The annual United Nations Climate Change Conference recently took place in Bonn. The conference, better known as the Conference of the Parties or COP, brings together the state parties to the United Nations Framework Convention on Climate Change (the UNFCCC) and other stakeholders to assess global progress in dealing with climate change. Notable achievements of the COPs include the Kyoto Protocol and the Paris Agreement. This year´s conference, COP 23, was hosted by Fiji and focused on implementing and operationalising the Paris Agreement, which entered into force in November 2016.
While discussions between governments about international treaties may seem a long way from the day-to-day operation of your business, they are the first step in the development of a legal framework that has already impacted, and will increasingly impact, all aspects of business. This legal framework is evolving rapidly and businesses need to stay abreast of these developments to understand the risks and opportunities they present.
Climate change law
What is happening at the international level?
International law relating to climate change includes treaties such as the UNFCCC, the Kyoto Protocol and the Paris Agreement (the Climate Treaties), which have been developed specifically to deal with climate change, as well as treaties relating to the environment, human rights and investment law, which are likely to become relevant in the climate change context.
The Climate Treaties are the linchpin of the legal framework relating to climate change.
The UNFCCC entered into force in 1994 and has 197 parties. It is a framework agreement that constitutes the basis for more specific and binding agreements to deal with climate change. Its ultimate objective is to stabilise greenhouse gas concentrations in the atmosphere at a level that would prevent dangerous human interference with the climate system. The Kyoto Protocol entered into force in 2005 and has 192 parties. It elaborates on the UNFCCC by imposing more specific obligations on industrialised countries to limit greenhouse gas emissions in accordance with agreed targets.
The Kyoto Protocol also establishes certain market-based mechanisms to assist state parties to meet their targets through domestic action, including an international emissions trading system. The second commitment period of the Kyoto Protocol will end in 2020, after which it will be replaced by the Paris Agreement.
The Paris Agreement entered into force in 2016 and has 171 parties. It has been hailed as the “historic turning point” in the fight against climate change.1 The aim of the Paris Agreement is to keep the increase in global temperature this century to well below 2 degrees Celsius above pre-industrial levels and to attempt to limit it to 1.5 degrees Celsius. Effectively, this means reaching net-zero emissions between 2050 and 2100.
To reach this goal, the Paris Agreement establishes that all state parties must make "nationally determined contributions" (NDCs) and pursue domestic measures to achieve them. NDCs must be submitted every five years, with each new set of NDCs expected to represent a progression. The Paris Agreement also requires wealthy countries to provide finance and support to poorer countries to enable them to adapt to climate change and make the switch to renewable energy.
With President Donald Trump’s announcement that the United States will withdraw from the Paris Agreement, the US will become the only country in the world to reject the Paris Agreement. However, it seems likely that the US will follow the withdrawal process set out in the Paris Agreement and therefore, at least formally, remain a party to it until at least 4 November 2020. The next presidential election is currently scheduled for 3 November 2020 and a future president could potentially either halt the withdrawal process or rejoin the agreement.
Protection of the environment
The environment is one of the biggest areas of global rule-making. In the last 50 years, approximately 500 environmental treaties have been signed, which cover matters as diverse as the atmosphere, land, water, biodiversity, the use of chemicals and hazardous substances, and waste. Some of these agreements will undoubtedly play a major role in developing climate change law.
Protection of human rights
Human rights instruments enshrine rights such as the rights to life, self-determination, an adequate standard of living and health. These rights will almost certainly be affected by climate change. Affected individuals and others with standing can be expected to use human rights instruments to hold governments to account for failing to deal with climate change.
Protection of foreign investments
According to one estimate, approximately USD 550 billion annually will be required to avert the impact of climate change.2 Much of this will need to be provided by private enterprise in developing or least developed countries, many of which will be disproportionately affected by climate change. These countries often have undeveloped and unreliable domestic legal systems, which are unlikely to provide private enterprise with the legal certainty they require to invest the necessary sums. Even in developed jurisdictions, such as Member States of the European Union, the areas of climate change and energy are subject to abrupt policy changes, which can cause enormous uncertainty, endangering investments and industry competitiveness.
Investment treaties could be used to bridge this gap. These treaties provide basic rights and guarantees, such as the rights to most-favoured nation treatment, national treatment and fair and equitable treatment, which may be enforced by the nationals of one state party against another state party through an arbitration mechanism known as investor-state dispute settlement (ISDS).
ISDS has come under fire in recent years due to the perceived injustice of allowing foreign private entities to take legal action against states outside their domestic legal systems. However, while ISDS should be continually scrutinised and reformed to address public concerns, its potential to act as a instrument of policy that assists governments to tap into, channel and manage the huge sums required to deal with climate change should not be overlooked.
What is happening at the regional level?
The EU and its Member States are leading the charge in the fight against climate change. The EU has adopted numerous regulations and directives that deal with climate change, partly to fulfil its obligations under the Climate Treaties. These laws cover, among other things, the switch to renewable energy, emissions trading systems, and carbon capture and storage mechanisms. They are binding on the Member States, either directly in the case of regulations, or because they must be implemented as domestic legislation in the case of directives.
What is happening at the domestic level?
Activity relating to climate change at the international level and, where applicable, the regional level ultimately affects your business at the domestic level. Some of the ways this occurs are as follows:
- To fulfil their obligations under international and regional law, governments take domestic action. For example, to assist them to meet their emissions targets under the Kyoto Protocol and the Paris Agreement, governments have introduced legislation and regulations, which restrict activities that contribute to climate change and offer incentives to investors and consumers to make the switch to renewable energy.
- Governments may also introduce legislation and regulations to deal with climate on their own initiative.
- Existing legislation and regulations may take on a new dimension in light of climate change concerns. For example, domestic financial reporting rules may give rise to an obligation on the part of listed companies to disclose financial risk relating to climate change. Failure to disclose such risk has already lead to domestic investigations and litigation in the United Kingdom and Australia.
- Domestic law may embody legal principles that give rise to causes of action relating to climate change. For example, domestic tort and human rights law may provide interested parties with a cause of action against governments and companies for failing to take action to prevent, or for contributing to, climate change. According to a recent survey, as of March 2017, cases relating to climate change have been filed in 25 jurisdictions including the US, the EU, the UK, Australia, Germany, the Netherlands and the Philippines.3
- Governments are working together to find ways to encourage multinational companies operating within their territory not only to comply with domestic law but also to adopt socially responsible business practices. For example, many members of the OECD adhere to the OECD Guidelines on Multinational Enterprices (the Guidelines), which are a set of recommendations those governments make to multinational companies on matters such as human rights and the environment. The Guidelines contain a dispute resolution mechanism that enables complaints to be made to a "National Contact Point", which then asseses the complaint, attempts to resolve the dispute though consensual means and issues a statement or report on the outcome. The process is increasingly being used by civil society to put pressure on companies to change their business practices.