Mitigating Regulatory Chill: Proportionality and Joint Interpretative Declarations in Energy Transition Arbitrations

Abstract

The contemporary international investment law regime faces a structural clash with global climate imperatives, generating a severe regulatory chill that paralyzes host states from executing green energy transitions. This article examines the doctrinal failure of environmental exceptions in recent arbitral jurisprudence, particularly concerning the fair and equitable treatment standard. By analyzing key awards, the study demonstrates how tribunals manipulate textual loopholes to prioritize fossil fuel assets over ecological survival. To dismantle this systemic imbalance, this research proposes a critical legal reconstruction by integrating the proportionality test into the police powers doctrine to rationally evaluate indirect expropriation claims. Furthermore, to prevent tribunal overreach, sovereign states must operationalize this framework through joint interpretative declarations under the Vienna convention on the law of treaties. This institutional mechanism provides a binding limitation on arbitral discretion, ensuring that foreign investment protection remains strictly subordinated to existential global climate mitigation mandates within developing jurisdictions like Indonesia.