An Energy Charter Treaty that works for clean investments

This E3G briefing suggests three overall objectives for the ongoing process to modernise the Energy Charter Treaty in the new political context. Then, it puts forward seven political tests to assess whether the EU can consider the agreement sufficient to mobilise investment into the global energy transition.

The Energy Charter Treaty came into force in 1994 and is currently ratified by 48 countries, mostly in Europe and Central Asia. Its purpose is to protect private foreign investments from regulatory or political interferences, including arbitration panels capable of awarding multi-billion dollar compensations (ISDS). A negotiation to ‘modernise’ the Treaty was launched in 2018, and the European Commission wants to reach an agreement by 24 June 2022.

The political context around these negotiations has drastically changed since 2018 with events such as the COVID-19 pandemic and the Russian invasion of Ukraine. As a result, clean energy deployment has become a critical energy security concern for the EU and many of its partners. However, the current Energy Charter Treaty stands as a barrier against this shift. By design, it mostly protects investments that are typically associated with the old energy world and increases uncertainty around clean investments.

Three objectives for a modernised Energy Charter Treaty

In light of these developments, the EU should assess the ECT negotiations’ outcome according to the following objectives:

1. Supporting an accelerated shift to decarbonisation and energy resilience.
2. Creating greater trust and certainty in this transition for foreign investors.
3. Maintaining and strengthening fair and reliable relationships with EU partners.

Seven steps for a pro-clean investment Energy Charter Treaty

Based on the three political objectives above, we propose seven tests to measure whether the ECT modernisation can be considered sufficiently acceptable in June.

1. Clearly delimiting investment protection language.
2. Well-balanced expropriation rules.
3. Exclusion of letterbox companies and other cheats.
4. Full alignment with multilateral reform negotiations.
5. Carving out fossil fuels.
6. Protecting only reliable and proven energy solutions.
7. Ensuring consistency with climate and environmental agreements.

Read the full briefing here.