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ECT reform: EU goals out of reach

Mathilde Dupré, 4 March 2022

[English] [français]

The EU and Member States recognise that the Energy Charter Treaty, which protects investments in the energy sector in more than 50 countries, is outdated. A reform process started in 2018. In 2019, the European Commission received a negotiating mandate from the Member States with a threefold objective.

Analysis of progress reveals that the Commission has mostly failed to deliver on these ambitions (See our detailed briefing or the summary).

Negotiations of the ECT have so far suffered from a lack of transparency. However, all available information points to the conclusion that ECT reform will not deliver on the main EU’s stipulated objectives and therefore the european Commission fails to fulfil its mandate. Furthermore, even if the ECT were reformed in line with the proposals put forward by the EU, the agreement would still threaten climate action, remain in conflict with EU law and not be in line with the new EU approach to investment protection.

EU policymakers should assess the outcomes of the ECT modernisation process against the following benchmarks

  • Is the agreement made consistent with the Paris Agreement targets and the European Green Deal by immediately ending protection for all fossil fuel investments, for all parties?
  • Does it guarantee states’ right to regulate by introducing effective limits on investor rights and clarifying the supremacy of international social and environmental obligations over investor rights?
  • Does it end the use of the old ISDS system, so that the minimum requirements set by the CJEU Opinion 1/17 are met?
  • Does it end the risk of ISDS claims in particular against climate and energy transition policies? Or does it increase that risk even further due to an expansion of the scope of investment protection to new technologies?

The EU and its institutions must carefully assess whether the ECT reform can be deemed a success. If not, the EU and its Member States should jointly withdraw from the ECT. In order to neutralise the sunset clause, which allows investors to sue for another 20 years after a state’s withdrawal, states should conclude an additional agreement not to apply this clause amongst one another. Ideally, the EU should also try to convince other countries to withdraw jointly to maximise the neutralising effect of the sunset clause.

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