Francesco Seatzu and Milena Mottola (Università degli Studi di Cagliari)

On 4 June 2026, the Council of Ministers of Italy authorized the construction of a luxury resort complex at Cala Finanza, Loiri Porto San Paolo, opposite the Marine Protected Area of Tavolara-Punta Coda Cavallo, along the eastern coast of Sardinia. The investment authorization was issued under the framework of the Zona Economica Speciale Unica per il Mezzogiorno (ZES Unica), the special economic zone regime covering Southern Italian regions, established by Legislative Decree No. 124/2023. The project is sponsored by JHSF Participações S.A. (Brazil), operating through the company Tavolara Bay S.r.l., whose shareholders are based in Luxembourg, the British Virgin Islands, the Bahamas, Delaware, and Malta.

The authorization was granted despite negative assessments of the project’s compatibility with environmental and landscape preservation by the Sardinian Regional Government, the Italian Ministry of Culture, and the competent heritage-protection authorities. Under the ZES Unica procedure, environmental authorities are entitled only to be heard, but their consent is not required. Instead, the final decision rests with the Presidency of the Council of Ministers, an authority whose institutional mandate is to facilitate investment rather than environmental protection and which may, by design, override these authorities’ views (art. 15(5)-(6) of Legislative Decree No. 124/2023).

The Tavolara Bay case illustrates a well-documented concern surrounding special economic zones and comparable investment promotion regimes, namely that they may attract investment not only through fiscal and economic incentives, but also by weakening sustainability standards, including environmental protection (e.g. Cotula and Mouan). The aforementioned ZES Unica procedure exemplifies this concern. Indeed, it does not formally relax environmental standards but does so by reducing the role of environmental authorities from one of substantial influence over the authorization process to one of mere consultation. As the following analysis shows, this procedural arrangement raises important questions under various international environmental law instruments and principles, with implications extending beyond the context of special economic zones.

The same arrangement can be further analyzed from the perspective of international investment law. This is because the corporate structure of Tavolara Bay S.r.l., comprising a plurality of investors of predominantly extra-EU nationality, creates the potential for foreign investment protection claims under international investment agreements. The case therefore lies at the intersection of environmental regulation and international investment law, an area that has long occupied investment tribunals and scholars without yielding a settled approach. Assuming familiarity with this debate, we ask what happens when an investment authorization, granted through a procedure that is arguably incompatible with a State’s international environmental obligations, is subsequently withdrawn or annulled in order to restore compliance with those obligations.

This post first examines the compatibility of the ZES authorization procedure with international environmental law before considering its implications for international investment law.

1. The Barcelona Convention and SPAMI obligations: Obligations of result or conduct?

Tavolara-Punta Coda Cavallo was declared a Specially Protected Area of Mediterranean Importance (SPAMI) in 2007 through the Protocol on Specially Protected Areas and Biological Diversity in the Mediterranean of 1995 (SPA/BD Protocol), an annex to the Convention for the Protection of the Mediterranean Sea Against Pollution (Barcelona Convention). Under Article 6 of the SPA/BD Protocol, each Party is under an obligation to regulate and prohibit all activities which are likely to cause any adverse impact on the species, habitats, and ecological processes for which the SPAMI was designated. The obligations under Article 6 apply irrespective of whether the activity takes place within or around the designated area, provided that harmful impacts on the SPAMI are reasonably foreseeable.

The Tavolara Bay case raises concerns under Article 6 for three reasons. First, the project is located partially within an area restricted for construction under the Sardinian Regional Landscape Plan (Piano Paesaggistico Regionale, PPR, articles 19-20) and close to the no-build area of the marine protected area. The connection between the location of this development project and the existence of adverse impacts has been identified by all competent national environmental authorities. Second, the project was not assessed through an environmental impact assessment capable of reaching a determinative conclusion. During the inter-agency meeting (“conferenza di servizi”) held between October 2025 and January 2026, negative opinions expressed by the competent environmental authorities were not treated as binding or preclusive, but merely as one factor to be weighed against competing interests, including investment facilitation, in a balancing exercise conducted by the Presidency of the Council of Ministers. Third, the authorization was granted by the Presidency of the Council of Ministers, which, within the ZES Unica framework, exercises investment-facilitation functions but is neither the authority competent for environmental protection nor the authority responsible for the management of SPAMIs under the Barcelona Convention (see Legislative Decree No. 124/2023, art. 10(3)).

