Countdown to COP28
Energy, Utilities, Mining and COP28
As COP 28 approaches, government efforts to combat climate change through legislative reforms should be followed by similar efforts within the private sector to mitigate and manage the environmental impact of their investments and businesses.
Law Update: Issue 363 - Energy, Utilities, Mining and COP28
Khushboo ShahdadpuriSenior Associate,Dispute Resolution
Darya GhasemzadehTrainee Solicitor,Dispute Resolution
The 28th Conference of the Parties to the United Nations Framework Convention on Climate Change (“COP 28”) is taking place in the United Arab Emirates (“UAE”) from 30 November 2023 until 12 December 2023. As COP 28 arrives to the UAE, discussions around climate change take the centre stage for governments, private corporations and family businesses alike.
The central theme of COP 28 will revolve around the implementation of the Paris Agreement. Unlike previous summits, COP 28 will conclude the first global stocktake, a two-year process occurring every five years, which enables countries and stakeholders to assess their progress toward achieving the goals of the Paris Agreement. Each stocktake is a two-year process occurring every five years. This exercise will enable all countries and stakeholders to monitor their combined progress towards the Paris Agreement’s aims of achieving climate goals and assess the extent to which they have not yet met these goals.
COP 28 will offer governments a chance to revisit their commitments and come up with a plan to accelerate efforts to mitigate the impact of climate change through the implementation of pragmatic energy transition systems, reforming land uses and transforming food systems. Among other goals, COP 28 aims to establish the framework for the Loss and Damage Fund, which was announced at the end of COP 27 last year. The primary objective of this fund is to compensate developing countries for irreparable damages caused by climate change, such as rising sea levels, prolonged heatwaves, desertification, and acidification of seas.
At the international level, there are two main climate treaties. First, the Paris Agreement which is aimed at enabling states to combat climate change and adapt to its effects. Second, the United Nations Framework Convention on Climate Change, the parent framework of the Paris Agreement.
In tandem with international policies and regulations, the UAE has implemented a range of policies, legislations and initiatives to combat and mitigate the hazardous risks of climate change. The main federal law for environmental protection in the UAE is Federal Law No. 24 of 1999 for the Protection and Development of the Environment (“UAE Environmental Law”). The UAE Environmental Law aims to protect and conserve the environment and natural resources by setting out criminal and civil penalties for acts that contribute to soil, water and air pollution. Offenders are liable to fines ranging from AED 5,000 to AED 10 million and/or to a prison sentence, depending on the gravity of the offence.
Pursuant to the UAE Environmental Law, an Environmental Impact Assessment (“EIA”) must be undertaken for certain types of projects. The Environmental Affairs Department (“EAD”) has released a list of projects that potentially requires an EIA. These include industrial, energy, infrastructure, and agricultural projects. The result of the EIA provides an indication of which specific aspect(s) of the proposed project is most detrimental to the environment and non-compliance with an EIA may attract a range of sanctions, including financial penalties ranging from AED 1,000 to AED 1 million as well as criminal liability.
Disputes around climate change are caused by a whole host of reasons, including changes to the legislative framework, disagreements over ownership and use of natural resources and the impact to investors, amongst others.[1] There is a positive correlation between the rise in enforceable environmental state legislations and the growing number environmental disputes occurring internationally. While the energy sector has traditionally dominated climate change disputes given its propensity to cause environmental damage, other sectors including but not limited to agriculture, business, manufacturing and insurance sectors are also increasingly becoming the subject of climate activism.
In recent years, climate change related disputes have taken shape through the initiative of climate activists, such as non-governmental organisations and disgruntled shareholders. Such disputes are often motivated by the desire to drive policy change, achieve corporate and regulatory compliance or consumer protection. As more companies commit to emission reduction goals and other sustainability initiatives, the veracity of company statements and their potential to mislead customers and shareholders are being increasingly highlighted and scrutinised. This is especially in light of concerns surrounding greenwashing: where companies provide misleading or false information about the environmental impact of their operations for marketing purposes. According to the United Nations Environment Programme, the total number of climate change litigation disputes has more than doubled since 2017 and continues to grow worldwide as climate activism becomes more rampant.
The most appropriate dispute resolution mechanism for climate change disputes has to be selected on the basis of the respective objectives and merits of the claims and the identities of the parties bringing those claims. For instance, if a climate related claim impacts administrative and statutory law or has wide ranging policy and public interest implications, then litigation may be more appropriate. Given that the interpretation of public laws and regulations are under the purview of national courts, disputes regarding the legality and constitutionality of specific governmental actions, even in connection to business contracts, would be more well suited for resolution by litigation. In addition, media and public exposure gained through litigation is frequently a significant gain for climate activists, even if the case is lost on the merits.
Other times, the parties may not find litigation suitable as a dispute resolution forum, especially if one of the parties is a national of that court’s forum or is the state itself. Perceptions of bias and partiality render litigation inappropriate. The parties may also avoid litigation for other reasons, including the potential for delays due to the appeal and judicial review processes and national judges' limited experience in technical and commercial matters, particularly in emerging economies.
Arbitration is an increasingly popular dispute resolution mechanism in climate change disputes arising out of commercial agreements between investors and states as well as in state to state disputes. International arbitration has become a common feature of investment treaties, with more than 96% of investment treaties including an arbitration clause. Conflicts between investors and host states frequently include issues related to changes to the investment climate. In light of such changes, investors have a layer of defence against the behaviours of their host states through multilateral investor treaties or bilateral investor treaties. Such treaties provide investors with the option to sue host states, typically through investor state arbitration. Other benefits of arbitration include flexibility, confidentiality and the ability of the parties to choose their arbitrators and appoint experts in related technical and scientific disciplines on climate change issues. Given that it is a contractual and confidential process, arbitration, however, may not be a suitable avenue for activist groups.
As COP 28 approaches, government efforts to combat climate change through legislative reforms should be followed by similar efforts within the private sector to mitigate and manage the environmental impact of their investments and businesses. Private corporations should also be wary of the potential for climate change related disputes and ensure that appropriate dispute resolution clauses are incorporated in their contracts with investors, shareholders, and states.
The increase in international and national environmental legislations have seen a correlated increase in climate change related disputes. This underscores the importance of accountability amongst those that are violating the standards required to mitigate the impact of climate change. While the journey towards achieving climate justice and putting climate change at the core of decision-making is a long one, as governments, stakeholders and communities come together to find collective solutions and responses to tackle this issue, there is still much to be optimistic about.
[1] A report by the ICC Commission has identified three main sources for climate change related disputes: (1): Disputes arising under contracts which do not have any specific climate related subject matter or purpose, but under which an ancillary climate / environmental issue arises leading to a dispute; (2) Disputes arising under contracts which have an environmental subject matter, such as contracts relating to the implementation of systems transition, energy, mitigation, or adaptation measures in line with the obligations set out under the Paris Agreement; and (3) Disputes arising out of specific agreements entered to resolve an existing climate change or related environmental dispute.
For further information,please contact Khushboo Shahdadpuri and Darya Ghasemzadeh.
Published in November 2023
