Arbitrating New Climate Finance Instruments

Presentation

The development of voluntary carbon credit markets, originating from international climate initiatives such as the Kyoto Protocol, has introduced complex transnational commercial relationships involving states, private companies, and standard-setting bodies. These markets operate across borders and rely on contracts that lack a fully articulated legal framework, creating legal uncertainty regarding the creation, transfer, and verification of carbon credits. As a result, disputes are increasingly likely, including allegations of greenwashing, misrepresentation, contractual non-performance, and challenges to the validity or value of credits. Given the cross-border nature of these transactions and the absence of harmonized substantive rules, international arbitration has emerged as a particularly suitable mechanism to resolve such disputes and to foster trust and stability in these markets.

International arbitration is well suited to address disputes arising from carbon credit markets due to its procedural flexibility, and the near-universal enforceability of arbitral awards under the 1958 New York Convention. Arbitration can accommodate both purely commercial disputes between private actors and more complex disputes involving state entities, including potential investor–state claims under bilateral investment treaties if carbon credits are characterized as protected investments, as illustrated by recent ICSID case law.

As disputes proliferate in this evolving regulatory environment, arbitrators will be required to navigate novel legal questions by drawing on existing jurisprudence and analogies to comparable dispute categories. This event will be the occasion to assess how international commercial and investment arbitral tribunals can effectively respond to these challenges and contribute to the credible and sustainable functioning of global carbon markets.