by Prof. Nikos Lavranos[1]
In June 2022, an agreement “in principle” was achieved among all Energy Charter Treaty (ECT) contracting parties (including the European Union (EU) and all of its Member States) on the modernized ECT text.
Withdrawal of the EU and EU Member States from the ECT
Despite this agreement “in principle” several EU Member States (France, Germany, Poland) have already left the ECT, while others (Luxembourg, Slovenia, Spain, Portugal, the Netherlands, Denmark and most recently Ireland) have publicly announced and/or notified their intention to withdraw from it, rather than signing up to the modernized text. In addition, the United Kingdom, now a non-EU State, also recently denounced the ECT.
Fast forward two years since the agreement “in principle” was achieved, the European Commission presented its proposal for a “coordinated” withdrawal of the EU and its Member States from the ECT. The proposal includes, inter alia, an agreement not to obstruct the adoption of the modernized ECT and its provisional entry into force (Second Pillar) and the subsequent withdrawal of remaining EU member states (Third Pillar). This proposal has been approved by the Council and confirmed by the European Parliament. Accordingly, the withdrawal of the EU from the ECT will take effect one year after the receipt of the notification by the depositary of the treaty, i.e., sometime in mid-2025.
The Climate Crisis and the ECT
Recently, the ECT has been slammed for being responsible for the climate crisis.
In contrast, this author has previously argued that the modernized ECT is without doubt the “greenest” investment promotion and protection agreement ever agreed upon, as it fully incorporates the Paris Agreement, and, inter alia, phases out the protection of fossil fuel investments. In particular, the various new sustainable development provisions in the modernized ECT text explicitly require the contracting parties to promote and enhance the mutual supportiveness of investment and climate policies and measures, thereby accelerating the transition to a low-emission, clean energy and resource-efficient economy, as well as to climate-resilient development
Accordingly, the modernized ECT is a unique opportunity for promoting and protecting investments in renewable energy, thereby contributing to saving the climate.
Indeed, the statistics regarding ECT disputes are clear: the large majority of ECT disputes concern measures adopted against renewable energy producers (94 disputes) rather than against fossil fuel producers (54 disputes). Equally, states have won more disputes (38%) compared to investors (28%).
Thus, the current ECT has been an important tool protecting renewable energy investments, by providing a certain level of protection to renewable energy investors, who otherwise may not have invested in this volatile sector. Consequently, many billions of euros have been invested in building renewable energy capacity in Europe over the past decade which has helped significantly reduce carbon dioxide emissions, thus helping to mitigate climate problems. Without doubt, the modernized ECT would contribute even more to this goal.
The benefits of the modernized ECT text
Therefore, all ECT contracting parties that have not yet withdrawn from the ECT should sign and ratify the modernized ECT sooner rather than later. In this context, it is important to recall that the ECT has been signed and ratified by the EU and the EU Member States as a mixed agreement. Consequently, the announced withdrawal of the EU from the ECT does not affect the competence of each Member State to decide for itself whether or not to stay within the ECT or whether or not to sign the modernized ECT text.
Indeed, the advantages of effectuating the modernized ECT are numerous:
- Contracting parties would set a clear benchmark for other States and their existing bilateral investment treaties, by showing that investment promotion and protection can be combined with the Paris Agreement climate obligations in a legally binding text.
- The modernized ECT would send an unequivocal message to fossil fuel producers that the end of their investments is in sight. This would herald a transitional period, which provides sufficient legal certainty and ensures an orderly exit from fossil fuels.
- The modernized ECT would send a signal to fossil fuel investors who are already investing in renewable energy, that investments in renewable energy will be protected—albeit at a significantly lower level than under the current ECT.
Thus, there are good reasons for non-EU ECT contracting parties and those EU Member States, which have not yet withdrawn from the ECT, to adopt the modernized ECT text. It provides a legal framework within which investments in renewable energy can be further stimulated, especially in the wind energy sector (which is currently in a deep crisis) but also in hydrogen technology. These kinds of investments in various renewable energy sources should be significantly expanded and protected under the modernized ECT text.
In contrast, simply leaving the ECT does not contribute at all to saving the climate.
Additionally, the legal issues created by the unilateral and uncoordinated withdrawal of EU Member States and the EU from the ECT is evidently counterproductive to climate protection.
In sum, EU Member States should not obstruct the formal adoption of the modernized ECT (Second Pillar) by the other non-EU contracting parties and, more importantly, they should seek authorization to sign up to the modernized ECT text (Third Pillar).
In this way, the modernized ECT could still be saved (at least for the remaining ECT contracting parties), thereby helping to save the climate.
* Nikos Lavranos (n.lavranos@efila.org) is a visiting Professor at Leiden University, Secretary General of EFILA and founder of NL-investment consulting. The views expressed are of the author alone and cannot be contributed to any organization he is affiliated with. ↑