Environmental Force Majeure: Relief from Fossil Energy Contracts in the Decarbonisation Era

Abstract

This article examines whether the collapse of fossil energy markets and the introduction of decarbonisation regulation can trigger force majeure relief from fossil energy contracts. A critique of force majeure clauses from an environmental perspective will help to clarify how energy contracts lock buyers and suppliers into a carbon-intensive path. By not relieving buyers from their purchase obligations, even after respective market meltdowns and the disappearance of demand, force majeure, as defined in most energy contracts, can incentivise irrational energy use and waste, and is thus incompatible with a low-carbon transition. Climate regulation preventing a party from using fossil fuels can excuse performance of the obligation to purchase fossil energy, but the affected party can be required to challenge these decarbonisation measures and thus oppose the low-carbon transition. To avoid these perverse effects and align energy contracts to the reality of decarbonisation, economic hardship and environmental regulation should be explicitly included in force majeure clauses.