The thesis examines the extent to which the system of investment arbitration enables States to defend their obligations under international environmental law. It proceeds from the premise that States are the primary addressees of environmental obligations and have a duty to regulate private actors. International environmental and investment law are not in a lex specialis relationship, making their harmonious interpretation essential. This opens space for States’ right to regulate in public interest, which is reflected in a layered structure of avenues for attributing responsibility. In the first, defensive layer, the police powers doctrine has gradually displaced the sole-effects doctrine. It allows tribunals to consider the legitimate objectives of non-discriminatory environmental measures, potentially relieving States from paying compensation. Within the assessment of fair and equitable treatment standard, the role of public interest is increasing. Absent specific assurances by States, investors can no longer legitimately expect regulatory stability where this would undermine public interest. In theory, this has prompted growing calls for a doctrine of overriding public interest, capable of ensuring primacy of public interest over otherwise legitimate expectations of investors. Environmental treaty exceptions, as the final element of the defensive layer, often fall short of the desired effect and call for more precise drafting of investment agreements. The second, offensive layer consists of counterclaims, for which States must overcome three hurdles: jurisdictional, admissibility, and the merits hurdle. To date, only two environmental counterclaims have succeeded, as clearing all three hurdles has proven difficult. The thesis concludes that practice is increasingly consolidating States’ right to regulate vis-à-vis environmental protection, with defensive avenues proving the most effective, while the threshold for success of counterclaims currently remains (too) high.
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