As the most carbon-intensive source of electricity, coal-fired power generation is incompatible with international climate change mitigation efforts. The international community therefore agreed to transition away from coal to achieve net-zero emissions by 2050 and remain within the temperature limits set under international law. However, phasing out existing coal power stations can conflict with international investment protection treaties. Recent arbitration claims against the United States, Canada, and European countries show how foreign investors can challenge climate measures before international tribunals and threaten to paralyze the ambitious actions needed to address climate change.

As a key financier of coal power infrastructure, China plays a crucial role in the global transition away from coal. Besides China’s domestic reliance on coal, its companies have heavily invested in coal power overseas, particularly in Asia. Taking into account the threat of investment arbitration to climate regulation, a crucial question therefore is whether foreign investors, for example from China, could slow down Asia’s energy transition by challenging coal phase-out decisions before international arbitration?

To answer this question, this article examines the protection that China’s investment treaties offer to its overseas coal plants, and scrutinizes the environmental exceptions included in these treaties to safeguard states’ right to regulate. Based on recent arbitral practice, the analysis demonstrates the limited effectiveness of these environmental exceptions in neutralizing arbitration challenges against phase-out decisions. Given the unpredictable interpretation of environmental exceptions by arbitral tribunals, the article emphasizes the need to exclude coal power from international investment protection. It also points to the role of home state governments in addressing the carbon footprint of the investments made by their nationals abroad. By enjoining Chinese investors to strictly comply with the environmental laws of the states where they invest, the “host country” principle governing China’s regulation of its overseas investments could help address the obstacle of foreign investment protection to coal phase out.

Continue reading Coal Phase Out and Foreign Investment Protection: Tackling China’s Global Carbon Footprint Agency Statutory Authority and the Pennsylvania Environmental Rights Amendment.