The Energy Charter Treaty In The Light Of The Electricity Price Brake: An Opportunity For Investors To Litigate?

• Jurisdiction: European Union
• Law Firm: Taylor Wessing PartG mbB
• Subject Matter: Litigation, Mediation & Arbitration, Energy and Natural Resources, Energy Law, Oil, Gas & Electricity, Arbitration & Dispute Resolution
• Author: Dr. Markus B'hme and Rebekka Ackermann
• Published date: 21 February 2023

Introduction

On 30 November 2022, the German Federal Government officially decided to withdraw the country from the Energy Charter Treaty (ECT). Almost no other international treaty has caused such a political stir in recent years. "The Energy Charter Treaty was and is an obstacle to the energy transition and is simply not compatible with the goals of the Paris Climate Agreement," emphasised Federal Economics Minister Robert Habeck (Green Party). Due to the investment protection for fossil energy projects, the ECT has long been criticised by the Greens and environmental organisations. The ECT gives investors of a contracting party the right to sue other contracting parties if they see themselves or their investments injured by measures taken by that contracting party. The ECT is on the brink of collapse, and not just since Germany's decision to withdraw. Spain, Poland, France, Belgium, the Netherlands, Luxembourg and Slovenia had also recently announced their withdrawal. Italy has already left the ECT. In addition, it was recently reported in the media that the EU Commission, at the instigation of the EU Member States, had been working on a reformed version of the ECT over the past four years, which should have been adopted on 22 November in Ulan Bator during the annual meeting of the contracting parties. After the EU Parliament voted 303 to 209 in favour of a resolution calling for the withdrawal of the European Union from the ECT on 24 November 2022, and the Treaty had been under criticism for some time, the necessary majority would not have been reached. The European Commission therefore took this item off the agenda again.

Parallel to this development, the Federal Government has recently launched the so-called "electricity price brake". In accordance with EU Regulation 2022/1854 (so-called EU Emergency Regulation), the Federal Government plans to finance the electricity price brake from 1 December 2022 by skimming off surplus revenues from electricity producers. In addition, a windfall tax on excess profits for mineral oil companies in the amount of 33% is planned.

In this context, the question arises whether investors from other contracting parties of the ECT can take action against this skimming of profits due to the accusation of expropriation on the basis of the ECT. From this point of view, the Energy Charter Treaty could once again become the focus of companies as well as the public. In view of the recent case law of the European Court of Justice (CJEU), in particular the "Achmea" and "Komstroy" decisions, this question arises with regard to investors from other EU Member States. This is because with this case law the CJEU has declared the ECT arbitration clauses inapplicable in so-called intra-EU disputes, i.e. disputes between two EU Member States.

Our energy law experts Dr. Markus B'hme, LL.M. and Rebekka Ackermann (both Energy Law) now consider some essential aspects of the Energy Charter Treaty, investigate the possibilities and consequences of a withdrawal, discuss the possible relevance of the Energy Charter Treaty in connection with the electricity price cap and address further questions in this context.

Question: What is the Energy Charter Treaty?

Answer: The Energy Charter Treaty is an international treaty that was signed against the backdrop of the disintegration of the Soviet Union in December 1994 and entered into force in 1998. The aim of the ECT was to create security for cross-border investments in energy projects and to promote cooperation in the energy sector between the two sides of the Iron Curtain. More than 50 countries have now signed the ECT, including Kazakhstan, the Baltic countries, Japan, Iceland and the European Union. The ECT protects investors from discriminatory access, expropriation, nationalisation, breach of contract and other state interventions that are likely to affect their profit expectations. For this...