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Rule of law | 22nd April 2020

Legal briefing on the Commission's draft proposal for the Energy Charter Treaty modernization
Rule of law

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Legal briefing on the Commission's draft proposal for the Energy Charter Treaty modernization

The Energy Charter Treaty (ECT) is a plurilateral trade and investment agreement applicable to the energy sector.

The ECT covers aspects of commercial energy activities including trade, transit, investments and energy efficiency. Its Article 26 provides for investor-state dispute settlement (ISDS) which allows foreign corporations to sue states before private investment arbitration tribunals where it is alleged that government policy changes have damaged the profitability or viability of their investment.

Many cases under the ECT have led to large damages awards, in the hundreds of millions or billions of EUR. Because of the risk that investors may initiate legal action using ISDS, governments may be discouraged from introducing new levels of protection or may be encouraged to revoke or dilute existing regulations.

To date, there have been 129 claims from energy companies under the ECT, who have used it to challenge government measures.

In response to growing legal and political concern about the ECT, the Energy Charter Secretariat proposed the modernisation of the ECT.

On 15 July 2019, the Council gave a mandate to the European Commission to begin negotiations on the modernisation of the ECT, along with negotiating directives.

This legal analysis looks at the draft Commission’s proposal in the light of the two main objectives set by the Commission: to ensure compatibility with EU law by bringing the ECT in line with new investment standards, and to ensure the ECT does not stand in the way of fighting climate change.

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