Cross-Border Energy Investment, Energy Justice and International Economic Law

Abstract

Cross-border energy investments are crucial for achieving a global transition to net-zero emissions. However, these investments, often involving extensive infrastructure projects, can also have significant adverse effects on the environment, human rights, and sustainable development. This brief chapter argues that the concept of energy justice, which encompasses distributive, procedural, and recognition justice, can extend its influence beyond domestic regulations and be effectively applied to cross-border transactions. By embracing a broader understanding of energy justice, it has the potential to create synergies among international economic treaties, energy laws, human rights provisions, environmental agreements, and other domestic regulations and soft law instruments. Alongside national policy reforms and bilateral agreements, energy treaties like the Energy Charter Treaty (ECT) and mega-regional economic integrations such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RECP) should consider incorporating principles of energy justice. Another potential approach is the development of an international soft law instrument dedicated specifically to energy justice and responsible investment within the context of global energy transactions. Established frameworks like the UN Guiding Principles on Business and Human Rights or the OECD’s Guidelines for Multinational Enterprises can serve as valuable references in shaping this international instrument.

1 Introduction—Importance of Cross-Border Energy Investment for Global Net-Zero Transition

Cross-border energy investment is crucial for achieving global net-zero transition. This investment plays a vital role in alleviating the burden on consumers, steering the world toward a net-zero future, driving economic recovery, and particularly for Europe, reducing dependence on the Russia following its invasion of Ukraine.¹ The International Energy Agency’s (IEA) World Energy Investment 2022 report predicts a significant surge of over 8% in global energy investment in 2022, reaching USD 2.4 trillion.² These figures exceed pre-Covid-19 levels due to factors like rising prices, increased costs, economic uncertainties, energy security concerns, and climate imperatives. Global energy investment is currently in the spotlight.

However, considering the fragmented nature of the international architecture governing transnational energy investment, this paper argues that the concept of energy justice can serve as a guiding principle, holding substantial potential in the formulation of comprehensive instruments. These instruments are designed to not only safeguard environmental and human rights but also foster mutually beneficial cooperation, promoting sustainable growth across diverse international, regional, and national regulatory frameworks.

2 Adverse Effects of Energy Investment on Sustainability and Human Rights

Nevertheless, cross-border energy investment, often involving extensive infrastructure projects, can have significant adverse effects on environmental preservation, human rights, and international development.³ An example is China’s Belt and Road Initiative (BRI), a trillion-dollar investment and infrastructure program spanning around 70 nations.⁴ The BRI aims to establish extensive land and maritime networks connecting China to Asia, Africa, and Europe. Regrettably, a London-based non-profit organization, the Business & Human Rights Resource Centre, reported 679 allegations of human rights violations by Chinese companies operating overseas between 2013 and 2020.⁵ These allegations encompassed issues such as land rights, pollution, public health, and the rights of indigenous communities. However, the link between human rights, climate change, and energy justice is relatively underdeveloped in transnational law and practices.

3 Energy Justice in Transnational Economic Context

This brief chapter argues that energy justice, encompassing distributive, procedural, and recognition justice⁶ can go beyond domestic regulations and be effectively applied to cross-border transactions. By applying energy justice more broadly,⁷ we gain valuable insights into addressing concerns related to human rights, sustainability, and local communities. Furthermore, the power of energy justice can enhance synergies among international economic treaties, energy law, human rights, environmental treaties, and other domestic regulations and soft law instruments. This paper aims to explore this issue by examining the three fundamental pillars of the energy justice concept below.

Firstly, distributive justice centers on ensuring the equitable distribution of energy resources and advantages. Its objective is to guarantee that affordable, reliable, and clean energy services are accessible to all individuals and communities. In the context of international energy investment, this concept guides developers and decision-makers in addressing energy (in)justice and safeguarding vulnerable populations, including marginalized communities, low-income households, and developing regions. It aims to prevent these groups from bearing a disproportionate burden of the negative consequences associated with energy production and consumption.

