European Yearbook of International Economic Law 2022

Table of Contents

1. Frontmatter

2. Climate Change & Liability

   1. Frontmatter

   2. Climate Change Challenges Constitutional Law: Contextualising the German Federal Constitutional Courts Climate Jurisprudence Within Climate Constitutionalism

      Martin Eifert, Michael von Landenberg-Roberg

      Abstract

      Climate change requires constitutional responses. The fundamental rights or environmental protection clauses contained in most constitutions provide a basis for this endeavour. The particular difficulties of determining the constitutionally required level of climate protection, climate protection’s dependence on scientific knowledge and international efforts, and the need to take the time dimension into account are specific challenges for any constitutional order. This article addresses these basic questions on constitutional law and presents the answers given by the Federal Constitutional Court in its landmark climate decision regarding the German Constitution.

   3. Trans-Nationally Determined Contributions for Climate Justice: Resolving a Paris Agreement’s Contradiction That Is Working Against Developing States

      Nciko wa Nciko

      Abstract

      As part of tackling climate change, the Paris Agreement expects that developing states impose its temperature goal upon the Transnational Corporations (TNCs) that are operating in them. This expectation contradicts the principle of common but differentiated responsibility (CBDR-RC). The CBDR-RC principle expects developed states to be best placed to impose the temperature goal upon theseTNCs. This is so because developed states caused climate change and possess more capabilities to impose the Paris Agreement’s temperature goal upon TNCs than developing states do. I argue that this contradiction has a much deeper cause that cannot be unravelled and its underlying disease correctly diagnosed unless we historicise it. Only in the process of such historicisation can we develop an adequate cure. The deeper cause, I venture to demonstrate, lies in capitalism; and a possible adequate cure, in what I am coining “Trans-Nationally Determined Contributions (TNDCs).” By TNDCs, I mean the most ambitious efforts that a TNC’s home state (usually a developed state) commits to account for the greenhouse gas emissions that its TNC is responsible for in a host state (usually a developing state). Guided by Issa Shivji, my point of departure is that law is the concentrated form of politics. As such, TNDCs will offer an adequate cure to the contradiction I am dealing with only if we present them in a manner that appreciates the politics that define how decisions are adopted at a United Nations Climate Change Conference of the Parties (COP) and how such decisions are complied with within the climate change regime. I conclude with a few remarks on the place of climate justice in this contribution, noting that if we are to act on TNDCs, we have to do so before 2030.

   4. The Green Climate Fund, Climate Change and Corporate Due Diligence: What Role for the Private Facility Sector?

      Rainer Maria Baratti

      Abstract

      The United Nations Conference on Environment and Development in 1992 inaugurated the beginning of the “environmental globalism” phase. This coincides with the extension of international cooperation to global environmental issues, governed by conventions with a universal vocation. The Rio conference represents the starting point for environmental protection standards. On this occasion, the need to protect global environmental assets such as climate and biodiversity was acknowledged, stating that their degradation and loss are a “common concern for humanity”. With the Rio conference, the United Nations Framework Convention on Climate Change (UNFCCC), which came into force on March 21, 1994, was opened for signature and, through the Conferences of the Parties (COP), States try to complete this agreement. During the COP in Cancun in 2010, the Green Climate Fund was established, this provides funding in terms of loans, grants, actions or guarantees to its Accredited Entity (AE) which are responsible for the implementation of projects. Accredited entities include private and public, non-governmental, sub-national, national, regional or international entities. Accreditation is a due diligence process that ensures that partners share the same goals as the Fund, have extensive experience, and a strong financial and managerial infrastructure. The Fund is an operational entity of the UNFCCC financial mechanism (Art. 11) and the main innovation is the Private sector facility. The study we propose aims to investigate the functioning of this mechanism and what transformative role it can play in the involvement of companies in the fight against climate change. In addition to addressing the institutional aspects, the contribution aims to investigate the merits and demerits of the Green Climate Fund with particular attention to the criticisms made by the Indigenous People Organization regarding the Country-ownership approach and the Policies mechanism. In addition, we will try to outline what role they have in the definition of due diligence mechanisms for companies.

