Is The Sun Setting On The Energy Charter Treaty? - Alexander Uff & Claire Stockford

• Published date: 06 March 2024
• Law Firm: Quadrant Chambers
• Author: Mr Alexander Uff and Claire Stockford

OVERVIEW

On 22 February 2024 the UK Government announced its intention to withdraw from the Energy Charter Treaty (ECT).

In doing so, the UK joins a growing number of EU Member States which have either withdrawn (Italy, whose withdrawal became effective on 1 January 2016, France, Germany and Poland, whose withdrawals all became effective in December 2023, and Luxembourg, whose withdrawal is due to take effect in June 2024) or announced their intention to do so (The Netherlands, Slovenia, Spain, Denmark, Ireland and Portugal).

The withdrawals follow a growing tide of criticism of the ECT, spurred by the large number of claims against state parties that it has generated, the perception that it could hamper decarbonization efforts, and the stalled attempts to reform the ECT.

Withdrawal however fails to provide a solution to the criticisms levelled against the ECT, because investments made before the withdrawal becomes effective will remain protected for 20 years after a state's withdrawal as a result of the ECT's "sunset clause", and can be expected to continue to generate claims over this period.

Dissatisfaction with the ECT and Failure of Proposed Reforms

The ECT is a multilateral treaty designed to promote international development, investment and cooperation in the energy sector, including by providing for the protection of foreign investments in the energy sector in a manner similar to bilateral investment treaties (BITs). It was signed in 1994 (and entered into force on 16 April 1998) against the backdrop of the dissolution of the USSR, and aimed in particular to facilitate investment from developed economies into energy production in Eastern Europe. The ECT was, thus, a product of a particular time and circumstances. While it is not possible to quantify the ECT's impact in stimulating investment, its...