EXPERT ANALYSIS: The Future of the Green Investment Regime Under The ECT

Future of the Green Investment Regime Under The ECT

The Energy Charter Treaty (ECT), a multilateral framework designed to facilitate global energy cooperation while addressing investor-state disputes, is on the brink of its 30th anniversary in 2024. However, instead of celebrating this milestone, a growing number of countries are announcing their intent to exit or reevaluate their participation in this agreement, casting a shadow of uncertainty over its future.

A Political Exodus

The recent wave of countries seeking to exit the ECT suggests that the turmoil surrounding the treaty is rooted more in political concerns than legal grievances. The dissatisfied nations share a common narrative: the ECT is seen as a relic of the Cold War era, unsuitable for supporting the transition to cleaner, more cost-effective energy sources. Critics argue that it infringes upon a country’s sovereign right to regulate, contradicts EU climate law, and conflicts with the Paris Agreement’s commitments.

Understanding the ECT

According to the ECT’s official website, it provides a “multilateral framework for energy cooperation that is unique under international law.” The treaty focuses on four main areas:

  1. Establishing a common and mutually beneficial energy policy for investments, transit, and trade among post-Cold War nations to coordinate energy supply development and diversification.
  2. Ensuring non-discriminatory conditions for trading energy materials, products, and energy-related equipment based on WTO rules, along with provisions to guarantee reliable cross-border energy transit through pipelines, grids, and other transport means.
  3. Promoting energy efficiency and striving to minimize the environmental impact of energy production and utilization.
  4. Protecting foreign investments by extending national treatment or most-favored nation treatment, providing safeguards against significant non-commercial risks, and enforcing mechanisms at the international law level.

It’s the last provision that has become the epicenter of controversy. Article 26 of the ECT establishes a mechanism for investor-state dispute settlement. This provision enables an investor from one ECT contracting party to sue another party for damage inflicted on their investment in the energy sector.