Environmental Regulation, Investment Protection and ‘Regulatory Taking’ in International Law

TLDR

The article discusses the controversial issue of environmental regulation of foreign investment and its limits under international law, noting that such regulation has historically hindered multilateral investment agreements, including the 1998 collapse of the OECD MAI negotiations and challenges to existing agreements like NAFTA Chapter XI and the Energy Charter Treaty. The study aims to clarify the boundary between permissible environmental regulation and regulation that constitutes expropriation requiring compensation. Footnote 3.

Abstract

This article addresses a currently very controversial issue—the question of environmental regulation of foreign investment and the limits on such national regulation by international law, in particular by recently completed and negotiated multilateral investment Treaties (MITs). It contributes to the emerging discussion on how and where to draw the line between legitimate non-compensable national regulation aimed at protecting the environment, or ‘human, animal or plant life or health’ 1 on one hand, and regulation which is ‘tantamount’ to expropriation requiring compensation, on the other. It is a question that is largely responsible for the 1998 collapse of the negotiations for a Multilateral Agreement on Investment (MAI) within the OECD. 2 This experience is currently the main obstacle for negotiating multilateral investment agreements—and it has already become a problem for the proper implementation of the already existing ones—in particular the novel and far-reaching investor-state arbitration under Chapter XI of NAFTA and Art. 26 of the Energy Charter Treaty. 3