The European Commission is preparing the paperwork to allow the EU to sign off on an agreement in principle on a renegotiated Energy Charter Treaty next month. Among these documents is an internal understanding among member states that investor-state arbitration based on the ECT among EU countries is no longer valid.
The agreement in principle, explained in detail by Nikos Lavranos here, adds environmental provisions into the 1990s treaties and reduces the scope for investor-state arbitration cases in the energy sector. It also foresees a ten-year phase out of investor protections for fossil fuels.
The proposed agreement to EU member states “should include, in particular, a confirmation that the ECT has never, does not and will not apply intra-EU, that the ECT cannot serve as a basis for arbitration proceedings, and that the sunset clause does not apply”, states the commission in its communication to capitals.
“It should also set out the obligations of the member states in the event that they are involved in arbitration proceedings pursuant to a request based on Article 26 ECT,” the commission writes.
Also, “in view of the retroactive effect attributed to such a subsequent agreement, it would also apply to pending disputes”.
The move comes as European Court of Justice jurisprudence has ruled intra-EU investor-state arbitration illegal as such cases, brought under the ECT, have proliferated.
The move is also a political ploy to ensure that EU member states endorse the reformed ECT. Both the influence of climate campaigners that want the treaty gone and a backlash against ISDS in some countries is tempting some capitals into pull out of the treaty altogether.
Poland recently initiated steps to leave the ECT. Speaking in his national parliament in Paris this week, France’s minister in charge of trade Olivier Becht said he did not exclude that France would seek a coordinated withdrawal from the EU. “I cannot tell you what the final decision is. We are looking into the new version of the ECT. At the moment we are not happy with what has been proposed.”
Climate activists continue to criticise the deal for not doing enough to protect the climate.
In fact most intra-EU ISDS cases based on the ECT have been about renewable energy.
Energy policy experts have indicated that given the ECT’s wider diplomatic ramifications on the Eurasian landmass, dropping it would be a strategic mistake.“Leaving the ECT unilaterally will not help convince other contracting parties to remove investment protection for fossil fuels,” wrote Irina Kustova from the think tank CEPS last August, when the details of an agreement in principle reach in July started to be known.
“By leaving the Treaty, EU investors would lose protection for new investment in countries such as Turkey, Central Asia, and the South Caucasus. For the rest of this decade, investment in alternatives to Russian fossil fuels will remain vital, as does reliable and uninterrupted transit via the southern gas corridor, which is also covered by the treaty’s transit provisions,” Kustova said.
Our in-house investment protection expert Nikos Lavranos for his part reckons that the revised ECT will fulfil one of the main aims of the EU and activists: kill off ISDS cases.
The new ECT is to be endorsed at a ministerial level meeting in Brussels in 22 November 2022.
The intra-EU termination treaty put forward by the commission is legally necessary because investment protection is a shared EU competence with member states.
EU capitals still have a little bit of time left to decide whether they want the perfect to be the enemy of the better at a time of acute energy shortages.
