International Law and Renewable Energy Investment in the Global South

Avidan Kent

• Publisher: Routledge
• Year: 2021
• ISBN:
  9781000452556
• Edition: 1
• Topic: Law
• Subtopic: Environmental Law
• Index: Law

This book will discuss the legal tools offered by international law that can support foreign direct investment (FDI) in the renewable energy sector in the Global South.

Promoting and increasing investment in the renewable energy sector is crucial for limiting global temperature rise to 1.5°C and addressing energy poverty in the Global South. In this volume, Avidan Kent explores the various home-country measures (HCMs) offered by international law that support FDI in the renewable energy sector. This book provides a bird's eye evaluation of HCMs from fields such as trade law, investment law, environmental law, development law and more. It reveals that while international law indeed offers many legal tools to support investors' needs, the current legal framework is fragmented; most legal instruments were designed in isolation and the potential for mutually supportive, synergetic policies has been explored only to a limited extent. This fragmented reality is in contradiction to the notion of Policy Coherence for Development, which is increasingly gaining support in leading institutions in Europe and elsewhere. This book will provide recommendations on the manner in which HCMs can be connected in order to maximise their potential and boost investment in renewable energies in the developing world.

International Law and Renewable Energy Investment in the Global South will be of great interest to scholars, students and practitioners of international law, energy studies, development studies and IR more broadly.

1 Investment in the renewable energy sector in the Global South

DOI: 10.4324/9780429277207-2

I Introduction: the why, the who and the what

This study examines international efforts to increase investment in the renewable energy (RE) sector in the developing world. The focus of this study is international law: a fragmented and crippled legal system that currently endures a political backlash and a crisis of legitimacy. This system, nevertheless, possesses powerful tools: tools that can, and already do, deliver. Through the assessment of several sub-fields of international law (investment, trade, environment, insurance and development), this study examines several existing (and negotiated) legal instruments. It will evaluate these laws’ legal architecture, and their effectiveness in achieving the international efforts to increase RE-related investment in the developing world.

The first chapter of this book will place the foundations for this study. It will begin by explaining the study’s parameters, presented as a series of ‘why’, ‘who’ and ‘what’ questions. A fourth question – ‘how’ – will be addressed in Chapter 2, and throughout the rest of this study.

The first question – ‘why’ – is asked in order to explain the study’s raison d’être: why is it necessary to design policies in order to increase investment in the RE sector? Why should states intervene with the operation of the market’s free hand? And why is it necessary to focus on investment in the Global South, of all places? In answering these questions, this study will discuss the Sustainable Development Goal (SDG) 7, as well as more specific justifications such as market barriers and incentives that could be addressed only through governments’ interventions.

Next, this chapter will address the ‘who’ question: who should the policies to increase investment in the RE sector target? The unequivocal answer to this question is, of course, the private sector. More specifically, this study will focus only on a very specific part, or a type of activity conducted by the private sector – foreign direct investment (FDI). The importance of FDI in the context of renewable energies will be explained, as well as the list of barriers that are currently inhibiting the efforts of the private sector in this area.

Lastly, and most briefly, this chapter will ask the ‘what’ question: what is it that public policies should aim to achieve? This part will explain the importance of setting targets that are not only ambitious, but also comprehensive. More specifically, it will identify the necessity to achieve integration of both means and outcomes, a process that will be addressed in more detail in Chapter 2 of this study.

This chapter will present the reader with a preliminary scientific and economic review. The reader should note that this is a fast-changing area and yesterday’s science may not necessarily be valid at the time of reading. The main points presented in this chapter, however, will remain, unfortunately, correct also in years to come. And these points – this chapter’s main findings – are:

• First, energy poverty is a substantive, and urgent problem in the Global South.
• Second, without public policies, this problem will not be resolved fast enough for the planet, or for those living without access to energy.
• Third, one important objective that these public policies will have to target, is the increase of private FDI in the RE sector, in the Global South.
• Fourth, there are significant barriers that are currently inhibiting the flow of FDI in the RE sector towards the Global South. These barriers will require tailored responses, in the shape of laws and policies.

The following chapter elaborates on these issues.

