The recent Eiser v. Spain ICSID award is yet another example of a state being condemned to pay a large monetary sum merely because an investor has been economically disadvantaged by a reasonable and necessary regulatory change. Eiser, which generates renewable energy in Spain, complained, like many other companies (Spain has been assaulted by more than 20 such requests for indemnification), that the government had cut the subsidies that attracted them to the renewable generation market there; in Eiser’s case they also claimed that some of the technical requirements and the method of allocating subsidies to particular kinds of plants were changed to their disadvantage (changes that likely reflect the government’s learning curve with this new innovative programme).
What is the basic reality here? Spain found itself with a much higher bill for subsidies than it had expected-probably the original experiment with incentivizing renewable generation wasn’t all that well designed. That’s 20/20 hindsight. So Spain had good reasons for changing course, especially given budgetary restraints that emerged during its “austerity” period. So Spain took away what, for Eiser, were some pretty important benefits. But Eiser didn’t have a contractual right to those benefits. And indeed the tribunal even cites evidence that, far from believing they had a bankable commitment of regulatory stabilization, the company entered into the market knowing there was political risk-the regulatory program was new and experimental, and large-scale renewable generation for on-grid electricity isn’t that old or well established, period. There’s no well-worn standard regulatory playbook here.
So in the ICSID case, the arbitrators pull out Fair and Equitable Treatment. All the while admitting that Spain’s government has good fiscal reasons for changing the regime, the arbitrators nevertheless order Spain to pay to Eiser 128 Million Euros.
Basically, Eiser shows how the current investment regime with ICSID-clique ISDS makes it difficult for states to address new regulatory challenges in areas like climate and environment, especially using untried, innovative approaches: in these circumstances, a lot of experimentation may be needed, and the regulatory framework may need to change course in important ways, and sometimes reasonably quickly. And in exactly those circumstances, arbitrators like these will force payouts in the hundreds of millions of dollars on states, merely for acting with dispatch in the public interest.