The legal issue that this scenario raises is whether Article 6 establishes an obligation of result, requiring States to ensure that no harmful activity is authorized, or merely an obligation of conduct, requiring them to maintain regulatory mechanisms capable of preventing such activities. The Compliance Committee of the Barcelona Convention has so far avoided taking a definitive position on this question, preferring to assess compliance on a case-by-case basis. The Tavolara Bay case suggests that this approach may leave a key question unresolved. Be as it may, in this case, even if Article 6 were understood as imposing only an obligation of conduct, Italy’s compliance would still depend on whether the ZES authorization procedure amounts to a regulatory mechanism capable of preventing environmentally harmful activities. That appears difficult to maintain where every competent environmental authority is displaced from any binding role in the final decision.

2. The Aarhus Convention: effective institutional participation in environmental decision-making

The Tavolara Bay authorization also raises concerns under the Aarhus Convention on Access to Information, Public Participation in Decision-Making and Access to Justice in Environmental Matters. Articles 6 and 7 govern public participation in decisions, respectively, on specific activities and on environmental plans and programmes. Over the past two decades, the case-law of the Aarhus Convention Compliance Committee has distinguished between participation procedures that are merely formal and procedures genuinely capable of influencing the outcome of decision-making. For the Committee, procedures for the notification, consultation and hearing of the public, that create the appearance of participation, without allowing public views or environmental assessments to influence the final decision, do not satisfy the Convention (see ACCC/C/2010/54 (European Union) and  ACCC/C/2014/121 (European Union)).

As mentioned above, the ZES Unica procedure formally provides for the inter-agency meeting (conferenza di servizi) involving all competent environmental authorities. Yet the Presidency of the Council of Ministers ultimately retains the power to override any negative environmental opinion on the basis of a balancing exercise in which environmental protection becomes only one consideration among competing economic interests. If negative environmental opinions are incapable of preventing authorization, participation risks becoming non-determinative in the sense identified by the Aarhus Compliance Committee.

A related issue arises under Article 9(2) of the Aarhus Convention, which requires access-to-justice procedures capable of reviewing the substantive legality of environmental decisions, not merely their procedural regularity. The proceedings currently pending before domestic administrative courts may therefore raise further questions under the Convention, given that judicial review of discretionary administrative decisions in Italy is generally confined to procedural legality.

3. No-Regression: When environmental protection is weakened without formally changing the law

The no-regression principle precludes States from lowering existing standards of environmental protection unless the reasons for doing so satisfy the requirements of proportionality. It is reflected in Principle 11 of the Rio Declaration on Environment and Development, further developed in the 2018 Framework Principles on Human Rights and the Environment (principle no. 11) and increasingly recognised in the jurisprudence of the Court of Justice of the European Union and other international bodies.

The ZES mechanism does not formally amend Sardinia’s environmental legislation. The Regional Landscape Plan, the Marine Protected Area regime, and the obligations deriving from the SPAMI designation all remain formally in force. Nor does the ZES regime expressly derogate from Italy’s obligations under the SPA/BD Protocol. At the same time, these protections risk becoming practically ineffective, because the balance between investment promotion and environmental protection is struck by an authority whose institutional mandate does not include environmental protection. The result is not a formal lowering of environmental standards but a procedural mechanism capable of producing substantially the same effect.

The Tavolara Bay case illustrates why the question whether the de-facto equivalence between formal derogation and procedural circumvention is sufficient to trigger the no-regression principle deserves greater attention. If procedural arrangements can neutralize environmental safeguards while leaving the underlying legal framework formally unchanged, the no-regression principle may prove incapable of addressing the regulatory techniques increasingly employed by contemporary investment-facilitation regimes.

The Italian Constitutional Court may eventually be asked to assess the compatibility of the ZES Unica procedure with the constitutionally protected autonomy of the Sardinian Region, particularly in matters of landscape planning. Should such a referral occur, it will also be of interest to consider how domestic constitutional reasoning may interact with the interpretation of the no-regression principle in international law, particularly in light of the growing interconnection between constitutional environmental law and international environmental obligations implied by the ICJ’s 2025 Advisory Opinion on the issue of climate change obligations.

