Publications & Events
Client Alert
Alert

Climate Change Disputes Take Center Stage at Paris Arbitration Week (PAW)

There is increasing awareness about the interconnected nature of climate-related issues such as biodiversity loss, health, human rights, security and inequality. Indeed, climate change disputes are on the rise, and the International Bar Association (the “IBA”), in its 2014 report (Achieving Justice and Human Rights in an Era of Climate Disruption), called for the immediate creation of an international ad hoc arbitral body specifically for environmental litigation and the eventual establishment of an International Court for the Environment.

Against that background, on Day 2 of Paris Arbitration Week 2020, White & Case LLP hosted the seminar: “A special regime for climate change disputes?” The panelists—bringing a diversity of perspectives—were Majda Dabaghi (Director of Inclusive & Green Growth of the International Chamber of Commerce (the “ICC”)), Judith Levine (Independent Arbitrator), Ralf Lindbäck (Managing Counsel, Wärtsilä Corporation) and Kirsten Odynski (Partner, White & Case). Elizabeth Oger-Gross (Partner, White & Case) moderated the session.

Majda Dabaghi set the scene by exploring the current status of the Paris Agreement and related measures, including the impact of COVID-19 on climate change. She provided a sobering warning: The science is increasingly indisputable, and governments are not on track to meet the goals of the Paris Agreement. To date, although 120 countries plus the European Union have committed to achieving net zero CO2 emissions by 2050 and 103 countries have communicated an intention to work towards enhancing the ambition of their Nationally Determined Contributions (“NDCs”) by 2020, in the face of the pandemic, only 11 countries have submitted their NDCs to date, representing less than three percent of global emissions. COVID-19 is also responsible for the postponement of the 26th UN Climate Change Conference (“COP26”), delaying further discussions about improved climate action plans in accordance with the Paris Agreement.

Majda Dabaghi also explained that hope remains, however, as business and civil society continue to take action. Companies, for example, are reaffirming their climate commitments as they move into the recovery phase of the pandemic. Recently, 150 CEOs of companies with a combined market capital of USD 2.4 trillion and employing 5 million people came together to ask governments for a green recovery. What explains this movement? Majda Dabaghi noted that, in addition to being the right thing to do, it makes economic sense. Throughout the pandemic, businesses focused on environmental, social and governance issues have outperformed their counterparts. Businesses understand that, if they want to emerge stronger from the current crisis, they will need to focus on building a sustainable business model.

Judith Levine then set out the legal landscape, focusing on the arbitration context. She provided a number of examples of how arbitrators and arbitral institutions have been adapting existing frameworks to take into account the unique features of climate change disputes, as well as examples of how they are responding with innovations specific to this area. On whether the obligations in the Paris Agreement would be increasingly litigated by way of arbitration, she noted that disputes could arise directly, as interstate litigation of the Paris Agreement obligations, or indirectly, as disputes arising from contracts relating to “green projects” to implement the goals of the Paris Agreement. In the investment arbitration space, she observed that disputes involving climate change-related contexts (e.g., in emissions-intensive industries and the renewable energy sector) are on the rise, from treaty arbitrations commenced by investors affected by environmental measures adopted by States to States’ increasing public interest concerns being reflected in the new waves of treaties.

So, is arbitration appropriate for the resolution of all types of climate change disputes? For Judith Levine, some disputes will be more appropriate for other fora. For one, consent to arbitration may be lacking, and some of the cases or legal issues will have a distinctly local or national component. Moreover, national litigation can play a role in creating decisions of public record that can be usefully cited in other types of disputes. Even so, she said that there is still a place for arbitration. It will be most appropriate for disputes with a transboundary element, including commercial disputes, where the parties desire a neutral and flexible dispute resolution mechanism with an enforceable outcome, and have consented to such a process.

Kirsten Odynski then moved on to explore the IBA Task Force’s recent recommendation to create an international ad hoc arbitral body for the resolution of climate change disputes. On the one hand, a specialist body would bring to the table a neutral decision-maker with appropriate expertise, although this of course depends on the nature of the pool of arbitrators. Such a body could also serve a gap-filling function and may provide an opportunity for more consistent decision-making, which could mitigate the risks posed by the uncertainties in the current regulatory framework and the risk of fragmentation. On the other hand, however, environmental law is not a self-contained system, and climate change disputes often arise in connection with other disputes. As such, the creation of a specialist body is unlikely to solve the problem of multiple decisions being issued in multiple fora.

Ralf Lindbäck then shared his in-house counsel perspective. He first commented on the risks climate change disputes present for companies operating in the marine and energy sector and the need for particular procedural innovations. From the perspective of an in-house counsel, climate change issues require risk management and contingency planning for a wide range of possible local and cross-border scenarios—not to forget the wide array of stakeholders that these scenarios affect, such as employees, suppliers, strategic partners and customers. Ralf Lindbäck’s opening remarks also demonstrated that interesting but difficult questions arise as one aims to achieve “environmental justice” through arbitration of climate change disputes: How can we, through arbitration, repair the irreparable? What are the criteria for the award? How can we assess who the wrongdoers are, and how can we ensure that they contribute in the restorative processes?

Unsurprisingly, the panelists’ opening remarks prompted a number of interesting questions from the audience. Many of these questions related to the complex, multifaceted nature of climate change disputes. The panelists were asked to consider, among other questions, whether the climate aspect could be prioritized over other aspects of a dispute and if indeed arbitration was suitable for all types of climate change disputes.

One of the themes that emerged from this conversation was the importance of science in resolving climate change disputes. When asked to consider whether experts should play a greater role in climate change disputes, the panelists unanimously agreed on the importance of objective, scientifically founded expert evidence. This topic also sparked a conversation around the required qualifications for the arbitrators deciding climate change disputes and the level of knowledge that arbitration practitioners and parties should have about the science behind climate change. In the same vein, an audience member noted that basic courses on geology, physics and engineering relating to climate change are easily available online and could prove interesting for arbitration practitioners.

The panelists were also asked to consider issues with attributing state responsibility under international law and ways to balance the competing public and private interests.

Finally, in response to a question from the audience, Ralf Lindbäck also reminded everyone of the importance of considering climate change risks already at the contracting stage by addressing corporate sustainability and climate change in contract provisions, where possible.

The range of questions from the audience and the lively discussion that followed clearly demonstrated that much still remains to be clarified and developed in the field of climate change disputes. Not least, as the panelists noted during the seminar, is the key question of how to balance the trade-off between the flexibility needed to address the multifaceted nature of climate change disputes and the expertise that could be developed from a specialist decision-making body. Whether such a body finally emerges, undoubtedly, international arbitration practitioners will continue to test and innovate within the existing frameworks to address this growing field.

 

This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2020 White & Case LLP