Hong Kong Arbitration Week Recap: Renewable Energy in a Rapidly Changing World
On the first day of Hong Kong Arbitration Week 2021, Latham & Watkins LLP (“Latham & Watkins”) hosted a virtual workshop to explore the role of renewable energy in a rapidly changing world and how this growth will impact litigation in renewable energy and other energy markets.
Ing Loong Yang, a partner at Latham & Watkins (Hong Kong), opened the workshop with Nick Sims, managing director of tactical opportunities at Latham & Watkins (London), who briefly discussed the growth of renewable energy investments during the pandemic and the commitment of investors to raise capital to boost this flourishing sector.
Impact of government policies on disputes in the renewable energy sector
The first roundtable focused on how changes in government policies have played a role in triggering disputes in the renewable energy sector. The discussion was moderated by Sebastian Seelmann-Eggebert, partner at Latham & Watkins (Hamburg). The panelists were:
- Christopher Tan, Senior Legal Advisor at Chevron Singapore;
- Henri Baguenier, Chairman of Novenergia II Energie & Environnement; and
- Fernando Mantilla-Serrano, Partner at Latham & Watkins (Paris).
Mr. Seelmann-Eggebert indicated that although European economic policies are based on fundamental free market principles, state action is needed to tackle climate change and will vary from sector to sector.
Mr. Mantilla-Serrano highlighted the coal industry as a key area in which a number of states are acting. Some states are actively engaged in reducing their coal consumption, but this reduction will require changes in legal frameworks such as negotiating the phasing out of contracts or renegotiating existing contracts with coal power producers. For example, the German Bundestag has passed legislation to phase out the use of coal in Germany while simultaneously negotiating with coal producers, in order to mitigate the risk of potential disputes. In contrast, the Netherlands ended coal production without offering any compensation to coal producers. This approach has triggered complaints from German investors against the Netherlands, where the proceedings are still in their infancy.
The panel looked at renewables in the context of the oil and gas industry, with Tan noting that carbon pricing will likely remain a long-term policy to reduce greenhouse gas emissions in a number of jurisdictions. from the Asia-Pacific region. The effect of the carbon tax on long-term supply contracts is likely to spark controversial discussions about who should bear this tax; a consequence which was not foreseen at the time of the conclusion of these contracts. Faced with such disputes, the parties attempted to implement various measures such as price review mechanisms, changes in law and force majeure clauses. The panelists believed that carbon pricing will become a long-term feature of the renewable energy space, noting that in contracts in which commercial relations are important, parties should determine whether there is an amicable way. to negotiate a fair and equitable sharing of the tax burden, rather than focusing on short-term effects and passing on immediate tax.
Finally, the panelists discussed how the position and popularity of nuclear power has declined in the power market over the past 20 years, while the cost of producing nuclear power has increased. Mr. Baguenier also noted that disputes could arise from policy changes aimed at decommissioning nuclear power plants. He stressed that a change in regulation on market tools was the key to success in the renewable energy industry and stressed that the sector needs a clear and stable legal framework.
Renewable Energy – The Next Frontier in Trade Disputes?
The second panel was divided into two sections, the first section was moderated by Philip Clifford QC, partner at Latham & Watkins (London), addressing:
- Paul Davies, partner at Latham & Watkins (London); and
- Stephen Markscheid, President of Still Waters Green Technology.
The second section was moderated by Sophie Lamb QC, partner at Latham & Watkins (London) addressing:
- Kai-Uwe Karl, Senior Legal Advisor at General Electric; and
- Lara Nicholls, Senior Legal Counsel at Shell.
Mr. Clifford and Mr. Markscheid discussed the types of disputes likely to arise from the transition and rapid expansion of renewables in Asia. Mr. Markscheid noted that trade disputes are a likely consequence of changes in government policies, technological changes, as well as other traditional forms of disputes. He also discussed contractual clauses, which can protect against supply shortages and pose the challenge of dealing with all possible eventualities during negotiations.
Mr. Davies noted that while it is difficult to identify the most common areas of litigation, changing government policies is often at the heart of renewable energy trade disputes. He noted the value of examining jurisdictions attempting to change regulatory regimes in an effort to increase investment in renewable energy. For example, Japan’s efforts to reduce tariffs previously favorable for investors in the renewable energy sector prompted a Hong Kong-based investor to file the first known investment treaty claim against Japan over energy. renewable, which, if successful, could lead to further claims against Japan by other investors. Mr Davies noted similar disputes arising from the renewable energy sector in Europe, particularly Spain, which largely consist of claims under the Energy Charter Treaty.
Panelists in the second section explored the role of mediation in the renewable energy industry. Mr. Karl noted that mediation has been a feature of the industry for many years, although it has not played a significant role in dispute resolution. However, the panel believed that mediation could be an effective and useful mechanism if the parties wish to resolve disputes quickly. Faster resolution of renewables-related disputes (via mediation) is potentially important, as delivering these projects at a pace can be essential to ensure an efficient energy transition. This approach would force the parties to consider the weaknesses of their own cases, the relationship between the parties and other alternative solutions that can be brought to the settlement.
Ms. Nicholls gave an overview of the Campaign for Greener Arbitration, which aims to reduce the environmental impact of arbitrations. Ms Nicholls stressed the need for such an initiative, noting that a mid-size trade-off carries a substantial carbon footprint and would require the planting of 20,000 trees in order to offset the negative impact of carbon emissions. She highlighted a series of protocols that have been launched to target different stakeholders in an arbitration, which provide general guidelines to help parties to arbitrations to decarbonize and promote sustainability in arbitration proceedings. Additionally, Ms. Nicholls described some of the practical ways these protocols are implemented, including holding hearings remotely to avoid unnecessary travel and the use of electronic packages during hearings.
More Hong Kong Arbitration Week coverage available here.
This article first appeared on the Kluwer Arbitration Blog here. Written by Ing Loong Yang of Latham & Watkins LLP