Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1450: Investment Treaty Reform when Regulatory Chill Causes Global Warming

Henrik Horn ()
Additional contact information
Henrik Horn: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics,, Stockholm, Sweden, Bruegel, Brussels, and Centre for Economic Policy Research, London

Abstract: State-to-state investment protection treaties, and the Energy Charter Treaty in particular, are alleged to dissuade host countries from regulating foreign-owned investment with adverse climate impact. This paper examines implications of treaty reforms that have been proposed as remedies for such regulatory chill. It finds that an increased carve-out, and reduced compensation in case of regulation, can address the stranded investment problem, but might not be accepted by both parties to the agreement. Disallowing investor-state dispute settlement (ISDS) solves the chill less effectively, but is more acceptable to both parties. Shortening of a sunset period applicable to unilateral withdrawal will tend to worsen the problem.

Keywords: Investment treaties; Climate; Stranded assets; Regulatory chill

JEL-codes: F21; F23; F53; K33

Language: English

37 pages, First version: December 19, 2022. Revised: February 13, 2023.

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