Disentangling Legal Stability from Legitimate Expectations: Towards Greater Deference to Regulatory Changes in Renewable Energy Transition Policies in Investment Arbitration

The obligation of stability generally requires host States to maintain a relatively stable regulatory framework to mitigate political risks facing foreign investments. It has played a significant role in international investment tribunals’ review of host States’ renewable energy transition policies. This paper critically reviews tribunals’ interpretation of the obligation with a particular focus on the Spanish cases involving renewable energy incentive schemes. It canvasses the two ‘dimensions’ adopted by investment tribunals in the interpretation of stability, namely the protection of legitimate expectations and States’ right to regulate for public purposes. Examining the contents of the two dimensions separately, this paper argues that legal stability should be disentangled from the notion of legitimate expectations and be assessed through the reasonableness of regulatory changes per se. It further argues that an intrusive interpretation of legal stability lacks legal and institutional bases; instead, more deferential standards should be adopted in the review of renewable energy transition policies.