   5. Market Access Conditionality and Border Carbon Adjustments

      Christian Riffel

      Abstract

      The present article explores the legality of making market access conditional upon non-product-related processes and production methods, with a view to protecting environmental commons. The article uses the European Commission proposal for a border carbon adjustment mechanism (CBAM) as a case study. It finds that CBAM, even though it infringes Articles I:1 and II:1(b) General Agreement on Tariffs and Trade, can be justified in principle. In coming to this conclusion, the article compares CBAM with alternative measures to prevent carbon leakage. One of the main criticisms levelled against CBAM, in light of the chapeau, is that it is the EU that sets the rate of the import charge to be paid for each ton of carbon emitted. This criticism will be refuted. The author proposes to revisit the interpretation of the chapeau and to reduce it to an arbitrariness test. On the basis of the prevailing reading, Members may be forced to rely upon the security exception to justify (some aspects of) WTO-inconsistent climate measures instead of the general exceptions, which entails a lesser degree of scrutiny. That said, while overreliance on the security exception threatens to undermine the multilateral trading system, its invocation seems apposite in the case of climate change, considering the seriousness of its repercussions.

   6. Removing Barriers to Climate Change Litigation: The Progressive Erosion of Central Banks’ Immunity

      Astrid Iversen

      Abstract

      This article discusses sovereign immunity rules and the future of climate change litigations in foreign courts against central banks and sovereign wealth funds managed by central banks. It argues that expansions of central banks’ responsibilities and activities in financial markets over the past decades, including that of managing sovereign wealth funds, increase the risk of climate lawsuits against central banks, and in particular, the risk of their assets being exempted from absolute immunity from enforcement measures.

      While the doctrine of sovereign immunity has evolved from an absolute to a restrictive approach across a number of jurisdictions, central banks, and in particular, their assets, have continued to enjoy close to absolute protection under international and domestic law. The article discusses whether this may be changing: Taking a Swedish Supreme Court judgment from 2021 as a starting point, it argues that there is no clear rule in international customary law providing absolute immunity for central banks’ assets that are unrelated to its exercise of monetary policy. Far-reaching immunity is not only unreasonable when taking into consideration the original justification for central banks’ immunity but it may also prompt a backlash against the immunity protecting the property related to the core functions of central banks, namely the monetary policy mandates. Equally important, this may weaken states’ commitments to comply with international and domestic environmental obligations.

   7. The WTO Panel Report on US-Safeguard Measure on PV Products: A Decisive Victory for the Fight Against Climate Change?

      Xinyan Zhao

      Abstract

      Using solar energy, a clean and renewable energy source, is significant to reducing global greenhouse gas emissions. Some disputes revolving around green incentive policies regarding clean energy resources were brought to the World Trade Organisation’s (WTO) dispute settlement system a few years ago. WTO panels faulted members’ green incentive policies in Canada-Renewable Energy and India-Solar Cells because the relevant procurement constituted a WTO-inconsistent domestic content requirement. Although these rulings ensure the functioning of a liberal market of green products, they have a side effect on the long-term enforcement of global climate policies. By closing the door on green incentive policies for domestic industries, WTO panels have indirectly supported the monopoly of the international market of green products by a few giant producers. This monopoly has significantly harmed the development of environmental industries in many countries and discouraged the relevant investment and innovation. These consequences might be underestimated or ignored by panels but have slowed down reducing greenhouse gas emissions. Given this, it is essential to know how governments can promote clean and renewable energy in a manner consistent with WTO law. The US-Safeguard Measure on PV Products panel may have given a clear response that members should use safeguard measures to protect their environmental industries against unfair competition. Whereas many people hail the panel’s decision, it is noteworthy that safeguard measures have limitations to promote the sustainable development of clean energy. It is necessary to deeply analyse the value and impact of this new WTO panel report. This chapter aims to shed light on this aspect. It is structured as follows. Section 1 introduces the relevance of the WTO dispute settlement system to the development of clean energy and the combat of climate change and describes the structure of this chapter. Section 2 reviews the WTO jurisprudence. After that, Sect. 3 sets forth the positive and negative impacts of the US-Safeguard Measure on PV Products on WTO members’ national strategies for promoting the use of clean energy. Notably, this discussion focuses on the role of WTO panels in diversifying the supply chain of PV products and preventing pollution throughout the life cycle of PV products. Then, Sect. 4 suggests that a more comprehensive analytical framework that balances various sustainability elements is desirable for combatting climate change. Finally, this chapter ends up with a brief conclusion.

