GERMANY Trends and Developments Contributed by: Patricia Nacimiento, Catrice Gayer, Lara Panosch and Theo Pauthonier, Herbert Smith Freehills Kramer LLP
nuclear plants responded to this abrupt policy by filing a claim in 2012 under the ECT (Vattenfall II) which was ultimately settled. Similarly, the coal exit triggered a pending ICSID claim against Germany under the ECT: Azienda Elettrica Ticinese (AET) v Germany (ICSID Case No ARB/23/47). While Germany formally withdrew from the ECT in December 2023, investors can rely on the so-called sunset clause, according to which the ECT’s protections for existing investments remain in force for 20 years after the withdrawal date. AET is a Swiss state-owned utility that invested in a large modern coal plant in Germany (the Lünen power station in the state of North Rhine-Westphalia). Under the coal phase-out law, the plant must be shut by 2030/2031. Since it is relatively new and efficient, it falls under a disadvantageous compensation scheme compared to older, less efficient plants. AET argues that the coal phase-out amounted to an unlawful expropriation and breach of fair and equitable treat- ment among other treaty violations. It claims that Germany encouraged investments in “cleaner” coal technology, only to later change policy in a way that discriminated against those very investments. It fur- ther invokes the unequal treatment between new and old plants. Germany, on the other hand, invokes its right to regulate for climate change. Notably, the tribunal admitted a brief on climate sci- ence and international environmental law pertinent to the time of AET’s investment by climate science experts and environmental law academics as non- disputing parties (amicus curiae). The proceedings are part of the recent “climate change” disputes that are becoming increasingly common. Tribunals are faced with the challenge of balancing investor interests and the need for states to enforce effective climate measures. Germany argues such actions are within its sovereign regulatory power and should not trigger liability. Investors argue that predictability and non-discrimination are still required – climate action should not arbitrarily single out cer- tain players or retroactively undercut investments. It remains to be seen what impact the recent advisory opinion of the International Court of Justice on Obliga-
tions of States in respect of Climate Change will have on how tribunals find this balance. For investors in fossil fuel assets, Germany’s coal exit demonstrates that large-scale policy changes are not a risk limited to investing in emerging markets. Treaties like the ECT may still provide protection, in Germany’s case for existing investments for approxi- mately 18 years (see above). EU Windfall Tax In parallel, another set of cases exemplifies the impact of European measures. The Klesch Group, an interna- tional energy conglomerate, filed three co-ordinated arbitrations in 2023 against Germany, Denmark and the EU itself (EU Commission), arising from an EU emergency regulation that imposed a windfall profits levy on energy companies in late 2022 (EU Council Regulation 2022/1854). In Klesch and Raffinerie Heide v Germany (ICSID Case No ARB/23/49), the investor argues that the EU’s measure – implemented by Ger- many through a tax on excess fossil fuel profits – is confiscatory and affects its Heide oil refinery in north- ern Germany. In all cases, the preliminary objections are being heard with the merits, without bifurcation, indicating that the tribunal deems the issues (intra-EU law, state measures, etc) as intertwined. The implications of these arbitrations are multi-fac- eted: They underscore recurring tensions between urgent policy responses to economic and energy cri- ses and international investment protection and are a flashpoint for jurisdictional battles surrounding the intra‑EU objection under the Achmea and Komstroy decisions. German Investors Abroad While Germany’s role as an ISDS respondent is still limited, it is long-established as a home state of inves- tors bringing claims, especially in sectors like energy, infrastructure and finance. They have lodged over 85 claims, many of which involve emerging markets. In the energy sphere specifically, recent examples include the following. RWE and Uniper v The Netherlands These two German energy companies (major electric- ity producers) initiated ICSID arbitrations against the
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