Why Coordinated Withdrawal From the Energy Charter Treaty Remains Essential for Effective Climate Action

Last weekend marked a pivotal moment for European climate governance: on June 28, the European Union and Euratom officially withdrew from the Energy Charter Treaty (ECT). While this withdrawal represents a major milestone, it also sheds light on the complexities and persistent risks created by the ECT's fragmented legal landscape. 

Now more than ever, states still bound to this outdated treaty should recognize that coordinated withdrawal remains the most pragmatic and legally sound path forward. 

A Fragmented and Risky Landscape

The ECT has long been controversial. Originally intended to promote energy investment, it has instead become notorious for facilitating investor–state dispute settlement (ISDS) claims against states pursuing ambitious climate and energy policies. Over recent years, countries like Germany, France, and the United Kingdom, alongside the EU itself, decided to leave the ECT, recognizing that reform was inadequate to align the treaty with climate imperatives. 

Yet despite these clear signals, some states have so far remained party to the treaty, attempting to rely on the "modernization" package finalized in December 2024. However, IISD's analysis shows that the so-called "modernized" treaty leaves open critical loopholes that could allow fossil fuel investors to challenge climate action and does not provide sufficient space for governments to pursue fossil fuel phase-out policies. 

Further complicating matters, the ratification of this modernization is already proving complex and uncertain. Some states have provisionally applied the reform, while others—including Belgium, Switzerland, and Japan—have chosen not to. Further, no state seems to have formally ratified the reform at the time of writing. This leads to a patchwork of coverage where different treaty standards apply simultaneously both within and outside the EU. Such a scenario makes legal outcomes unpredictable and could undermine ambitious climate and energy transition policies across borders, further underlining that unified withdrawal from the treaty remains the only viable option. 

EU Law – Adding More Complexity 

For EU member states especially, these complexities intersect with critical issues of compliance with EU law. In its landmark Komstroy judgment (2021), the European Court of Justice declared that ISDS between EU investors and EU member states under the ECT is incompatible with EU law. However, despite this unequivocal ruling, investment arbitration tribunals continue to entertain ISDS claims, directly contradicting EU law and creating mounting legal conflicts. It remains to be seen whether a 2024 declaration and more recent agreement among the member states will change this tendency. 

In addition, payment by EU member states of damages awarded in ISDS awards has been deemed unlawful under EU state aid rules, further highlighting the legal risks for states that remain in the ECT. Simply put, continued adherence to the ECT in any form places EU member states in difficult legal positions. 

A Coordinated Withdrawal: The viable path forward 

In response to these mounting risks and complexities, states must pursue a clear and coordinated approach. Withdrawal from the treaty remains the simplest, most viable, and climate-aligned option available. 

Withdrawal alone does not fully neutralize the treaty’s problematic legacy due to the ECT’s notorious "sunset clause," which protects existing investments for an additional 20 years after exit. Addressing this problematic clause should be an immediate priority, which can be achieved through strategic legal actions, including collective interpretation and a so-called inter se modification among withdrawing states. 

IISD's recently published Model Inter Se Agreement provides a blueprint for how states can collectively neutralize the sunset clause. Such an agreement could complement the EU’s internal clarification that the ISDS provision in the ECT does not (and never did) apply to intra-EU investment disputes—and thereby substantially reduce long-term legal risks and enhance policy space for decisive climate action. 

Urgent Call for Concerted Action 

With the EU and Euratom having now exited the treaty, other states should seize this moment to re-evaluate their positions. The current fragmented situation is legally uncertain, politically untenable, and unmanageable. Some states provisionally apply the reform, some don’t, and some reject modernization altogether. It risks entrenching legal unpredictability precisely when clarity and decisiveness are needed most. 

It is time for all remaining ECT parties to choose clarity and ambition over complexity and stagnation. A coordinated withdrawal, coupled with a carefully designed inter se agreement among departing states and complementing the EU's internal efforts, would offer more clarity, minimize legal fragmentation, and empower states to pursue bold climate and energy transitions without fear of harmful ISDS claims.