THE EFFECTS OF CLIMATE CHANGE ON SOVEREIGN DEBT AND DEFAULT UNDER A BILATERAL INVESTMENT TREATY

Inigo Gabriel C. Pieraz (JD'14)

ABSTRACT

In December 2012, Typhoon Bopha unexpectedly hit the island of Mindanao, a "region of the Philippines usually spared from natural disasters. While the island was familiar with disasters arising from insurgencies that have beset them for decades, no one could have been prepared for the devastation that Bopha brought. The consequences were devastating: roughly six million afflicted, almost two thousand dead, and damage estimated at more than P7B. Nevertheless, while its sheer magnitude came 2s a surprise to many, Bopha merely represented a growing phenomenon that science 'lad long forewarned: climate change. Meanwhile, as the Philippines slowly came to terms with the devastating effects Bopha, a country 6,000 miles away was facing a disaster of a different sort. Greece,which had long suffered from the financial mismanagement of its sovereign debt, was in the middle of an overwhelming economic crisis. At the center of this economic crisis was the likely possibility that Greece would default on dozens of Bilateral Investment Treaties (“BIT”) it had previously entered into with various foreign investors from all over the world. Today, while austerity measures are strictly in place, the possibility that reeve will default on these BITs still looms large. Consequently, foreign investors land to lose billions of dollars. Unfortunately, the ill-fated cases of Greece and the Philippines are no longer uncommon. Today, the issues of climate change, sovereign debt and default under BITs re some of the most pressing that the international community is facing. And while the legal issues that may eventually arise from them may seem isolated at first, the far-reaching effects of climate' change, sovereign debt, and default make it inevitable that these distinct legal issues Will one day interact. What would happen if sovereign default under a BIT was due to the adverse effects of climate change?

Over the decades, when a State was forced to default under a BIT, the most common defense raised was the doctrine of necessity. It has been invoked from as far back as 1911 by Turkey, to as recently as 2006 by Argentina. In invoking the doctrine of necessity, the State would argue that default was the only means necessary to safeguard an essential State interest from a grave and imminent peril. A successful invocation of the doctrine of necessity would mean that a State is justified in defaulting on its sovereign debt. Thus, no violation of international law occurs. It is in light of this context that the thesis seeks to explore the legal implications that may arise in case a State defaults under a BIT due to the adverse effects of climate change. The thesis proposes that in case a State defaults under a BIT due to the adverse -effects of climate change, no violation of international law occurs. There is no violation because the adverse effects of climate change create a state of necessity that justifies any default on the part of the State. Accordingly, the default of the State under the BIT due to the adverse effects of climate change does not amount to a violation of international law. The challenge of the thesis, therefore, is to establish that the adverse effects of climate change meet all the requisites of the doctrine of necessity, as they have been 'aid down under international law. Meeting all the requisites of necessity would establish that, indeed, the default of the State under the BIT due to the adverse effects of climate change would be justified under international law. While the thesis seeks to contribute to the existing literature of climate change, sovereign debt, default and the doctrine of necessity, it is likewise a novel attempt at examining the legal consequences that may arise once these distinct legal issues interact. Clearly, there is a need today to re-examine the doctrine of necessity in light of our growing understanding of climate change and sovereign debt and default under BITs.