Secondly, procedural justice places a significant emphasis on ensuring fairness and inclusivity within decision-making processes pertaining to energy. It entails active engagement of stakeholders, communities, and affected parties in the formulation and execution of energy policies, projects, and regulations. This concept is particularly valuable in the context of a large-scale energy infrastructure project, where a robust regulatory framework is needed to facilitate public participation and well-designed monitoring mechanisms throughout the project’s entire life cycle. Within the framework of reparation (or restorative) justice, effective regulation of global energy investment necessitates the enforcement of energy statutes and regulations.⁸ It also entails ensuring access to appropriate remedies in cases where legal rights are infringed upon.

Thirdly, recognition justice centers on recognizing and honoring the diverse needs, values, and rights of individuals and communities regarding energy. It takes into account the cultural, social, and historical dimensions that shape people’s energy preferences and behaviors. In the context of cross-border energy projects, particularly those located within the traditional territories of indigenous peoples globally, a broad range of historical, cultural, and legal jurisdictions are often implicated. Therefore, the concept of energy justice offers valuable perspectives on how we can foster respect and harmony amidst diverse values within a cross-border investment project, while also providing guidance for future legal and policy innovation.

4 The Challenges Ahead

Regulatory reforms have been initiated at both the international and domestic levels, although significant challenges persist. At the international level, efforts have been made by the Energy Charter Treaty (ECT) Secretariat to revise the treaty in accordance with international legal commitments pertaining to climate change and sustainable development since 2017.⁹ However, the newly modernized ECT still faces skepticism from many member states regarding its potential to effectively support the climate objectives outlined in the Paris Agreement. Recently, some member states have opted to withdraw from the ECT due to their perception of it as an outdated investment treaty that has been exploited by fossil fuel investors to initiate investment arbitration cases, challenge climate-related measures, and seek substantial compensation.¹⁰ This trend is expected to gain momentum in the upcoming years, as governments are compelled to take unprecedented actions to tackle the climate crisis.

Moreover, arbitration plays a pivotal role in resolving international energy disputes, both in the realm of commercial disputes and in investment disputes.¹¹ A notable example is the numerous ongoing legal arbitration cases in Europe involving governments and investors regarding the assured subsidy support for renewable energy production.¹² However, the existing literature still lacks a clear presentation of whether and how arbitrators can incorporate the principles of energy justice into energy arbitration practices.

5 Conclusion—Future Reform Proposals for Responsible Energy Investment

Regulating cross-border energy investment requires navigating the complexities of international economic law, human rights, environmental treaties, energy law, and domestic regulations. To address the limitations of global energy systems, transformative action is necessary. Energy justice calls for comprehensive efforts to combat social exclusion, environmental degradation, and climate change, facilitating a holistic energy transformation.¹³ According to a recent study,¹⁴ the implementation of energy justice through a novel social contract has the potential to bring about transformative change. Indeed, the concept of a social contract between different stakeholders in society has long been an important issue, dating back to the ideas of philosopher Jean-Jacques Rousseau in the eighteenth century. However, the modern energy sector currently stands as a formidable impediment to the realization of this vision. Given the urgent global climate emergency acknowledged by the United Nations and the intricate nature of transnational energy transactions, the imperative for a fresh societal social contract becomes all the more essential.

Alongside national policy reforms and bilateral agreements, energy treaties like ECT and other mega-regional economic integrations, such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)¹⁵ and the Regional Comprehensive Economic Partnership (RECP), should consider integrating the principles of energy justice. Another potential approach is the development of an international soft law instrument that specifically focuses on energy justice and responsible investment within the context of global energy transactions.¹⁶ Existing frameworks such as the UN Guiding Principles on Business and Human Rights or the OECD’s Guidelines for Multinational Enterprises can serve as valuable references in shaping this international instrument.