   8. The Innovative Trade and Climate Action-Linkage in the EU-UK Trade and Cooperation Agreement: A Template for the EU’s New Approach to Green Trade Agreements

      Patrick Abel

      Abstract

      Continental Europe and the UK have always had a special relationship—within and outside of the European Union (EU). British concerns over national sovereignty have led the UK to withdraw from the EU. Despite many disputes and alienation, it should not be forgotten that the EU and UK continue to share many interests and policy preferences. This includes climate action. The EU-UK Trade and Cooperation Agreement (TCA)—the international agreement which governs the new bilateral relationship post Brexit—reflects this: The parties were able to agree on innovative provisions on climate action. These are unprecedented in the EU’s practice of free trade agreements (FTAs). This article explores how the TCA intertwines trade and investment commitments with climate action. It claims that the TCA may serve as a template for the EU’s (and even third states’) external trade and climate policy in the future—and has foreshadowed the Commission’s new approach to green FTAs communicated on 22 June 2022 (see European Commission, The Power of Trade Partnerships: Together for Green and Just Economic Growth, 22.6.2022, COM(2022) 409 final).

      As an analytical basis, the article will, firstly, outline why climate action constituted a relevant issue in negotiating the new relations between the UK and the EU (Sect. 1). It will then map and systematise the innovative provisions of the TCA on trade and climate change, distinguishing substantive law (Sect. 2) and dispute settlement (Sect. 3). In doing so, the article compares the TCA to the designs of earlier EU FTAs and situates the TCA within the parties’ obligations in international climate change law. Lastly, taking a birds-eye perspective, the article contends that the TCA may serve as a template for trade and climate action-linkages in future FTAs (Sect. 4).

   9. The Investment Treaty Regime and the Clean Energy Transition

      Myriam Gicquello, Emily Webster

      Abstract

      The investment treaty regime (ITR) has been heavily criticised for the barriers it creates to domestic responses to climate change and the problem of regulatory chill. This chapter investigates these claims focussing on the Energy Charter Treaty (ECT), and comparing the differentiated impact of investor-state dispute settlement (ISDS) under the ECT for richer and poorer EU member states in response to fossil fuel phase-outs (Germany, the Netherlands and Bulgaria) and policies promoting investment in renewable energies (RE) (Spain and the Czech Republic). It acknowledges the significant barriers that ISDS can and has created to the introduction of law, regulation and policies to facilitate the energy transition, particularly in poorer states, but draws attention to the possibilities of the ITR supporting policies attempting to scale-up RE. It concludes with recommendations for reform of the ITR to enable it to support the energy transition and contribute to the global response to climate change in the small period of time in which this must occur to prevent catastrophic global temperature increases.

   10. Making the Energy Charter Treaty Climate-Friendly: An (Almost) Impossible Leap

       Mattia Colli Vignarelli

       Abstract

       This article provides a critical assessment of the ‘modernisation’ process of the Energy Charter Treaty (ECT). First, the research frames the ECT reform as a means for resolving the clash between the treaty and climate action, that cannot be effectively managed through conflicts rules. Consequently, the text of the ‘modernised’ ECT is analysed, with particular attention to the ‘flexibility mechanism’ for the optional progressive carve out of fossil-fuel investments, which is supposed to represent the key tool to make the ECT climate-friendly. The research shows that even this mechanism would ensure fossil-fuel investments protection at the crucial stage of energy transition. Therefore, the hypothesis of a withdrawal of the EU and its Member States is considered. Before mentioning the potential legal hurdles of this strategy, the research aims at understanding its impact on the political economy of investment law. Hence, the ‘geopolitical’ and ‘neoliberal’ drivers of the treaty are analysed through the notion of ‘institutional project’. Notwithstanding the unclear legal consequences of withdrawal, its symbolic value goes far beyond the ECT alone, certifying an unprecedented setback in the project of investment law.

   11. Making Finance Flows Consistent with the Aims of the Paris Agreement: Roles, Obligations, and Limitations of the EU Banking Sector and Its Regulatory and Supervisory Institutions

       Gudrun Zagel, Dieter Huber

       Abstract

       While linkages of the banking sector to climate change are manifold, the Paris Agreement (PA) merely generally refers to the financial sector in Article 2(1)(c). Subsequent Conferences of the Parties recognise the importance of private financial flows for climate change mitigation and adaptation. The EU banking sector has increasingly faced criticism for not adequately addressing the climate change impacts of its activities. Controversy exists on how to integrate climate change into the banking sector activities effectively and how to adapt the regulatory framework accordingly. The article discusses the potential roles and responsibilities of the private banking sector, banking supervisory authorities, and central banks in the EU regarding climate change mitigation and adaptation. It assesses whether and how these actors already contribute to the PA objectives and EU climate goals and which impediments and alternative options exist when pursuing these goals. On this behalf, it examines the EU’s obligations under the PA and the EU implementing measures regarding the banking sector. It discusses how the activities, tasks, and mandates of the different actors and the related regulatory framework may impact the achievement of the PA objectives. Finally, it proposes measures the EU banking sector may undertake but also points out necessary policy decisions to be adopted by the EU legislators to ensure the EU banking sector’s optimal contribution to achieving the PA objectives.

