Energy Charter Treaty
The Energy Charter Treaty is an international agreement which establishes a multilateral framework for cross-border cooperation in the energy industry, principally the fossil fuel industry. The treaty covers all aspects of commercial energy activities including trade, transit, investments and energy efficiency. The treaty contains dispute resolution procedures both for States Parties to the Treaty and as between States and the investors of other States, who have made investments in the territory of the former. Full versions of the treaty, both consolidated and official, are readily accessible.
Initially, the Energy Charter process aimed to integrate the energy sectors of the Soviet Union and Eastern Europe at the end of the Cold War into the broader European and world markets. Its role, however, extends beyond east–west cooperation and, through legally binding instruments, free trade in global energy markets and non-discrimination to stimulate foreign direct investments and global cross-border trade.
Awards and settlements of the international arbitrations put forward by breaking the law of the Energy Charter Treaty are sometimes in the hundreds of millions of dollars. In 2014, the Yukos cases were decided in favour of the claimants on the basis of the treaty with a record-breaking US$50 billion award, although appeals continue in courts in the Netherlands.
The Energy Charter Treaty has been criticized for being a significant obstacle to enacting national policies to combat climate change, and for actively disincentivizing national governments from compliance with recent international climate treaties such as the Paris Agreement due to the threat of significant financial loss.
, numerous countries have either left or have announced plans to leave the ECT. The European Union and Euratom took the final and formal step of exiting the Energy Charter Treaty, which will take effect one year after the depository has received the notification.
History
European Energy Charter
The beginnings of the Energy Charter date back to a political initiative launched in Europe in the early 1990s. The end of the Cold War offered an unprecedented opportunity to overcome previous economic divisions between the nations on both sides of the Iron Curtain. The brightest prospect for mutually co-dependent beneficial cooperation was the energy sector, given Europe's growing energy demand and vast resource availability in post-Soviet nations. Additionally, there was a recognised need to establish a commonly accepted foundation for energy cooperation among the states of Eurasia. By these considerations, the Energy Charter process was born.The original European Energy Charter declaration was signed in The Hague on 17 December 1991. It was a political declaration of principles for international energy cooperation in trade, transit and investment, together with the intention to negotiate a legally binding treaty, setting the beginning of the development of the Energy Charter Treaty.
Energy Charter Treaty
The treaty is a legally binding multilateral agreement covering investment promotion and protection, trade, transit, energy efficiency and dispute resolution. The treaty was signed in Lisbon in December 1994, together with a "protocol on energy efficiency and related environmental aspects".The treaty and the protocol came into effect in April 1998. An amendment to the trade-related provisions reflecting the change from the General Agreement on Tariffs and Trade to World Trade Organization processes was also agreed at that time.
International Energy Charter
The International Energy Charter is a non-binding political declaration underpinning key principles for international energy cooperation. The declaration attempts to reflect the changes in the energy world that have emerged since the development of the original Energy Charter Treaty in the early 1990s. The International Energy Charter was signed on 20 May 2015, by 72 countries plus the EU, Euratom and ECOWAS at a Ministerial conference hosted by the government of The Netherlands.Energy Charter Conference
Article 33 of the treaty establishes the Energy Charter Conference, which is the governing and decision-making body of the Organisation and has United Nations General Assembly observer status in resolution 62/75 adopted by the General Assembly on 6 December 2007. Members consist of Countries and Regional Economic Integration Organisations that have signed or acceded to the treaty and are represented in the Conference and its subsidiary bodies. The Conference meets regularly to discuss issues affecting energy cooperation among Members and to review the implementation of the treaty and PEEREA provisions, and to consider new activities within the Energy Charter framework. The Energy Charter Conference has the following subsidiary bodies:- Strategy and Implementation Group
- Budget Committee
- Legal Advisory Committee
Scope
The treaty's provisions focus on four broad areas: Energy Trade, Investment, Energy Efficiency, Dispute Settlement, Energy Transit.Trade
The Energy Charter Treaty's purpose in Energy Trade is to create open and non-discriminatory energy markets throughout its member states. This framework follows the rules of the multilateral trading system as embodied in the General Agreement on Tariffs and Trade, which later became the World Trade Organization.The Energy Charter Treaty extends the GATT and later the WTO rules in the energy sector amongst its members. Additionally, the treaty covers the trade of all energy materials, all final energy products and energy-related equipment. The rules of trade only cover trade in goods, not trade in services, nor does it concern itself with intellectual property rights.
Investment
The treaty is responsible for the protection of foreign direct investment. It is estimated that just in the European Union, the United Kingdom and Switzerland, the treaty protects fossil investments of at least €344.6 billion. Its provisions protect investors and their investments from political risks involved in investing in a foreign country such as discrimination, expropriation, nationalisation, breach of contract, damages due to war, etc. The legally binding nature of the Energy Charter Treaty makes it the world's only multilateral framework for matters specifically related to energy.Dispute settlement
Whereas Article 27 sets out the provisions for dispute resolution between two contracting states, Article 26 of the Energy Charter Treaty provides express provisions for resolving disputes arising under the treaty between an investor of a Contracting State and another Contracting State. This process is generally known as Investor State Dispute Settlement or ISDS. The choices of arbitration rules are:- ICSID Rules
- ICSID Additional Facilities Rules
- UNCITRAL Ad hoc Rules
- The Arbitration Rules of the Stockholm Chamber of Commerce
The drafting of the treaty has raised some difficult questions in the area of Investor-State Disputes by academics. In 2021 the treaty was struck down by the European Court of Justice for intra-EU disputes only. Some areas of discussion are:
- the standards of protection granted by the treaty;
- the international responsibility of States for breaches of the treaty;
- the various procedures available for the vindication of rights under the treaty;
- the conditions to be satisfied before a claimant's complaint may be considered on the merits;
- the impact of EU law on claims under the treaty;
- the treaty's provisions concerning taxation;
- possible effects of the ECT on climate;
- possible geopolitical, climate and financial impacts
- allegedly deleterious effects on states' budgets.
- Nathalie Bernasconi-Osterwalder, a lawyer at the International Institute for Sustainable Development, criticises the ECT for not having "more precise definitions of investment protection standards, set out responsibilities for investors and integrat innovations with respect to dispute settlement to ensure transparency and independence," unlike more modern approaches. Moreover, she claims it is following expansionist ambitions.
- Tania Voon, a Professor in Law at the University of Melbourne, criticises the modernization of the ECT for not including a removal of the art. 47 survival clause, and for failing to introduce "a distinction between investments based on fossil fuels and those based on renewable energy" in order to achieve climate goals.
- Cross-party members of the European Parliament advised the commission to withdraw if modernization is not adequate.
Energy efficiency
Building on Article 19 of the Energy Charter Treaty, the Protocol on Energy Efficiency and Related Environmental Aspects defines in more detail the policy principles that can promote energy efficiency and provides guidance on the development of energy efficiency programmes. PEEREA was negotiated, opened for signature and entered into force at the same time as the Energy Charter Treaty.
In contrast to other activities in the Charter process, the emphasis in the work on energy efficiency is not legally binding, but rather on practical implementation of a political commitment to improve energy efficiency. This is promoted through policy discussions based on analysis and exchange of experience between the member countries, invited independent experts and other international organisations.
The implementation of PEEREA provides its member countries with a range of best practices and a forum in which to share experiences and policy advice on energy efficiency issues. Within this forum, particular attention is paid to national energy efficiency strategy, taxation, pricing policy in the energy sector, environmentally related subsidies and other mechanisms for financing energy efficiency objectives.