Critiques of international economic law have attacked the tendency of transnational legal processes, including investor-state dispute settlement (ISDS), to undermine states' sovereignty. In response to these criticisms, many states have limited the power of investment tribunals by reasserting their sovereignty. There are reasons, however, to be critical of endorsing sovereignty, particularly in the context of global distributive inequalities. This is because assertions of sovereignty are normatively ambivalent in their effects: they can be used to entrench and naturalize the unequal assets held by each state, rather than to empower states to exercise their right to regulate. These potential tensions can be resolved if sovereignty is understood as a term that is used in many different ways. Critics of ISDS often conflate two distinct meanings of sovereignty: sovereignty understood as the right to be free from external influence, and sovereignty understood as states' right to regulate. Because states are constrained by differences in resources and capacity, withdrawing from ISDS cannot always secure the conditions for effective domestic regulation. Sovereignty understood as the right to be free from interference may even stand in the way of states' ability to regulate, by allowing states to gatekeep resources that were accumulated through historical injustice

A number of European Union (EU) countries have undertaken thorough reforms in the renewable energy sector over the past years. The regulatory changes have triggered a wave of claims from low-carbon investors asserting that the reforms have diminished or exhausted the economic viability of their investments. Unlike local investors, who typically take legal action before domestic courts, foreign investors have filed arbitration claims in accordance with the Energy Charter Treaty, notably against Spain, Italy, Bulgaria, and the Czech Republic, resulting in several awards of damages. However, recent developments in EU state aid law seem to restrict the ability of investors to obtain compensation. This article argues that such developments may undermine renewable energy policy, because arbitration enhances the regulatory stability and predictability which low-carbon investments require only if arbitral awards can be enforced effectively. The article examines the different scenarios that may arise out of the interplay between EU law and investment arbitration in the EU and concludes that the European Commission's arguable redrawing of the boundaries of state aid rules to encompass investment arbitration, combined with the EU's general quest to replace investment arbitration with alternative mechanisms of adjudication, may jeopardize climate change mitigation policies.

The system of investor-state dispute settlement (ISDS) found in over 3,000 bilateral investment treaties and numerous regional trade agreements has been criticized for interfering with the rights of sovereign states to regulate investment in the public interest, for example, to protect the environment and public health. This article argues that while much of the public debate around ISDS has focused on a small number of cases that have arisen over the regulation of tobacco packaging, there is a far greater threat posed by the potential use of ISDS by the fossil fuel industry to stall action on climate change. It is hypothesized that fossil fuel corporations will emulate a tactic employed by the tobacco industry – that of using ISDS to induce cross-border regulatory chill: the delay in policy uptake in jurisdictions outside the jurisdiction in which the ISDS claim is brought. Importantly, fossil fuel corporations do not have to win any ISDS cases for this strategy to be effective; they only have to be willing to launch them. The article concludes with three options to reform trade and investment agreements to better align them with climate change mitigation efforts: (i) exclude ISDS provisions; (ii) prohibit fossil fuel industries from accessing ISDS; or (iii) carve out all government measures taken in pursuit of international obligations (for example, under the Paris Agreement on climate change) from challenge under ISDS.