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EU withdraws from the Energy Charter Treaty

Recently the EU Council and the EU Parliament approved the coordinated withdrawal of the European Union from the Energy Charter Treaty (ECT).

The ECT was signed in December 1994 and entered into the force in April 1998.

The main goal of the ECT is to provide guarantees to investors in energy sector. Based on the Definitions of the ECT (art. 1) the “energy sector” means “an economic activity concerning the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of energy materials and products except those included in Annex NI, or concerning the distribution of heat to multiple premises”.

“Investment” means “every kind of asset, owned or controlled directly or indirectly by an investor…” and refers to “any investment associated with an economic activity in the energy sector and to investments or classes of investments designated by a Contracting Party in its area as “Charter efficiency projects” and so notified to the Secretariat”.

Currently there are more than 50 Signatories and Contracting Parties to the Treaty, including EU and Euratom.

As was declared by the European Commission, the reason of withdrawal by the Union and its Member States from the ECT is that the Treaty protects the investments in fossil fuel sector and for this reason is no longer compatible with the EU’s climate goals under the European Green Deal and the Paris Agreement, predominantly due to concerns over continued fossil fuel investments.

Another concern relates to the specifics of the investor-state dispute settlement mechanism – the rulings of international arbitration tribunals are rarely in the public domain. In addition, the Court of Justice of the European Union (CJEU) expressed the opinion, in the proceeding Republic of Moldova v. Komstroy, that intra-EU arbitration under Article 26 of the ECT is incompatible with EU law as it excludes the jurisdiction of CJEU over intra-EU dispute settlement, in its areas of competence.

Several countries, including France, Germany and Poland have just submitted the withdrawal notification from the Treaty. Thereby, for France, Germany and Poland the withdrawal entered into the force in December 2023. The United Kingdom announced its withdrawal in February 2024.

Italy already submitted the notification of withdrawal on 31 December 2014 (effective on 1 January 2016).

Anyway, based on the “sunset clause” reported in Article 47.3 of the Treaty, withdrawing countries are bound by the ECT provisions for 20 years after the withdrawal.

In fact, in 2022, six years after withdrawal, Italy was ordered to pay compensation of about €200 million to oil company Rockhopper as compensation for an offshore oil drilling ban within a 12 mile-limit off Italy’s coast in 2015, scotching the company’s planned Ombrina Mare oilfield (ICSID Case No. ARB/17/14).

Despite the decision of the EU on the coordinated withdrawal of the European Union from the ECT, the UE’s Member States may decide not to withdraw from the ECT upon authorisation from European Authorities.

Fabio Lui, Olga Pljukhina