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Investment Treaties and the Replacement of Stranded Investment

Author

Listed:
  • Horn, Henrik

    (Research Institute of Industrial Economics (IFN))

  • Sanctuary, Mark

    (IVL Swedish Environmental Research Institute, Stockholm)

Abstract

A common claim holds that investment treaties reduce the willingness of host countries to regulate foreign-owned, environmentally-stranded, investments. A counter-argument is that the treaties can yield incentives for environmentally-friendly replacement investment. This paper examines these claims in a stylized setting with a stranded investment and a potential replacement investment, both of which are protected by an investment agreement. The paper shows how treaty protection weakens incentives for environmental protection. The paper also shows how the extent of environmental damage depends on the implementation of core legal notions, such as investor legitimate expectations, the full compensation requirement, carve-outs from compensation obligations, and what qualifies as an investment.

Suggested Citation

  • Horn, Henrik & Sanctuary, Mark, 2023. "Investment Treaties and the Replacement of Stranded Investment," Working Paper Series 1479, Research Institute of Industrial Economics, revised 09 Feb 2024.
    • Handle: RePEc:hhs:iuiwop:1479
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    References listed on IDEAS

    as
    1. Dolzer, Rudolf & Schreuer, Christoph, 2012. "Principles of International Investment Law," OUP Catalogue, Oxford University Press, edition 2, number 9780199651801.
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    More about this item

    Keywords

    Investment treaties; Environmental degradation; Regulatory chill; Legitimate expectations; Transition risk;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • F53 - International Economics - - International Relations, National Security, and International Political Economy - - - International Agreements and Observance; International Organizations
    • K33 - Law and Economics - - Other Substantive Areas of Law - - - International Law

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