Cancelling oil and gas licensing rounds is not riskless: possible treaty violations and their mitigation

To achieve the global climate goal of limiting warming to 1.5°C, cancelling oil and gas licensing rounds has become increasingly necessary. However, such actions can incur significant losses for foreign investors participating in these rounds and thus raise concerns about potential violations of investment treaties that protect these investors. While investments traditionally receive treaty protection only after the conclusion of binding contracts, this article warns that cancelling licensing rounds before contract signing may still trigger investment claims. Investment tribunals have established that pre-investment expenditures can enjoy treaty protection if relevant treaties extend protections to the admission of investments. Such violations could result in substantial compensation requirements and hinder states’ climate actions. This article examines potential legal obligations involved in licensing round cancellations, including fair and equitable treatment, non-discriminatory treatment, and standards of compensation. It further proposes risk-mitigation strategies, including treaty revision and ensuring consistent and transparent implementation of cancellation measures.