
Uncertain Climate Impact and Several Open Questions
An analysis of the proposed reform of the Energy Charter Treaty
-
In the European Union and United Kingdom, fossil fuel investors will have at least 10 years of continued protection for existing fossil fuel investments under the modernized ECT. This is at odds with the required speed of fossil fuel phase-out to limit global warming to 1.5°C.
-
Despite earlier talk of a "flexibility mechanism" to exclude fossil fuel investment protection, the leaked agreement for the modernized ECT does not give contracting parties greater flexibility to make such carve-outs after the vote at the Energy Charter Conference on November 22, 2022.
-
The modernized ECT leaves in place broad investment protection standards with limited carve-outs. The revised substantive provisions (fair and equitable treatment, indirect expropriation) remain broad, and new exceptions and carve-outs to protect states' policy space are insufficient.
This report provides a detailed legal analysis of selected key aspects of the agreement in principle on the modernization of the ECT concluded on June 24, 2022, and subsequently leaked on Politico in September.
Our analysis confirms that while the Energy Charter Treaty’s contracting parties have addressed some of the existing treaty’s flaws, the reforms do not go far enough to make the treaty fit for supporting the energy transition or global climate action goals. The modernization also fails to address some of the key challenges that host states face when regulating in the public interest, including when taking action to tackle the climate crisis.
Ultimately, the reforms remain too modest, too untested, and too piecemeal to resolve many of the current treaty’s flaws and ensure that the modernized treaty will not stand in the way of governments’ ability to pursue ambitious climate mitigation measures.
Our analysis considers, among other facets:
- What the fossil fuel carve-outs for the EU and United Kingdom mean in practice, and what protections fossil fuel investors from other contracting parties will continue to have.
- The lack of any greater flexibility for contracting parties to make carve-outs for fossil fuel investment protection after the November vote of the Energy Charter Conference, relative to the existing treaty.
- The extended scope of the treaty to cover new energy materials and carbon capture and storage technologies, and what this means for states’ flexibility when regulating new energy technologies.
- The modernized treaty’s investment protection standards and what they mean for shielding public policy.
- The lack of systemic reform of investor-state dispute settlement, compensation standards, and valuation techniques.
- The implications of the modernized ECT’s 20-year survival clause, which remains intact from the original treaty.
- Various aspects of the reforms that leave open crucial legal questions or fail to reflect recent treaty practice in the European Union.
You might also be interested in
Investor–State Disputes in the Fossil Fuel Industry
Phasing out fossil fuels is critical to global efforts to tackle climate change, but actions to curb emissions are hindered by protections granted under international investment law.
United We Leave or Divided We Stay? Why it’s time for the EU to speak with one voice regarding the Energy Charter Treaty
After a written procedure that was finalized on Friday July 7, the European Commission formally recommended a coordinated EU withdrawal from the Energy Charter Treaty. What does this mean for climate action?
Bruxelles propose une sortie à l’échelle de l’UE du traité sur la Charte de l’énergie, considéré comme contraire au Green Deal
La Commission européenne a formellement proposé un retrait « coordonné et ordonné » du traité sur la Charte de l’énergie. La législation proposée, dévoilée vendredi après-midi après des jours de spéculation, verrait l’Union européenne et ses États membres quitter le traité controversé en même temps, évitant le chaos d’avoir des pays individuels suivant leur propre chemin. L’Allemagne, la France, l’Espagne, les Pays-Bas et la Pologne faisaient partie de ceux qui avaient précédemment annoncé leur intention de se retirer de manière unilatérale, à l’instar de l’Italie, qui a quitté la convention en 2016.
Brussels tables EU-wide exit from the Energy Charter Treaty, considered at odds with the Green Deal
The European Commission has formally proposed a "coordinated and orderly" withdrawal from the Energy Charter Treaty. The proposed legislation, unveiled on Friday afternoon after days of speculation, would see the European Union and its member states leave the controversial treaty at the same time, avoiding the chaos of having individual countries going their own way.