EU proposes legislation to pull out of 1994 Energy Charter Treaty

Originally published at Europe in Review on August, 2023

The European Union (EU) proposed legislation on July 7 to withdraw from the 1994 Energy Charter Treaty (ECT) that was established to enable private finance of energy infrastructure in Eastern Europe following the fall of the Soviet Union. [Euronews]

Brussels had led a push to reform the treaty, and make it more difficult for fossil fuel companies to sue over changes in policy like banning offshore drilling or coal phaseouts that affect their investments. But that effort stalled, and eight EU countries — Denmark, France, Germany, Luxembourg, the Netherlands, Poland, Slovenia and Spain — threatened to quit the treaty. [Politico]

Germany, France, Spain, the Netherlands and Poland were among those who had previously announced their intention to pull out in a unilateral fashion, following in the steps of Italy, which left the convention back in 2016. [Euronews]

“The outdated Energy Charter Treaty is not aligned with our EU Climate Law and our commitments under the Paris Agreement,” said Frans Timmermans, the European Commission’s executive vice-president in charge of the Green Deal. “It’s time for Europe to withdraw from this Treaty, and to put all of our focus on building an efficient and competitive energy system that promotes and protects renewable energy investments.” [Euronews]

EU Energy Commission Kadri Simson said in a statement that “keeping an unmodernised Energy Charter Treaty is not a viable option for the EU.” The treaty in its current form is not in line with the EU’s investment policy or our energy and climate goals, Kadri added. The Commission said it “is also withdrawing its previous proposal to ratify the modernised Treaty, which did not gather the required majority among Member States.”

The ECT was originally intended to protect Western investors who were seeking to do business in former Soviet states but feared being the target of discriminatory access, expropriation, nationalisation and other unexpected circumstances. The ECT provided them protection by establishing a tribunal at the World Bank in Washington, designated the International Centre for Settlement of Investment Disputes (ICSID).

On July 27, the German First Civil Panel of the Federal Court of Justice released a legal decision that EU member states could invoke national judicial protection against arbitral proceedings essentially abrogating the international ICSID Convention of 18 March 1965 by German court order. [BGH]

ECT signatories remain bound by a 20-year sunset clause and legal action under the treaty continues.

Fifty three countries and the EU itself signed the 1994 treaty, which went into effect in 1998. In 2018, multiple EU members raised concerns the treaty was not consistent with EU climate goals as it protected long term fossil fuel contracts under international law. Between 2019-22 the European Commission negotiated modifications to the treaty, but the modifications were not passed by Member states during a 2022 vote and a withdrawal process commenced, culminating in this year’s July 7 proposal to formally withdraw. [EC]

(rw/gc)