Chicago Journal of International Law

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This Comment provides a comprehensive legal analysis of the potential investor-state disputes arising from Germany’s groundbreaking Coal Exit Act, which utilizes reverse auctions to phase out coal-fired power plants. The study investigates potential breaches of the Energy Charter Treaty (ECT), focusing on Article 10(1), the fair and equitable treatment clause, and Article 13(1), the expropriation clause. The reverse auction mechanism, when examined under ECT provisions, could be perceived as both a breach of fair and equitable treatment and an unlawful, indirect expropriation, substantially depriving investors of the value of their investments. The analysis also delves into Germany’s possible defenses to a prospective claim, including jurisdictional objections, waiver clauses in buyout contracts, exceptions for necessary regulations in the ECT, and withdrawal from the ECT altogether. Findings suggest that investor-state claims can feasibly proceed in response to Germany’s coal phase-out policy. Accordingly, policymakers should factor in the costs of Investor-State Dispute Settlement (ISDS) when estimating the cost-saving potential of reverse auctions as a means to phase out high emissions assets like coal-fired powerplants. The Comment concludes by proposing a more efficient buyout transaction structure that leverages carbon markets to enable comparable emissions reductions at a lower marginal cost of abatement and reduce the state’s exposure to ISDS claims.

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