Arbitral Implications for the Oil and Gas Sector
On 12 December 2015, the Paris Agreement (or the “Agreement”) on climate change was signed by 195 States and the EU, provoking scenes of euphoria among the delegates involved. The Agreement sets out how the great majority of the world’s countries shall tackle climate change from 2021. While the parties agreed on the “urgent need” to reduce greenhouse gas (or “GHG”) emissions and on making progressively greater reductions into the future, overall, the language of the Agreement is often vague and aspirational. But this does not mean it is toothless; the significance of the Agreement cannot and should not be reduced to the black letter. Given the current deference accorded by tribunals to State regulatory actions, the Agreement may serve as a springboard for further climate change-related regulatory measures by States and those States may well invoke (and be well advised to invoke) the Agreement in defence to claims of unfair treatment by international investors. Many of the measures likely to be taken have implications for the oil and gas industry and deserve attention.
A deferential approach to a State’s right to regulate may be in the ascendancy
Bilateral and multilateral investment treaties are by definition geared to the protection of the rights of investors confronted with state action. But that being said, recent arbitration awards show that the pendulum may well have swung more towards States whose “inherent right” to regulate has in many decisions been expressly recognized. Whereas in the past many investment case decisions were seen to accord investors substantive protections whatever the State’s motivation for the measures complained of, this seems to have changed. It has been observed that tribunals now tend to accord States greater leeway in regulating their economies consistent with longer term goals.
As will be seen, the essence of many recent decisions seems fixed upon the investor’s expectations when entering into the investment in the first place and whether those expectations were reasonable. This case-law suggests that an investor cannot close its eyes to the possibility that the host state may indeed regulate the sector in which it finds itself, at cost to the investor.
+Info and Source: http://goo.gl/sfTJWN