II Why? SDG 7 and beyond

The first question that must be answered (albeit briefly) before delving into the waters of international law, is ‘why?’ or why is it useful and necessary to adopt states’ policies for the promotion of RE-related investment in the Global South? There are, after all, those who will argue in favour of avoiding expensive public intervention, and allowing the invisible hand of the free markets to guide investment in this area. Perhaps surprisingly, these arguments are intensifying rather than diminishing over time. Addressing the need for public policies and public intervention is therefore necessary.

A Why should states intervene?

Why then, should states adopt policies for the promotion of investment in the RE sector? This question cannot be ignored, especially as states’ RE policies are often expensive and even controversial due to their impact on competing environmental goals (e.g. wildlife conservation, or the aesthetic impact on nature¹). These controversies are intensifying in the context of development assistance, where resources are scarce and the trade-offs could be significant.

This ‘why’ question is in fact being asked by several different groups, each for its own reasons and motives. First, there are those who deny the impact and importance of climate change, and consequently reject the notion that public resources should be invested in addressing this phenomenon. The author has no wish, nor the capability to interact with such claims. This debate is not being conducted on the scientific and academic spheres, but mostly within the political and public worlds. For the sake of this study, the author will rely on the scientific consensus, and will leave this part of the debate for the likes of Al Gore, David Attenborough, Nigel Farage and Donald Trump.

Second, there are those who genuinely care for the environment, but take issue with the trade-offs that are involved in the adoption of expensive RE-related public policies. To begin with, this group claim that the falling prices of RE technologies do not justify expensive public investment and intervention. Certain RE technologies, it is claimed, are already competitive in market terms and therefore attract record investment. Why then, should states invest scarce resources in the promotion of RE, when the free market is perfectly capable of delivering this public good on its own? Some members of this group also add that the result of such public interventions will be the allocation of precious public funds (e.g. Official Development Assistance (ODA)) to wealthy energy corporations, instead of for the genuine needs of developing countries.

It is true that the prices of RE technologies have dropped significantly in recent decades. As a result, renewables have become far cheaper and increasingly competitive. For example, in just six years (2010–2016) the global price for solar photovoltaic (PV) energy and onshore wind power fell by 69% and by 18%, respectively.² In certain suitable locations (e.g. Dubai, Mexico, Saudi Arabia for PV, and Denmark, Germany and the UK for wind power) competitive RE prices are already accessible, and further reductions are expected.³ Moreover, it cannot be denied that these reductions in prices are already resulting in a significant investment in RE-related projects. For example, at the time of writing, global investment in solar PV is at a record level.⁴ These developments are without doubt encouraging and do imply a decreasing role for public policy and intervention.

¹ Committee on US-China Cooperation on Electricity from Renewable Resources, The Power of Renewables: Opportunities and Challenges for China and the United States (The National Academies Press 2010) <https://www.nap.edu/read/12987/chapter/6#101&gt; 103–104. ² This data is referring to the global weighted average cost from large-scale solar PV plant. See IRENA ‘Renewable power: Sharply falling generation costs’ (IRENA 2017) <https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2017/Nov/%20IRENA_Sharply_falling_costs_2017.pdf&gt;. ³ IRENA ‘Renewable power: Sharply falling generation costs’ (n 2) 2. ⁴ IEA, World Energy Investment 2018 (IEA 2018) 48.

The following section will address these questions and explain why governmental intervention is (still) necessary in order to increase investment in the RE sector.

i Technological advancements are not enough to stop climate change

The technological developments discussed above are certainly promising. On their own, however, they will not be enough for achieving the objectives of the Paris Agreement (‘well below 2°C […] pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels’). The transition into a green economy is simply not happening fast enough⁵: according to the International Energy Agency (IEA), reaching the Paris Agreement’s objective will ‘require an energy transition of exceptional scope, depth and speed [… and] require an unparalleled ramp up of all low-carbon technologies in all countries’.⁶ Concerning the urgency involved in the process of transitioning into RE-based economy, the IEA states⁷:

⁵ Dirk Röttgers ‘The government role in mobilising investment and innovation in renewable energy’ (2017) OECD Investment Insights. <https://www.oe...