As of January 1, 2022, new French environmental regulations ("RE2020") are coming into force, replacing the former thermic regulations ("RT 2012"). RE2020 creates new rules for the energy, environmental, and health performance of new building projects with the clear objective of ensuring that future buildings in France will meet climate change challenges.
In this respect, this legislation pursues two objectives. First, it aims at strengthening the requirements applicable to new buildings in order to reduce the carbon footprint associated with the building industry and its impact on climate change throughout the life cycle of the buildings. Second, it seeks to boost resilience of construction against the consequences of climate change.
To achieve these goals, RE2020 requires that new building projects, including for the renovation of buildings, meet several targets, such as optimizing overall energy conception, reducing primary energy consumption, reducing the impact on climate change of such consumption and of the components of the buildings, as well as limiting heat discomfort in buildings during summertime.
Project managers ("maîtres d'ouvrage") of buildings that are in the scope of RE2020 will have to file declarations and certificates establishing that the project complies with the performance indicators and thresholds defined by ministerial orders and decrees as part of the building permit application. An attestation confirming that the building meets the requirements set out by RE2020 will also have to be established by a qualified professional at the end of construction. Finally, additional energy performance requirements are set for non-housing buildings, such as healthcare establishments or industrial buildings.
RE2020 applies to housing buildings with permit requests filed on or after January 1, 2022. It will progressively be extended to other construction, such as office buildings and associated parking lots, for permit applications filed after July 1, 2022. In addition to this timeline, and to ensure that adjustments can be made to the requirements should they prove to be too ambitious, performance indicators will be used to determine if RE2020 is working as intended.
RE2020 creates both new challenges and opportunities for various sectors associated with the building industry. (Indeed, challenges will surely arise due to the complex technical nature of certain requirements.) Overall, this legislation should accelerate the development of a more climate-compatible building industry. In particular, it should increase the attractiveness of bio-sourced building materials and more efficient energy sources.
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Climate Change and Investor-State Dispute Settlement
Climate change litigation is often viewed by companies as a risk. However, it is also an opportunity—if brought in the right forum—for companies exposed to certain climate-related government measures to vindicate their rights. The past decade has seen increasing use of such a forum: Investor-State Dispute Settlement ("ISDS"). In ISDS cases, individuals and entities of one State can bring claims directly against another State for unlawful government interference with their foreign investment, so long as the two States have entered into a bilateral or multilateral treaty—and there are more than 3,000 such treaties—allowing these claims. A majority of ISDS cases are governed by the Convention on Settlement of International Investment Disputes, or the ICSID Convention.
As many investment treaties were enacted before climate change was at the forefront of public consciousness, these treaties may be in conflict with measures taken to satisfy States' new climate-related international obligations. As a result, in recent years investors have started to challenge States' climate-related actions before ISDS tribunals. Indeed, according to one tracker, there are currently at least 13 pending climate change-related disputes brought by investors against States.
Among these challenges are claims for compensation following the introduction of climate-related measures diminishing the value of investments. In two separate cases filed in 2021, German energy companies RWE and Uniper brought claims against the Netherlands under the Energy Charter Treaty, alleging that the government's planned phase-out of coal power plants by 2030 was a violation of the treaty. Investors have also sued States for amending or rolling back climate-related measures, notably in the case of changes to incentive programs introduced by European governments to encourage investment in renewable energy. In The PV Investors v. Spain, for example, a group of investors filed suit against the Spanish government alleging that a series of reforms to an earlier energy regime, including a 7% tax on power generators' revenues and a reduction in subsidies for renewable energy producers, violated the Energy Charter Treaty. The tribunal ruled in favor of the investors, awarding them approximately $100 million in damages.
There also have been a number of ISDS claims stemming from environmental permitting decisions. In 2021, for example, Canadian TC Energy initiated a legacy claim against the United States under the North American Free Trade Agreement ("NAFTA") seeking $15 billion in damages following the U.S. government's decision to revoke the company's permit for the Keystone XL pipeline.
