The United States Environmental Protection Agency’s (EPA) decarbonization regulations, enacted in July 2024, aim to significantly cut emissions from the power sector, aligning with broader climate goals. These regulations, which mandate technologies like carbon capture and sequestration (CCS) for coal-fired power plants, represent a critical step towards a cleaner energy future. However, their implications for foreign investment, particularly concerning expropriation claims under international investment treaties, are a subject of intense debate.
The core tension lies in balancing a state's inherent right to regulate in pursuit of public welfare, such as environmental protection, with the protection of foreign investments from actions that could amount to expropriation. Dr. Saheed Olumide Abudu, an International Energy and Investment Law expert and former researcher at Tulane Law School, known for his work on decarbonization and international energy investment law discussed this complex interplay. The EPA's regulations, designed to reduce 617 metric tons of carbon dioxide emissions through 2042 and yield an estimated $85 billion in public health and climate benefits, are clearly rooted in a legitimate public purpose.
A central question is whether these regulations could be deemed an "indirect expropriation," a concept where government actions, without directly seizing property, effectively deprive an investor of the use or economic benefit of their investment. International investment law typically requires substantial deprivation" for an expropriation claim to succeed in international investment disputes. As Dr. Abudu notes, the expropriation standard—especially with the 'substantial deprivation' high threshold—offers limited protection to affected investors.
The EPA regulations offer various compliance subcategories based on plant operating timelines and load levels, providing some flexibility for investors. For instance, plants operating beyond 2040 must install CCS with a 90% capture rate, while those retiring by 2040 have less stringent requirements. Furthermore, the EPA anticipates that the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act will significantly lower the cost of CCS, with tax credits (45Q) reducing the economic burden on operators. This 70% tax credit is a crucial element, potentially mitigating claims of substantial deprivation.
However, the effectiveness of these mitigating factors in preventing expropriation claims hinges on their implementation. Dr. Abudu points out a hypothetical scenario where a withdrawal of the promised 70% tax credit could lead to substantial deprivation, as investors would struggle to offset the high costs of CCS technology. Such a scenario could lead to claims that the government frustrated legitimate expectations, a key factor tribunals consider in expropriation analyses.
The current administration, under President Trump since January 20, 2025, has publicly expressed skepticism regarding aggressive climate policies. While the EPA regulations officially became operative in July 2024, a shift in administrative priorities could impact their enforcement or the availability of promised incentives. On June 11, 2025, announced it plans to repeal the regulations, citing concerns about their burden on the energy industry.The Trump administration's EPA has proposed a comprehensive repeal of these Biden-Harris era power plant regulations, including the carbon pollution standards and amendments to the Mercury and Air Toxics Standards (MATS).
The stated rationale for these rollbacks is to save compliance costs, estimated between $9.6 billion and $19 billion, and to "unleash American energy dominance" by removing perceived regulatory burdens. The administration argues that power plants "do not contribute significantly to dangerous pollution". If the Trump administration were to repeal the regulations or significantly reduce or eliminate the tax credits associated with CCS, the incentives and compliance pathways designed to assist investors in transitioning would be eliminated. This could lead to a substantial and immediate economic impact on investments made in anticipation of the regulations, potentially bolstering arguments for indirect expropriation. The proposed repeal is expected to face "substantial legal challenges" if finalized, creating "significant policy uncertainty" across the U.S. electricity market. Dr. Abudu, explains that the profound regulatory instability, or "regulatory whiplash," stemming from such drastic reversal, can severely erode investor confidence and legitimate expectations. Such volatility complicates long-term capital investments necessary for decarbonization, potentially slowing the overall pace of energy transition and economic growth.
He concludes that the balancing of these competing interests in this decarbonization era requires real collaborative efforts, effective communication, and transparency among host governments, industry leaders, and other stakeholders. The success of the EPA regulations in navigating potential investment disputes will ultimately depend on consistent policy support, transparent implementation, and the government's willingness to honor its commitments, especially the financial incentives crucial for industry transition. Without these, the delicate balance between climate imperatives and investor protections could be severely tested.
