As the Global Stocktake recognises, the energy transition from high to very low carbon is critical to achieving the Paris Agreement goals. Fossil fuels, such as coal, oil and gas, are by far the largest contributor to global climate change, accounting for over 75 percent of global greenhouse gas emissions and nearly 90 percent of all carbon dioxide emissions. Moreover, across much of the energy sector, the technology to replace fossil fuels largely exists and is frequently competitive in terms of cost. With technology now available, many of the remaining challenges for the energy transition are political. Changes to incentives for investment decisions and other regulatory changes are needed. Investment treaties are closely bound up with the energy transition. Applying typically to practically all stocks and flows of investment between treaty parties, they apply to massive amounts of energy investment including new high-carbon investment. The first session of the Conference will provide an overview of the latest developments in the energy transition including at COP28. The transition to clean energy is moving faster than many realise, but more than 90% of the increase comes from advanced economies and China. The biggest shortfalls in clean energy investment are in emerging and developing economies where investment treaties are most applicable. Aligning incentives for investment and finance flows in all jurisdictions is critically important.

OECD work on investment treaties and climate change is considering whether and how investment treaties can facilitate and increase the climate-friendly investment that is essential for all countries to meet Paris Agreement commitments and goals. While most government investment policies routinely target particular types of investment and increasingly climate-friendly investment, work on investment facilitation agreements has not been targeted based on climate considerations. For example, the WTO Investment Facilitation for Development text does not mention climate change or the Paris Agreement. The EU-Angola Sustainable Investment Facilitation Agreement (SIFA) has a general reference to Paris compliance but otherwise applies generally to all covered foreign investment. There are important questions about how sustainable investment facilitation provisions in investment treaties can complement other treaty provisions in view of Paris alignment, whether they can go further by including or strengthening climate considerations, and importantly how they can be implemented in domestic law and practice. This session will address these issues, building on recent discussions at the OECD on investment facilitation developments at the WTO and in investment treaties.

The need to move beyond “climate agnosticism” between high and low carbon activities is increasingly recognised, most recently in the Global Stocktake call for the urgent expansion of renewable energy and transitioning away from fossil fuels. Based on a Secretariat background note to be circulated in advance of the Conference, this session will turn to an examination of concrete approaches to varying investment protection benefits for different investment assets. In addition to the direct climate benefits, climate-aligned investment choices reduce the need for subsequent government climate regulatory action. Methods for identifying sectors and for achieving gradations of treatment for the identified sectors will be examined. Techniques to apply progressive levels of benefits will also be evaluated including ones derived from existing treaties and proposals.

As a complement to investment treaty incentives for investment choices, investment treaties also affect government regulatory incentives with regard to covered investment. Climate action requires substantial regulatory change including to encourage green investment and reduce the harm from high-carbon activities; it frequently faces substantial political economy hurdles. Action to support green investment or to reduce climate impacts of other investment may also affect the profitability of high-carbon investments. Investment treaties should ideally encourage and at least not dissuade vital government climate action. Reform proposals initially set out by academic contributors to the OECD public consultation on investment treaties and climate change have been further developed. This session allow a focused discussion on provisions to address government climate policy measures under investment treaties.

A concluding session will gather key ideas from the discussion and consider the way forward for the recently extended work program under Track 1.