada, the tribunal dismissed the by extensively seeking to the of the For example, the tribunal that investment have … that a measure of be to the right of the to regulatory changes in of the the tribunal considered the fact that both parties to the dispute that a be to a violation of It that the to be at on this the that the of the their on this were not In other words, the tribunal made a political to to the of the parties when the of that should be to a regulatory change with the objective to preserve the It is that the tribunal in Lone Pine v Canada a legal rhetoric when presenting its in the The decision to of international and law, as as on legal standards. Yet, a at the language used that the are rooted in an to the by the parties than on a application of legal In to expressly on the when its the tribunal for of in the of both parties to the expropriation and to the content of the legal standard for the minimum standard of treatment The of the tribunal were ultimately by where the of the parties be without an application or at the objectivity of these standards. In to the by the in Rockhopper v Italy and Lone Pine v Canada, one specific that to the different outcomes is the of political motivations underlying the ban of oil and gas exploration and exploitation activities in each This of the article thus on the diverging of these political motivations has to the fundamental indeterminacy of international investment law. In other words, both made different political choices regarding the of political motivations in each case, thus the indeterminacy of international investment law regarding of oil and gas activities. In Rockhopper v the tribunal considered that these political motivations to a of a violation of international investment law. the the to power between the and in Italy the adoption of the law in arguing that such to the denial of the that political in and of and of the political of a it that is a different as to or not measures as a result of such political international pursuant to specific in The tribunal argument that the an the by and by and in a climate of strong The tribunal to political motivations to its of an unlawful that Italy the investment by the application for a production the tribunal that ‘[t]he more for the by the in the of the the is the political and as in this While was provided by the tribunal regarding the of this in its the tribunal thus the denial of the application for a production concession to political motivations and by to that the were entitled to While political motivations played a role the adoption of the ban of oil and gas activities in the tribunal to as a that to a of a violation of international investment For example, when that to the of the the tribunal to the by the claimant that of to on the Government to limit gas exploration and activities in the It several where the considered major in social and from with to gas The excerpts of where the for the legislation the political underlying the Yet, when was a violation of the minimum standard of the of the tribunal that political motivations not from the fact that the regulatory change was The of the tribunal even was an important … not to to the by the of the when that the of was not or The of a political pertaining to the of political motivations is by the of among the of the tribunal in Lone Pine v In a with the of the tribunal regarding the of the and … with in the and in the that the parties to oil and gas and that of from the to oil and gas was often Yet, that not to or the of that the decision not to an of In a that the unlawful expropriation and the minimum standard of he considered that the decision to permits without was and and to the minimum standard of treatment that a such as the was entitled to all the in the the of the political motivations underlying the ban of oil and gas activities as the one for which of the tribunal to fully The diverging of the political motivations underlying the adoption of the two regulatory changes at hand can be summarized in the following the one even after that its role was not to decision either a political or the tribunal in Rockhopper v Italy considered that political motivations were a that the to its under international investment law. While it that the should have been the application the adoption of the political and by were by the tribunal to the need to the In with the normativity the tribunal thus considered political motivations the adoption of the regulatory change as a that was with the legal standard of a the other political motivations the adoption of a regulatory change in were considered as of the to justify that the of for the revocation of permits was not with investment The tribunal thus not to the of the interests of various even these political motivations in the international in with the of concerns regarding the posed by international investment law and dispute settlement climate policy have the diverging outcomes of two dealing with governmental actions pursuant to regulatory changes banning oil and gas exploration and exploitation activities, one be to the as either or It that such actions can be considered as with international investment law, at in some However, on the outcome of these two is too and to a more this article argues that the diverging outcomes are not the consequence of the mere application of rules in international investment law, the result of political choices made at steps of the analysis by each on Koskenniemi’s politics of international law the coexistence of both requirements of concreteness and normativity in the decisions at The in Rockhopper v Italy is as an example of a utopian by the tribunal to distance itself from the interests of the parties and to rely on the mere application of objective legal The tribunal made political choices that to the of by the dispute from by rules pertaining to the of a production concession and by the of the The mere fact that the regulatory measure was by political motivations was considered as to the of the of a In the decision in Lone Pine v Canada an example of that to the of the at steps of the analysis than legal the of the tribunal a different regarding political motivations underlying the regulatory measure at ultimately that they the of a violation of the minimum standard of While one can that a role in ensuring a stronger compatibility between climate policy and international investment the decisions in Rockhopper v Italy and Lone Pine v Canada on a more that is not limited to the compatibility of international investment law with measures to reduce of fossil the one the decision a violation of international investment for the denial of a production concession pursuant to the adoption of a ban of oil and gas activities as the result of a application of legal the other the decision the revocation of after the ban of oil and gas activities to be with international investment law can be as an of the power of international legal standards. as a the two decisions thus the fundamental indeterminacy underlying international investment arbitration when it comes to banning oil and gas activities. In of the political choices made by when the legality of actions pursuant to regulatory changes under investment states are with a pertaining to the right to regulate and the on in the of a decision to a it is the fundamental indeterminacy of international investment law that a to a crucially needed regulatory response to fight climate For the as a Trade for the Government of Lone Pine v Canada was While the some where the was he not in any of the or the of from the this article was by on the is to the and the for their

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