4. Can an environmentally flawed authorization generate treaty protection?

The corporate structure of Tavolara Bay S.r.l., whose shareholders are based in Brazil, Luxembourg, the British Virgin Islands, the Bahamas, Delaware, and Malta, raises the question of investment treaty protection. As it happens, none of these jurisdictions currently offers investors a usable path to investor-State arbitration against Italy. The Bilateral Investment Treaty between Italy and Brazil, signed in 1995, was never ratified by Brazil and has not entered into force. Luxembourg and Malta, in any event, are EU Member States, and intra-EU investment arbitration has been foreclosed by the CJEU’s Achmea and Komstroy case-law. No BIT appears to be in force between Italy and the British Virgin Islands, the Bahamas, or the United States. The following analysis therefore proceeds on a hypothetical basis, asking what would follow if an investment treaty offering investor-State arbitration were in force between Italy and the jurisdiction of one of Tavolara Bay’s investors, as is increasingly common in this kind of multi-jurisdictional corporate structure.

‘Regulatory chill’ is the expression used to describe a State’s reluctance to adopt or enforce environmental measures for fear that doing so will trigger a treaty claim from an investor who had lawfully obtained rights before the measure was adopted. This is the situation at issue, to take two well-known examples, in Metalclad Corporation v. Mexico (ICSID Case No. ARB(AF)/97/1), where a valid federal authorization for a hazardous waste facility was frustrated by a municipality acting outside its own authority, and in Tecmed. v. Mexico (ICSID Case No. ARB (AF)/00/2), where a previously valid permit was not renewed on environmental grounds that conflicted with the assurances that had induced the investment.

Here, the sequence of events is different. The State’s own environmental obligations were arguably not respected at the outset, because the authorization was granted by overriding the negative opinions of the competent environmental authorities. This defective authorization would be capable of generating, in favour of a covered investor, legitimate expectations protected under international investment law. Any subsequent measure that unwinds the authorization on environmental grounds, whether a judicial annulment or, as occurred here, the government’s own subsequent revocation, would risk being treated as a frustration of those legitimate expectations, capable of founding a treaty claim for indirect expropriation or denial of fair and equitable treatment. For the moment, the government’s revocation has been challenged before domestic courts.

This scenario, where the mechanism designed to facilitate investment, once exercised in violation of environmental requirements, generates the treaty right that is later triggered when that same mechanism is corrected, is not unprecedented in the context of special economic zones or comparable investment-promotion regimes. Arbitral precedents, however, have mostly concerned the withdrawal of investment-facilitation benefits, such as notably tax benefits, unrelated to matters of environmental regulation (e.g. Ampal v. Egypt, ICSID Case No. ARB/12/11). One case that did concern environmental protection measures is Iurii Bogdanov and others v. Moldova (SCC Case No. 091/2012), where the tribunal held that the legitimate expectations created by a free economic zone’s stabilization clause extended only to the specific fiscal privileges it accorded, and did not cover subsequently imposed environmental charges. However, no case, to the best of our knowledge, involves an investment authorization in a special economic zone that was subsequently revoked for environmental reasons.

Discontent with investment arbitration has so far produced either withdrawal from investment treaties (for example, from the Energy Charter Treaty) or procedural reform (most notably through UNCITRAL Working Group III), but no substantive response to this type of problem beyond sparing amendments to treaty texts or innovative language in newly negotiated treaties. Much would therefore depend on how tribunals engage with the relationship between environmental protection and investment protection under the applicable treaty.

A final, more speculative question deserves at least a mention. Could the illegality of the authorization under international environmental law, rather than domestic law, itself bar treaty protection, notwithstanding the investor’s likely reliance on the estoppel defense (i.e., the doctrine preventing a party from asserting a claim inconsistent with a position it previously took, where another party has reasonably relied on that earlier position)? Corruption cases, where tribunals have invoked international public policy rather than domestic law alone to deny protection, are instructive in this respect, though they offer an imperfect analogy, since they involve misconduct attributable to the investor, not to the State alone. Still, perhaps, developments in international environmental law, including the ICJ’s 2025 Advisory Opinion on climate change obligations, by treating domestic and international environmental standards as increasingly interconnected, would lend support to reading the legality requirement beyond domestic law.

5. Concluding observations

This post has examined a domestic mechanism that deprives environmental authorities of any determinative role in the authorization of investments located in a special economic zone, while leaving the domestic rules implementing the relevant international obligations formally intact.

The governmental revocation of the authorization, challenged before the domestic courts shortly before the final submission of this blog and therefore still liable to be annulled, may resolve the individual dispute arising from the Tavolara Bay case. It does not resolve the question of whether procedural arrangements of this kind are compatible with international environmental obligations. What is more,such corrective action may expose the State to a different form of international responsibility through claims brought under investment protection treaties by investors whose authorization the State subsequently withdraws or annuls.

A single institutional design can thus generate two distinct problems, one under international environmental law, the other under international investment law. Procedural design of this kind deserves closer attention as a source of international responsibility.