Police powers doctrine vs indirect expropriation in a new world era - Creating a practical balance between the state’s right to regulate and investor protection in the global energy transition

Sammanfattning

This thesis examines recent years’ unresolved conflicts on the state’s right to regulate and the protection of foreign investors in ‘climate blind’ energy agreements, such as the Energy Charter Treaty. One of the primary disputes among them is the vague language of indirect expropriation in traditional International Investment Agreements (IIAs), which mostly favours investor protection. While IIAs can potentially contribute to developing countries’ economies, they contrarily impose the proportionality principle, which leads to the creation of ‘regulatory chill’. To reach the target of the sustainable energy transition, the international agreement subjects must draft modern treaties, such as CETA, USMCA and the Netherlands Investment Agreements, that explicitly codify the police powers doctrine, thereby safeguarding a state’s sovereign right to regulate for the public and environmental welfare without facing massive financial liabilities. This is a legal research with a normative legal approach, starting with an analysis of the given definitions of the distinction between a state’s right to regulate and indirect expropriation by customary international law, pre-modernised investment treaties on energy, and tribunal awards. Then it has assessed states’ vulnerabilities in international energy treaties, and examined modern treaties. Consequently, using already existing examples gives legislative solutions to the host states which they need. The key question is the possibility of adding exclusive clauses or annexes to modernise investment agreements by clarifying boundaries of police powers to protect host states' public welfare in the energy transition period. This thesis argues that under strict proportionality tests, states cannot exercise their autonomy. Because developing host states are rich with natural resources have been faced with a dilemma: They have to pay a massive amount of compensation under investors’ heavy agreement demands or accept ruinous financial liabilities under new green energy policies.