Climate Change Arbitration – The New Normal? – Climate Change – Environment

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Climate change related disputes have increased significantly. In fact, the International Chamber of Commerce (ICC) has reported that 70 % of all new cases in 2018 that were resolved in arbitration under the ICC…

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Environment

What are climate change disputes?

Climate change related disputes have increased significantly. In
fact, the International Chamber of Commerce (ICC) has reported that
70 % of all new cases in 2018 that were resolved in arbitration
under the ICC were climate change disputes. Similar growth has been
reported by other arbitral institutions as well. It is anticipated
that climate change disputes will continue to increase in the
future.

Climate change disputes can be briefly divided into direct and
indirect climate change disputes. Direct climate change disputes
arise directly from the impacts and causes of climate change or
climate change in general. On the other hand, indirect climate
change disputes do not necessarily have a direct connection to
climate change. Climate change disputes could, for example, arise
from extreme weather events that affect a party’s commercial
operations, green energy transition contracts or from complying
with climate change obligations.

Generally, a brief element of an environmental matter is enough
for a dispute to constitute a climate change dispute. Hence, the
field of climate change disputes is broad stretching all the way
from disputes related to energy and construction to infrastructural
and industrial disputes.

Climate change arbitration

A valid and binding arbitration agreement between the parties is
a prerequisite for resolving a climate change dispute in
arbitration. Arbitration is an efficient dispute resolution method
especially for indirect climate change disputes as these disputes
generally arise from already existing contractual relationships.
Therefore, it is likely that the parties have entered into an
arbitration agreement. Alternatively, a code of conduct or a
corporate governance model could include a unilateral offer to
arbitrate a dispute.

In general, there are no existing relationships between the
parties in a direct climate change dispute. In this case, it is
likely that there is no valid and binding arbitration agreement
between the parties, and hence the prerequisite for arbitration is
not fulfilled. However, direct climate change disputes could be
resolved in arbitration if the parties, for instance, enter a
submission agreement after the dispute has arisen.

There are many advantages in resolving climate change disputes
in commercial arbitration. First, the New York Convention provides
for the global enforceability and recognition of arbitral awards.
Second, arbitration provides for a neutral dispute resolution
setting. Third, arbitration provides for flexibility and hence the
proceedings can be modified to meet the needs of different kinds of
climate change disputes. Finally, arbitration provides for rapid
proceedings which is an asset for the efficient resolution of
climate change disputes.

Three tips to take into consideration when resolving climate
change disputes:

1. Appointing an expert arbitrator or
   arbitrators. Climate change disputes are commonly complex
   and multidimensional. Consequently, it is recommended to appoint
   arbitrators that have specific legal, technical, or scientific
   expertise in climate change. The parties should, however, be
   mindful of not setting too strict requirements for the arbitrators
   as these requirements can lead to challenges in finding suitable
   arbitrators.




2. Paying attention to the transparency of the
   proceedings. It is recommended to agree beforehand or
   during the proceedings on the level of confidentiality applied in
   said arbitral proceedings. The International Bar Association (IBA)
   has, among others, expressed its concern on the lack of
   transparency and confidentiality of climate change related
   decisions. The level of transparency can be agreed on a
   case-by-case basis by carefully balancing transparency and the
   considerations of the parties.




3. Acknowledging climate change related matters in
   commercial contracts. Extreme weather conditions are one
   of the effects of climate change. Due to these climate change
   related extreme weather conditions, the possibilities when a party
   can rely on a force majeure clause are increased. Therefore, the
   effects of climate change should be considered when drafting a
   force majeure clause. In addition, the parties could, for example,
   consider if specific climate targets or allocation of carbon risk
   would be necessary additions to their contracts.

Originally published 07 March 2024

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.