   12. The Double Materiality Principle (Article 19a NFRD) as Proposed by the Corporate Sustainability Reporting Directive: An Effective Concept to Tackle Green Washing?

       Philip Förster

       Abstract

       In recent years, investors and lenders have increasingly paid attention to sustainability information, most particularly to sustainability efforts that affect financial performance. Many corporations fulfil these wishes only to a limited extent. Although they publish information, they only select the information that is useful to them (“greenwashing”) or publish so much information that investors cannot get a clear overview of the sustainability performance (“information overload”).

       With the rise of reporting on sustainability standards, new standards for measurement of environmental, social and governance (ESG) information and reporting thereof have become necessary. Here the concept of materiality comes into play. Through streamlining reports, focusing on the most relevant factors and reducing information overload, it tries to increase the requested transparency and accountability.

       The determination of which sustainability issues are material to companies, industries, investors and other stakeholders remains a lively area of discussion. Article 19a Directive 2014/95/EU (Non-Financial Reporting Directive, NFRD) as proposed by the Proposal for a Corporate Sustainability Reporting Directive (CSRD, COM/2021/189 final) aims to implement a so-called double materiality principle.

       Altogether the new wording of Article 19a NFRD as proposed by the CSRD makes sense—it strongly tackles the main issues of non-financial reporting: information overload and greenwashing. The broader approach in regards to stakeholder engagement is beneficial for a comprehensive picture of material matters. However, there is still a need for clarification in order to get the maximum effect out of the materiality principle.

   13. Assessing the Climate of ‘Shareholder Based Climate Change Litigation’ in the Global South

       Nikita Pattajoshi

       Abstract

       Critical scholarship analysing climate change litigation has identified a growing species of lawsuits called ‘shareholder climate change litigation’ wherein the underlying motivation is to hold corporations liable for ‘climate change related financial risks’ associated with their business activities and their impact on the interests of their shareholders. However, the landscape of shareholder climate change litigation is very Global North centric, both quantitatively and qualitatively. The number of climate change cases against corporations brought by shareholders in a country of the Global South constitutes an alarming zero. This paper is an attempt to contemplate the ‘Legal Opportunity’ of proliferation of shareholder climate lawsuits in nations of the Global South. The central argument is that shareholder climate change litigation will increase even in the Global South and will positively influence the climate change litigation landscape, even if they are unsuccessful in terms of the judicial outcome.

   14. From Unilateral Border Carbon Adjustments to Cooperation in Climate Clubs: Rethinking Exclusion in Light of Trade and Climate Law Constraints

       Ilaria Espa, Kateryna Holzer

       Abstract

       This article analyses the trade and climate law constraints applicable to border carbon adjustments (BCAs), and to the carbon border adjustment mechanism (CBAM) recently proposed by the European Union (EU) in particular, by focusing on its ‘exclusion’ features. After introducing the concept of and the rationale behind BCAs (Sect. 1), the article gives an overview of the EU CBAM proposal and explains how, depending on the level of ambition of their country of origin, covered imports can either be partially or fully excluded from the scope of application of the EU CBAM (Sect. 2). Section 3 delves into the specifics of such exclusion features and discusses trade and climate change law implications. Section 4 elaborates on whether and, if so, how the main issues raised by the exclusion features of the EU CBAM as a unilateral measure could be overcome by opting for a carbon club approach and further considers which model of clubbing could be more appropriate also with a view to foster mutual supportiveness between the multilateral trade and climate regimes. Finally, Sect. 5 concludes.

   15. Environmental and Sustainability Aspects in EU Competition Law: Towards a “More Economic & Ecological Approach” Under Article 101 TFEU?

       Bernadette Zelger

       Abstract

       Since the European Commission announced its Green Deal in 2019, the debate as regards how European Union (EU) competition law could contribute to making Europe climate-neutral and “green(er)” has steadily increased. However, the discussion about whether aspects other than economic ones shall be considered within the assessment of a measure from a competition law perspective has indeed been going on much longer. Following the European Court of Justice’s (ECJ) landmark judgement in Wouters, for example, there is a strand in the case law where non-economic considerations were taken account of already at the level of Article 101(1) of the Treaty on the Functioning of the European Union (TFEU) itself. The debate on how to interpret Article 101(3) TFEU and the question whether improvements in economic efficiency shall be considered only or whether Article 101(3) TFEU is to be interpreted broadly and in line with the wider EU aims and objectives, such as, for example, social, environmental or sustainability aspects, serves as another example to this effect. Against this backdrop, this article shall provide an analysis of the Treaty competition provision of Article 101, and shed light on the question if, to what extent and on which legal basis environmental considerations and sustainability aspects, can be taken account of within the current competition law framework of the European Union. Hence, light shall be shed on the question whether our competition law toolkit is “fit and proper” to meet the challenges as imposed by climate change.