The ISDS regime does not, however, allow foreign investors to restrict States' ability to engage in proportionate and necessary regulation in protection of the environment. Modern investment treaties expressly protect a State's right to engage in legitimate environmental regulation. For example, Chapter 14 of the United States–Mexico–Canada Agreement, or USMCA, which replaced NAFTA, provides that "[n]othing in this Chapter shall be construed to prevent a Party from adopting, maintaining, or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health, safety, or other regulatory objectives." Moreover, even older treaties, which usually contain no carve-outs for environmental protection, have been interpreted to recognize legitimate environmental measures.
Nonetheless, government measures that are unreasonable, disproportionate, arbitrary, or discriminatory may trigger valid treaty claims. As such, ISDS tribunals are (and will continue to be) tasked with balancing the competing interests of foreign investors and host States.
ISDS is therefore likely to be an increasingly important avenue for the resolution of climate change disputes. Companies in industries most affected by States' climate change obligations (e.g., fossil fuels, mining, etc.) should audit their corporate structure and change it, if needed, to ensure they are protected by an investment treaty. Such restructuring should take place before any climate-related dispute with the State has arisen or is reasonably foreseeable. Notably, some treaties have superior investor protections than others. It is thus important to assess which treaty would best protect the company from any adverse climate-related government measures.
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Climate Change Litigation in the European Union: The Netherlands
On January 13, 2022, the NGO Milieudefensie (the Dutch chapter of Friends of the Earth) announced that it had sent a letter to 29 Dutch companies and financial institutions considered by Milieudefensie to be "Netherlands' large polluters." Not only has this letter been sent to energy majors, but also to entities from a variety of sectors, including pension funds, banks, consumer groups, and chemical groups. In this letter, the NGO called on the chief executives of these companies to draft a "climate plan" before April 15, 2022, detailing and explaining the actions that will be taken to reduce the companies' CO2 emissions by 45% in 2030 relative to 2019 levels, in line with the UN Climate Convention and the Paris Climate Agreement.
According to Milieudefensie, the ruling issued by Hague District Court on May 26, 2021, in the case against Royal Dutch Shell implies that every large CO2 emitter in the Netherlands has, at a minimum, an obligation to reduce its emissions in line with the global imperative that has been confirmed most recently by the Glasgow Climate Pact. Milieudefensie has indicated it is collaborating with the New Climate Institute to assess the plans of all companies and publish the results and a ranking in June 2022.
With this new initiative, Milieudefensie expects that, by implementing their "climate plan," the 29 companies targeted will individually reduce their CO2 emissions (scope 1, 2, and 3) by at least 45% by 2030 compared to 2019 levels. Although Milieudefensie announced that it was not intending to start litigation against each and every company, it did not exclude taking "follow-up steps" against the addressees that do not comply with this demand.
Some of the targeted companies have already provided a response to Milieudefensie by pointing to their climate efforts, but none has provided further information on whether they are planning to comply with the demand and provide the said "climate plan."
This action confirms the new face of NGO climate change activism, which is taking the form of increasingly concrete actions against companies. Rather than the traditional "name and shame," it is now transforming into a "name and change" initiative, under which NGOs seem to position themselves as "regulators" by imposing on companies the implementation of measures to mitigate climate change under the threat of litigation.
This kind of action is likely to be extended outside of the Netherlands and may create a risk of businesses receiving similar requests making climate change-related voluntary commitments that they cannot keep. In light of such voluntary commitments, the risk of businesses being held to a standard later that is not contemplated now is significant and should be carefully considered before providing any response to such requests.
Caution is therefore advised when establishing a response to this new kind of action, and absolute statements or commitments on climate change mitigation measures should be avoided or drafted carefully unless there is certainty that they can be fulfilled.
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UK Government Faces Judicial Review Challenge Over Net Zero Strategy
Three months after hosting the COP26 climate summit in Glasgow, and as required by the Climate Change Act 2008, the UK government published its third five-year risk assessment of climate change on the United Kingdom. This publication will underpin policymaking in the next few years and beyond.
The assessment considers 61 UK-wide climate risks across multiple economic sectors. Eight specific areas have been identified for immediate action in the next two years:
- Risks to the viability and diversity of terrestrial and freshwater habitats and species from multiple hazards;
- Risks to soil health from increased flooding and drought;
- Risks to natural carbon stores and sequestration from multiple hazards;
- Risks to crops, livestock, and commercial trees from multiple climate hazards;
- Risks to supply of food, goods, and vital services due to climate-related collapse of supply chains and distribution networks;
- Risks to people and the economy from climate-related failure of the power system;
- Risks to human health, well-being, and productivity from increased exposure to heat in homes and other buildings; and
- Multiple risks to the United Kingdom from climate change impacts overseas.
