The Converging Drivers of Future Energy Disputes: A Q&A with Kenneth Grant

How global competition for critical minerals, US energy and trade policy, and an international climate change ruling are reshaping the risk landscape.

The landscape for energy related investment disputes has undergone significant changes owing to a number of geopolitical, policy, and societal developments that are altering the incentives and ways for states to regulate, and the expectations of investors operating in transition exposed sectors. In a conversation with Principal Paul Hibbard, Senior Advisor Kenneth Grant examines three forces impacting the energy market and where the next generation of energy-related disputes will emerge.

The accelerating energy transition is reshaping the regulatory environment in ways that increasingly intersect with geopolitical competition. How is this likely to influence the types of claims we will see?

Kenneth Grant: Senior Advisor, Analysis Group

Allow me to use my litigation and consulting experience in sub-Saharan Africa to illustrate.

The rapid expansion of critical minerals demand, driven in part by global decarbonization commitments, has intensified regulatory change across the region, with states revising mining codes, tightening environmental and social requirements, and/or asserting greater control over strategic resources. These shifts, while aligned with legitimate development objectives, have generated disputes in which investors claim that such adjustments negatively impact investors’ expected financial returns.  

In my experience providing expert testimony in such disputes, they increasingly hinge on how tribunals balance evolving policy imperatives with the stability guarantees embedded in investment agreements, particularly when host states recalibrate fiscal terms or their mineral processing requirements to capture more value from critical minerals supply chains. These dynamics are further complicated by the geopolitical competition among the US, Europe, and China, with each advancing distinct models for securing access to Africa’s critical minerals reserves.

How are various states approaching these access plans?

The US has framed its critical-minerals strategy primarily through the lens of national security and supply chain resilience, seeking to reduce dependence on China by diversifying mineral sourcing with geopolitical allies. In practice, that has meant initiatives to support US and allied investment, but often with relatively limited project-level risk appetite and slower deployment. The EU, by contrast, is pushing a regulatory driven model that effectively exports European standards along the value chain.

China’s approach offers integrated packages – finance, infrastructure, offtake, and sometimes processing – often with fewer upfront regulatory conditions, which can mean a shorter path to mining and processing. That has given China a dominant position in several African critical minerals value chains, even as concerns grow about financial terms and concentration risk.

A seemingly major shift in energy policy has taken place during the second Trump administration. What consequences have you seen?

From a policy perspective, the administration has moved to unwind many climate and clean energy policies from the previous administration. For investors, abrupt shifts in the policy trajectory can create regulatory uncertainty while increasing political risk, a significant challenge for capital-intensive clean energy assets. 

Even though demand for renewables remains strong, investors face ambiguity about which incentives will persist, which will be weakened, and how federal state dynamics will evolve. When rules, incentives, and trade measures change rapidly, investors cannot reliably model future cash flows or compliance costs. This increases the risk premium required for US energy projects. Divergent federal and state approaches – federal support for fossil fuels versus state-level clean energy mandates – create a patchwork regulatory environment. As a result, investors must navigate conflicting requirements and increasing compliance complexity. And policy reversals can undermine legitimate expectations, a key concept in investment protection. Projects premised on prior regulatory frameworks may become uneconomic, raising the risk of disputes or early asset write-downs.

Paul Hibbard: Principal, Analysis Group

The International Court of Justice recently issued an advisory opinion on the obligations of United Nations member states to protect the environment from GHGs [greenhouse gases], and the legal consequences of environmentally harmful action – or inaction. How might these consequences be relevant in energy-related disputes?

While the court found that states have an obligation to take actions that meet the 1.5 degree Celsius benchmark set forth in the Paris Agreement, the ruling neither defined the specific actions required on the part of states nor the specific legal consequences for failure to meet the obligation. In this regard, it clarifies legal questions and guides international law. While there is much to unpack in the ruling, I’ll highlight three aspects.

First, it captured the fundamental economic and policy challenge of climate change in recognizing that “uncoordinated individual efforts by states may not lead to a meaningful result.” This reasoning speaks directly to the fact that the cost of any measure reducing GHGs is borne by the individual state undertaking the action while the resulting benefits to the environment are shared globally. This can disincentivize a given state from undertaking actions to mitigate its anthropogenic GHGs, since it incurs the entirety of the costs but receives only a fraction of the benefits. The court addresses this challenge head on: Cooperation among states is not an option, but a duty under existing international law.

Second, the advisory opinion alters the policy space as regards a state’s ability to enact climate-related measures. The right of a state to regulate versus investors’ reasonable expectations is one of the fundamental tensions in investor-state relations. The decision places greater weight on states’ obligations to regulate GHGs, which may come at the expense of investments in high-emitting sectors. I would add that high-emitting states now carry greater political and regulatory risk because the decision provides an avenue for low-emitting states to spur international action. The risk to any given investor may be less direct, but the decision notes that a state’s failure to prevent foreseeable harm can constitute a wrongful act.

Finally, I applaud the court in its use of experts. The court relied extensively on the assessment reports of the Intergovernmental Panel on Climate Change (IPCC), which cover the scientific basis, impacts of future risks, and options for adaptation and mitigation related to GHGs. To enhance its understanding of the key scientific findings presented by the IPCC, the court met directly with a panel of IPCC experts. I think this kind of dialogue between experts and the legal scholars comprising a tribunal can serve as a model for clarifying the many technical issues – be they economic, financial, or scientific – that often arise in international disputes. ■