   16. Climate-Related Individual Rights Under EU Secondary Law and Limitations to Their Material Scope

       Julia Wallner, Emil Nigmatullin

       Abstract

       In an Austrian climate lawsuit raised in 2021, the claimants demanded the adoption of a national ban on the sale of fossil fuels based on an ordinance pursuant to the National Trade Regulation Act. Thereby, the claimants derived their right to require the issuing of an ordinance on fossil fuel sales bans from EU Secondary Law, namely the Effort Sharing Regulation, which stipulates greenhouse gas emission reduction obligations for EU Member States. Given this lawsuit, the present article examines the existence of climate-related individual rights laid down in EU Secondary Law. It thereby presents a line of arguments indicating that the EU climate change framework may confer certain individual rights. Furthermore, the requested sales ban shall be examined as to its conformity with the General Agreement on Tariffs and Trade and EU Primary Law.

   17. Reducing GHG Emissions in a Constitutional Democracy: When EU Civil Courts Adjust the EU Emission Trading System

       Ina Frieling

       Abstract

       The climate crisis triggers debates about climate policies on all levels—from parliaments to civil courts. The EU legislature has introduced the EU Emission Trading System (ETS) to reduce greenhouse gas (GHG) emissions and mitigate the consequences of global heating. Through this cap and trade system, companies receive and trade ETS allowances which they can use to cover their GHG emissions. However, two civil courts in the EU recently went one step further: they held private companies liable for GHG emissions and its effects on the environment although they had the necessary ETS allowances. This paper compares and critically analyses the 2021 Shell decision by The Hague District Court and the 2017 RWE decision of the Higher Regional Court of Hamm. In doing so, the paper asks what role the ETS has in proceedings for injunctive relief and claims for removal of an interference, more specifically how it shapes the duty of care and how it can serve as a justification of an interference with the rights of others. Through a comparison of Dutch and German Civil law, this paper depicts the powers and limits of German and Dutch civil courts in the interplay with the legislature when making EU climate change policy.

   18. The Proposed EU Regulation on Trade in Forest-Risk Commodities (FRCs): A First Assessment

       Concetta Maria Pontecorvo

       Abstract

       The European Union is a significant importer of “forest-risk commodities” (FRCs) and consequently bears an equally significant responsibility for the on-going worldwide and dangerous trend of deforestation and forest degradation. Last November 17, 2021 the EU Commission, by undertaking an important (and very courageous) initiative aimed at reducing the EU’s global deforestation “footprint”, put forward a legislative proposal to regulate trade in FRCs. This article analyses such a proposal—within the context of previous EU regulatory steps against global forest loss and to promote sustainable forest management; and it explains why the new EU regulatory initiative seems both appropriate and necessary. Notwithstanding some important limits (of ambition) and shortcomings in the Commission’s proposal (mainly in relation to land tenure rights’ protection) the article argues that the EU has (in fact) a (moral) duty to avoid contributing (by its FRCs imports) to the global destruction and degradation of forests. The article also underlines that the proposed regulation is in need to be better designed with WTO law (particularly, as to its country benchmarking system and as regards cooperation with affected exporting countries).

3. Current Challenges, Development and Events in European and International Economic Law

   1. Frontmatter

   2. Seven Years Inside the Trade Defence Machinery Room: How Political Is the European Commission?

      Frank Hoffmeister

      Abstract

      The article reviews the practice of the European Commission in the area of trade defence as of 2014, when the Brussels executive became competent to adopt trade defence regulations instead of the Council of the European Union. The author provides a detailed analysis how the Commission exercised its political discretion in the field of anti-dumping measures, countervailing duties and safeguards. In the area of anti-dumping he looks at the timing of measures, the dumping and injury analysis and the application of the Union interest test. In the anti-subsidy practice, new cases on export restrictions, investment subsidies and cross-border subsidies are presented. Hoffmeister also reviews the safeguard practice and the way how special and differential treatment of developing countries plays out in the European Union’s (EU) trade defence instrument (TDI) practice. He concludes that there was a progressive development of Commission practice (mostly seen in the anti-dumping practice) based on a dynamic interpretation of the law (mostly seen in the anti-subsidy practice) in the last 7 years.