Thursday, August 29, 2019

ETHICS VS PROFITS… A German case study.

Photo by Greenpeace Hamburg
In this blog post, I will discuss the ongoing case between the Swedish power company Vattenfall, and the German government’s decision to end nuclear energy, reflecting the growing tensions between ethics and profits. In this particular case, the ethical prerogative of the German government is being boycotted by Vattenfall due to interference with their profits.

The longstanding anti-nuclear movement in Germany embodied ethical principles concerning the dangers of nuclear power and a romantic adoration for the environment. The rise of the Green party reflected the growing momentum of the movement which eventually culminated in a nuclear phase out policy being implemented by Chancellor Angela Merkel in 2011.

argued that this violated the previsions stipulated in the Energy Charter Agreement (ECT). Specifically, the shutdown of their plants in Krummel and Brunsbuttel led them to leverage article 10(1) of the ECT regarding the promotion and protection of international investment. The claim was justified through ‘indirect expropriation’ of property. By this, Vattenfall claimed that although property rights of the plants remained in their hands, they were adversely affected by changes to the use of this property – as brought about by the permits and phase out policy. Vattenfall had recently invested 700 million into the two plants, so their claim includes damages for future profits on the basis of prior investment.

The phase out of nuclear power in Germany was one of the priorities of the Red-Green coalition government that took to office in 1998. Up until this point, federal nuclear policies sided with a pro-nuclear alliance, supporting the industry with tax and regulatory privileges. Hence, it marked a stark change in the trajectory of the German energy sector. After one and a half years of negotiation between industry and government officials, the agreement of a gradual phasing out of all nuclear power plants was agreed on June 14th 2000. This agreement determined the life span of the various power plants and was outlined in 2002 through an amendment to the Atomic Energy Act.

The phasing out policy was augmented with the promotion of renewable energy production through the Renewable Energy Sources Act of April 2000. The purpose of this act was to double the share of renewable energy sources in total energy consumption by 2010. However, due to industry opposition, the measures determining the life-span of nuclear plants were eventually consolidated under Angela Merkel – the leader of the center-right Christian Democratic Union – some 9 years after the amendment (Mez and Piening 2002).

The issue for the anti-nuclear movement is the structural bodies in place to ensure the sustainment of international investment and, by extension, globalisation. International investment protection law is seen in the case of Germany to trump the ethical concerns of the public. As previously discussed, the ETC was employed by Vattenfall to make their case against the German government. However, perhaps even more significant is the body through which these claims are mitigated, i.e. the International Centre for Settlement of Investment Disputes (ICSID). Structurally, this body is very problematic from the perspective of ethical movements disputing against corporate profits. In investment arbitration, cases are concluded through an ad hoc tribunal consisting of three persons. Usually, each party selects a representative and then these two go on to agree a chair. Naturally, each party expects their representative to act in their favour. To add to this, there are not sufficient safeguards in place to ensure judicial independence. Therefore, there are doubts as to the impartiality of arbitrators – not least because they can turn these cases into very lucrative business (the more cases they take the higher their income)! Further, arbitrators may simultaneously work as council for litigants in similar cases. This creates an environment apt for conflict of interests.

The structure of the ICSID gives doubts as to its impartiality. However, this is not the only issue the German government will have to deal with. Public interests also play a very vague and minor role in the deciding of these cases. It is acknowledged that the rights of the investors are at the forefront of discussion whilst public interest of the state takes a back-seat. There is an ambiguously worded protection standards to represent public interest. However, these do not specifically have to be considered for.

The German government are stalling developments in their case – calling for a disqualification of the three members of the tribunal. Prior to this filing, a conclusion was expected to have been announced at the end of 2018. Is this stalling just a prolonging of the inevitable or will the German government beat the odds stacked against them? Will we see the unlikely win for their ethically based anti-nuclear movement?  

Charles Hammond

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