Just for these eight individual risks, the publication concludes that economic damages could exceed £1 billion per year each by 2050 with a temperature rise of 2°C, with the cost of climate change to the United Kingdom rising to at least 1% of GDP by 2045. The assessment identifies the following adaptation work streams undertaken by the UK government including:
- Investing £5.2 billion to build 2,000 new flood defenses by 2027;
- Continuing work on the Green Finance Strategy to align private sector financial flows with clean, environmentally sustainable, and resilient growth;
- Increasing the total spend from the Nature for Climate Fund on peat restoration, woodland creation, and management to more than £750 million by 2025; and
- Ensuring that climate science and research, such as the UK Climate Projections 2018, are fully integrated into planning and decision-making, including on major infrastructure.
The report considers that the evidence shows that the United Kingdom must do more to build climate change resilience into any decisions that have long-term effects, such as in new housing or infrastructure, to avoid often costly remedial actions in the future. In addition, the United Kingdom must consider low probability but high impact events arising from, "for example, high warming scenarios and interdependent or cascading risks."
The assessment also highlights the international nature of many climate risks that can cause cascading effects across borders and sectors with significant impacts on the United Kingdom. The UK government is building on the discussions and key messages from COP26, wherein adaptation was a focal point championed by the UK presidency as a core priority.
The assessment concludes, "We will continue learning from others about how to adapt, while also building capacity and sharing knowledge as we progress towards our 'Global' goal of investing $100bn in climate finance by 2023."
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UK Government Publishes Third Climate Change Risk Assessment January 17, 2022
Three months after hosting the COP26 climate summit in Glasgow, and as required by the Climate Change Act 2008, the UK government published its third five-year risk assessment of climate change on the United Kingdom. This publication will underpin policymaking in the next few years and beyond.
The assessment considers 61 UK-wide climate risks across multiple economic sectors. Eight specific areas have been identified for immediate action in the next two years:
- Risks to the viability and diversity of terrestrial and freshwater habitats and species from multiple hazards;
- Risks to soil health from increased flooding and drought;
- Risks to natural carbon stores and sequestration from multiple hazards;
- Risks to crops, livestock, and commercial trees from multiple climate hazards;
- Risks to supply of food, goods, and vital services due to climate-related collapse of supply chains and distribution networks;
- Risks to people and the economy from climate-related failure of the power system;
- Risks to human health, well-being, and productivity from increased exposure to heat in homes and other buildings; and
- Multiple risks to the United Kingdom from climate change impacts overseas.
Just for these eight individual risks, the publication concludes that economic damages could exceed £1 billion per year each by 2050 with a temperature rise of 2°C, with the cost of climate change to the United Kingdom rising to at least 1% of GDP by 2045. The assessment identifies the following adaptation work streams undertaken by the UK government including:
- Investing £5.2 billion to build 2,000 new flood defenses by 2027;
- Continuing work on the Green Finance Strategy to align private sector financial flows with clean, environmentally sustainable, and resilient growth;
- Increasing the total spend from the Nature for Climate Fund on peat restoration, woodland creation, and management to more than £750 million by 2025; and
- Ensuring that climate science and research, such as the UK Climate Projections 2018, are fully integrated into planning and decision-making, including on major infrastructure.
The report considers that the evidence shows that the United Kingdom must do more to build climate change resilience into any decisions that have long-term effects, such as in new housing or infrastructure, to avoid often costly remedial actions in the future. In addition, the United Kingdom must consider low probability but high impact events arising from, "for example, high warming scenarios and interdependent or cascading risks."
The assessment also highlights the international nature of many climate risks that can cause cascading effects across borders and sectors with significant impacts on the United Kingdom. The UK government is building on the discussions and key messages from COP26, wherein adaptation was a focal point championed by the UK presidency as a core priority.
The assessment concludes, "We will continue learning from others about how to adapt, while also building capacity and sharing knowledge as we progress towards our 'Global' goal of investing $100bn in climate finance by 2023."