The Energy Charter Treaty in Light of the Climate Change Agenda   

Last week France became the fourth signatory of the Energy Charter Treaty (ECT) to announce its withdrawal from the treaty in the last two months, following the Netherlands, Spain and Poland.

This comes after a spectrum of ‘modernisations’ to the ECT was announced in June, aiming to reinforce the right of contracting states to regulate within their own territories in the interest of public policy objectives, specifically in a climate context. One of the changes focuses on the existing risk for contracting states to face investor-state dispute settlement (ISDS) arbitration which is particularly strong when it comes to climate-related issues.

However, some countries do not consider the ECT to be in line with the Paris Climate Accords and do not believe that the modernisations would change this fact. Therefore, they are effectively withdrawing from the treaty. Nevertheless, the short-term effect of these withdrawals is rather insignificant as they require one year’s notice and withdrawing states remain subject to a clause providing investors with continued protection for a 20-year period. Hence, the access to recourse that investors have via the ISDS mechanism does not immediately cease even when a contracting state has announced its intention to quit the ECT.

The modernised ECT has been scheduled for adoption by the contracting states later this month. If the proposed reforms do not receive EU-wide support, they could end up blocked.