The Energy Charter Treaty (“ECT”), available here, is a multilateral agreement. It was signed in December 1994 and entered into force on 16 April 1998. It created a multilateral framework for energy long-term cooperation between its members.
The Energy Charter Treaty is preceded by the European Energy Charter adopted in December 1991, under which signatories undertook “to pursue the objectives and principles of the [European Energy] Charter and implement and broaden their cooperation as soon as possible by negotiating in good faith a Basic Agreement and Protocols”,[1] namely the Energy Charter Treaty.
The multilateral treaty focuses on various areas, such as the protection of foreign investments, nondiscriminatory conditions to ensure reliable flow of energy across borders, promotion of energy efficiency, and mechanisms to resolve disputes between contracting parties, investors and host States.
Currently, there are 57 signatories and contracting parties to the ECT. It mainly includes European Member States but also one international organisation: the European Union.[3] Members include:
Afghanistan, Albania, Armenia, Australia*, Austria, Azerbaijan, Belarus°, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union and Euratom, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Japan, Jordan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, Montenegro, The Netherlands, North Macedonia, Norway*, Poland, Portugal, Romania, the Russian Federation*, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan and Yemen.
° did not ratify the Energy Charter Treaty, but applies it provisionally
* did not ratify the Energy Charter Treaty
Italy was a contracting party to the ECT until 1 January 2016, the date by which it withdrew from the Energy Charter Treaty. Any investment made in the energy sector in Italy after that date is not protected by the ECT. To the contrary, investments made in Italy before 1 January 2016 remain protected until the year 2036.
The Russian Federation signed the ECT but did not ratify it. This has not prevented the Russian Federation from facing arbitration under the ECT on the basis that it was bound by the provisional application of the ECT.
Reform of the Energy Charter Treaty
The ECT is the most commonly-used legal instrument by investors to raise claims against contracting States.[4]
Over the past decade, the general investment climate has evolved. Balancing rights and obligations between States and investors has become one of the major challenges. The use of investor-State dispute settlement mechanisms to challenge public policy measures taken by States generates strong debate and has become a matter of public concern. This is reflected by the participation of amicus curiae, including non-governmental organisations and the European Commission, which have become common.
The most glaring example of an attempt to curtail investor-State dispute settlement is the agreement between European Member States to terminate intra-EU Bilateral Investment Treaties (“BITs”). On 5 May 2020, European Member States signed a Termination Agreement.[5]
This decision follows the Achmea case, under which the European Court of Justice considered that intra-EU BITs were incompatible with EU law.[6] In parallel, however, the Advocates General to the Court of Justice of the EU issued an opinion confirming that the investment court system of the Comprehensive Economic and Trade Agreement (“CETA”) was compatible with EU law.[7] This illustrates the international community’s (and especially European) policy of reforming investor-State dispute settlement mechanisms by introducing permanent standing bodies.
In that context, the European Commission proposed to reform the Energy Charter Treaty.[8] The European Commission gave two main reasons for reforming the ECT:
- First, it indicated that its provisions had not been updated since its creation and that it was no longer in compliance with the EU’s reformed approach on investment policy (for instance, the EU’s work on the ongoing multilateral reform process in the United Nations Commission on International Trade Law).
- Second, pressure from public opinion to take into account climate policy commitments, in particular the Paris Agreement,[9] accelerated the European Commission’s decision to propose a reform of the treaty. The Energy Charter Treaty is a multilateral agreement that should be effectively used to deal with environmental issues. For instance, in September 2019, EU Member States received a letter from NGOs asking to withdraw their countries from the ECT because it undermines necessary climate measures.
Because the Energy Charter Treaty has a purpose similar to BITs, namely investment promotion by ensuring a stable legal environment for foreign investors on the Host State territory, and many EU Member States of the European Union are parties to it, it could have been considered that terminating intra-EU BITs would question the existence of the Energy Charter Treaty.
However, this is not the case. Indeed, the Termination Agreement expressly excludes the ECT. Investment arbitration within the European Union is thus not yet terminated.[10]
Nevertheless, the European Union’s proposal for the modernisation of the ECT includes a new paragraph under Article 26 of the ECT on Settlement of Disputes between an Investor and a Contracting Party that expressly refers to the application of a Multilateral Investment Court:
“(4) In the event that an Investor chooses to submit the dispute for resolution under subparagraph (2)(c), the Investor shall further provide its consent in writing for the dispute to be submitted to:
[…]
(d) the rules of a multilateral investment court to which the Contracting Party which is party to the dispute is a Party.”[11]
Therefore, the purpose of the reform of the Energy Charter Treaty is to bring sustainable development and climate change to the forefront, as well as new standards of investment protection and investor-State dispute settlement mechanisms.
Conclusion
The European Union is playing an important role in amending the Energy Charter Treaty. The assertion of supremacy of EU law by EU institutions enters into contradiction with arbitral tribunals formed under the Energy Charter Treaty. The first round of talks between the contracting parties will be in July 2020. The second one shall occur in October 2020.
The final version of the reformed treaty should help to see if EU institutions will have the better of independent arbitral tribunals.
[1] European Energy Charter dated 17 December 1991, Title III, Specific Agreements.
[2] Energy Charter Treaty dated 16 April 1998
[3] Afghanistan, Albania, Armenia, Australia*, Austria, Azerbaijan, Belarus°, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Denmark, Estonia, European Union and Euratom, Finland, France, Georgia, Germany, Greece, Hungary, Iceland, Ireland, Japan, Jordan, Kazakhstan, Kyrgyzstan, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, Mongolia, Montenegro, The Netherlands, North Macedonia, Norway*, Poland, Portugal, Romania, Russian Federation*, Slovakia, Slovenia, Spain, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, United Kingdom, Uzbekistan, Yemen
° did not ratify the Energy Charter Treaty, but applies it provisionally
* did not ratify the Energy Charter Treaty
[4] Article 26 of the Energy Charter Treaty dated 16 April 1998.
[5] Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union dated 29 May 2020.
[6] Slovak Republic v. Achmea B.V. (Case C-284/16) dated 6 March 2018.
[7] Opinion of Advocate General Bot dated 29 January 2019.
[8] European Union’s proposal for the modernisation of the Energy Charter Treaty dated 27 May 2020.
[9] Paris Agreement dated 12 December 2015.
[10] See, LBBW v Spain, Decision on the Intra-EU Jurisdictional Objection dated 25 February 2019. European law does not preclude arbitration of intra-EU investment disputes under the Energy Charter Treaty.
[11] European Union’s proposal for the modernisation of the Energy Charter Treaty dated 27 May 2020 (emphases added).