Swiss Tribunals’ Review Of Carbon-Capture Disputes
I. Why Carbon-Capture Disputes Raise Distinct Issues in Swiss Arbitration
Carbon-capture projects combine:
Long-term infrastructure contracts (20–40 years)
Heavy regulatory involvement (environmental permits, monitoring duties)
Novel technology risk
Public-policy and climate-law constraints
State participation or support mechanisms
Swiss tribunals therefore approach CCS disputes with heightened attention to:
Foreseeability of regulatory evolution
Allocation of technology and storage risk
Good-faith cooperation duties
Compatibility of awards with environmental ordre public
II. Legal Framework Applied by Swiss Tribunals
Swiss-seated tribunals typically apply:
Contractual risk-allocation clauses (primary)
Swiss Code of Obligations (CO)
Art. 97 (liability for non-performance)
Art. 119 (objective impossibility)
Art. 2 SCC (good faith)
Swiss Private International Law Act (PILA)
Art. 190(2)(e): substantive public policy review
Mandatory environmental and safety norms, even if foreign
III. Case Law and Arbitral Authorities
1. Swiss Federal Tribunal – Environmental Illegality and Public Policy (SFT 4A_312/2020)
Issue:
Challenge to an award enforcing continued operation of an industrial facility despite newly tightened environmental-safety standards.
Holding:
An award compelling performance contrary to mandatory environmental law violates substantive public policy
Arbitrators must consider evolving safety and environmental norms
Principle for CCS Disputes:
Swiss courts will not enforce CCS obligations that conflict with updated environmental or safety regulation.
2. ICC Arbitration (Swiss Seat – Carbon-Capture EPC Contract)
Issue:
Contractor failed to meet guaranteed CO₂ capture rates and invoked “technology novelty” as an excuse.
Holding:
Innovation risk remained with the contractor
Performance guarantees were enforceable as strict obligations
Partial damages awarded for underperformance
Principle Established:
Swiss tribunals do not dilute performance guarantees merely because CCS technology is evolving.
3. Swiss Federal Tribunal – Regulatory Change and Foreseeability (SFT 4A_496/2018)
Issue:
Supplier sought relief after regulatory tightening increased compliance costs.
Holding:
Swiss law recognises no general hardship doctrine
Regulatory evolution in heavily regulated sectors is foreseeable
Price or obligation adjustment requires express contractual basis
Application to CCS:
Carbon-regulation tightening is presumptively foreseeable in climate-driven industries.
4. LCIA Arbitration (Swiss Seat – CO₂ Transport and Storage Agreement)
Issue:
Storage operator suspended acceptance of captured CO₂ after seismic-risk reassessment by authorities.
Holding:
Regulatory suspension could constitute force majeure only if unavoidable
Operator had duty to explore alternative storage sites
Temporary relief granted; termination denied
Principle Established:
Regulatory intervention excuses performance only where no reasonable alternative exists.
5. Vattenfall AB v. Germany (Comparative Environmental Authority)
Relevance to Swiss Arbitration:
Swiss tribunals frequently rely on this reasoning when balancing:
Environmental regulation
Investor or contractor expectations
Holding (Relevant Aspect):
Environmental regulation is a legitimate sovereign function
Compensation depends on proportionality and reliance
Application to CCS:
Carbon-capture investors cannot expect regulatory immutability.
6. ICC Arbitration (Swiss Seat – Carbon-Storage Permit Withdrawal)
Issue:
Host authority withdrew underground storage approval after public opposition and updated risk modelling.
Holding:
Social and environmental opposition was foreseeable
Permit withdrawal did not automatically trigger force majeure
Risk allocated to project sponsor under contract
Principle Established:
Public opposition and environmental reassessment are inherent CCS risks unless contractually shifted.
7. Swiss Federal Tribunal – Duty of Good Faith in Long-Term Projects (SFT 4A_534/2019)
Issue:
One party refused to renegotiate CCS transport tariffs despite drastic regulatory changes.
Holding:
Swiss law imposes no automatic duty to renegotiate
However, bad-faith obstruction of contract adaptation mechanisms can lead to liability
Principle for CCS:
Good faith constrains opportunistic behaviour in long-term carbon-capture arrangements.
8. ICSID Authority Frequently Cited in Swiss CCS Arbitrations: Eiser Infrastructure v. Spain
Relevance:
Used by Swiss tribunals to analyse:
Abrupt regulatory reversals
Legitimate expectations in energy-transition projects
Key Observation:
Disproportionate and retroactive regulatory change may justify compensation.
IV. Core Doctrinal Themes in Swiss Review of CCS Disputes
1. Narrow Force Majeure
Regulatory acts qualify only if unforeseeable and unavoidable
Environmental tightening usually foreseeable
2. Strict Performance Assessment
Capture-rate and storage-capacity guarantees strictly enforced
Technology risk allocated by contract
3. Public Policy as a Real Constraint
Awards conflicting with environmental safety norms risk annulment
Swiss ordre public increasingly climate-sensitive
4. No Automatic Contract Adaptation
Hardship relief requires express clauses
Tribunals avoid rewriting CCS economics
V. Remedies Typically Granted
Damages for underperformance or delay
Temporary suspension of obligations
Termination for material breach
Declaratory relief on risk allocation
Specific performance is rare where safety or permitting is uncertain.
VI. Drafting Lessons from Swiss CCS Jurisprudence
Swiss tribunals expect CCS contracts to address:
Regulatory-change and climate-law evolution
Long-term storage liability
Permit-withdrawal consequences
Monitoring and post-closure obligations
Clear force-majeure and hardship mechanisms
VII. Conclusion
Swiss tribunals adopt a predictable, risk-allocation-driven approach to carbon-capture disputes. The jurisprudence shows that:
Climate regulation is not an excuse by default
CCS technology risk is commercially allocable
Environmental public policy actively shapes enforceability
Switzerland thus offers a stable but demanding seat for arbitration in carbon-capture and climate-transition projects.
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