04.05.2019

Global energy demand is on the rise, followed by the rise in the CO2 emissions. The world is not on track to meet internationally agreed climate policy objectives. We need more ambitious and effective national and international economic policies and implementation.  

In order to achieve international climate objectives: 1.5 degrees Celsius compared to preindustrial levels and full climate neutrality in the second half of the century, global GHG emissions need to peak by 2020, and then rapidly decline, societies should emit as much GHGs as can be removed (full climate neutrality).

Despite major growth in renewables, the trend is the contrary - global emissions, driven by the increase in global energy demand, are on the rise. Recent estimates by the IEA (2018-2019) suggest that energy demand worldwide grew by 2.3% last year on the fastest pace in this decade, driving up global energy-related CO2 emissions by 1.7% compared to the year before. Together, China, the United States, and India accounted for nearly 70% of the rise in global energy demand. The US saw the largest increase in oil and gas demand worldwide since the beginning of IEA records in 1971. At the same time, the growth in emissions largely happened in developing Asia, where the 

use of coal in power generation alone surpassed 10 Gt, accounting for a third of total emissions. Most of that came from a young 12-years old fleet of coal power plants with the lifespan of about 50 years. The progress in energy efficiency has also slowed down due to weak implementation of the energy efficiency policies. However, temperature extremes and extreme weather resulted in a higher demand for heating and cooling, which contributed almost a fifth of the increase in global energy demand. The global energy demand will continue to grow together with the projected economic and demographic growth in the developing countries. According to the estimates provided in the IEA's 2018 World Energy Outlook, rising incomes, and an extra 1.7 billion people, mostly added to urban areas in developing economies, push up global energy demand by more than a quarter to 2040. As recently as 2000, Europe and North America accounted for more than 40% of global energy demand and developing economies in Asia for around 20%. By 2040, this situation is completely reversed. (IEA, 2018).

The world needs steep emissions reductions, and decoupling of economic growth from the resource use and GHG-emissions across all the sectors, primary, in energy production an use, land use, urban development, construction, agriculture and industrial systems (IPCC, 2018) We urgently need a global transformation or energy system (power generation, transportation, energy consumption in industries and households). Such a fundamental global transformation requires well-orchestrated coherent and mutually supportive legal frameworks and policies on global, regional, national and local levels, requires innovative sectoral strategies for energy-intensive industries, which need to evolve in order to support accelerating global energy shift and developing a modern, sustainable inclusive energy architecture, shape the established trade and investment patterns, address the problem of the stranded assets and ensure the sufficient domestic policy space to regulate the transition to lowcarbon economy.


Government policies and preferences play a crucial role in shaping the quality, direction and the pace of the energy transitions worldwide. At the same time international investment agreements and more broadly international economic law, WTO law and international economic policy-making have their role to play in re-establishing the macroalgal parameters of the global energy transition. The international legal frames are often criticized for the lack of responsiveness to global challenges such as climate change or achieving the SDGs. Sweeping investment protections against expropriations, principles of NT or MFN protect the investments already made in fossil fuel infrastructure and don't discourage the potential ones. 

Numerous commentators have criticized the Energy Charter Treaty, the most extensive international agreement regulating practically all energy issues, and its arbitration mechanism for the imbalances of investors’ versus states’ rights, lack of transparency, impartiality, independence, accountability and high costs that come at the expense of the right to regulate. Its arbitration mechanism allow corporations to claim and count on significant multi-million or billion compensations. Based on the data available from 70% of the ECT lawsuits, the states have been ordered or agreed to pay over US$51.2 billion in damages to corporations. The outcomes of several cases demonstrate that it is not easy to balance between investment protections and climate change action and environmental governance. For instance, in 2009 Swedish energy multinational Vattenfall sued Germany, seeking €1.4 billion in damages over environmental standards imposed on a coal-fired power plant near the city of Hamburg. The company argued that conditions which local authorities had set for issuing a water use permit made the plant “uneconomical”. The case was settled in 2011 after the city Government agreed to relax the environmental requirements in parallel proceedings at a local court.

 

Many experts argue that the Treaty can no longer be neutral in respect to fossil fuels: "An international public institution simply cannot offer the benefit of investment protection to energy resources and assets that are not aligned with the outcomes and goals that most of the world’s countries have committed to". (Keay-Bright, Defilla, 2019)  Many find that the ECT is not fit for purpose in the context of the bottom-up approach to the national efforts aimed at addressing climate change. Moreover, the experts note that neither the list of policy areas for ECT modernization discussions nor the terms of reference for the organizational review mention the need to align the ECT with the UNFCCC Paris Agreement. It is important to admit that the reform of the ECT would not solve the systemic problem of international investment law. When the investors are not able to access protections under the ECT, or the IEC to come, they can look to the 2,318 Bilateral Investment Treaties (BITs) that are currently in force. They can make use of a range of other protections against government policies they perceive as running counter to their interests, in the form of provisions contained in many of the world’s 267 Free Trade Agreements (FTAs). Many of 2,5 thousands of international investment agreements need to be aligned with the SDGs and Paris Agreement, replaced or terminated. The UNCTAD, which places sustainable development at the heart of its agenda, leads a comprehensive international effort to reform these IIAs. International investment law is an important driver of change and transformation of the economies. Please, follow the developments in the field published by the UNCTAD. FDI, regulated by the international investment agreements constitute an important external source of finance and technologies for developing countries, making up 39% of their total incoming finance. There is no shortage of capital to finance the SDGs. However, mobilizing it requires a systematic change in the way equity markets are organized  (World Investment Forum, UNCTAD, 2018

Another important institutional player on the international economic policy-making scene is the WTO, that regulates 95% percent of the international commercial exchanges between the countries. The WTO system of rules may constitute a significant hurdle that governments will have to overcome if they are to meet their climate commitments. The pro-climate and trade-relevant measures such as carbon-border tax, energy efficiency standards, energy labelling, and subsidies, introduced by the governments domestically, may produce a significant effect on the economies of trade partners and come in conflict with the WTO rules and principle of non-discrimination, provisions of TRIMS, TRIPS and SCM Agreements. The status of these pro-climate measures under the WTO law is not clear and requires interpretation, revisiting or in some cases the reform of WTO law, shaping international economic law and the institutions for the global public good that all can benefit from. 

By Katsiaryna Serada

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