Running on fumes? ECT withdrawals gain pace

Published Date
Mar 28, 2024
As the Energy Charter Treaty’s largest member finalises its withdrawal, the long-term future of international energy investment and cooperation is cast into doubt. 

On 7 March, the EU marked a significant milestone in its planned withdrawal from the troubled Energy Charter Treaty (ECT). The ECT had, at its peak, bound 56 states and entities globally to energy cooperation through investment protection and technology transfer. However, criticisms of the ECT’s failure to reform since the 1990s and reported active obstruction of climate goals have led many (primarily European) states to withdraw. Now, the EU itself seems primed to formally leave the agreement, leaving the entire project in doubt.

First signed in 1994 (and entering into force in 1998), the ECT was created against the backdrop of the collapse of the Soviet Union and aimed to encourage investment from more developed Western European countries to the energy sectors of former members of the Soviet bloc. Whether the ECT was successful in this aim is debated, but the organisation succeeded in growing its list of signatories to span Europe, the CIS countries and central Asia.

While many CIS and central Asian countries appear content with (or at least silent on) the operation of the ECT, its European members have grown increasingly frustrated. The reasons for this are manifold. The most public criticism of the ECT has been its incompatibility with European climate goals (both at EU and Member State level). Climate NGOs like ClientEarth have put significant pressure on Member State governments to withdraw from the ECT on the basis that it allows foreign companies to claim compensation from governments introducing climate protection legislation, which impact their profits. Relatedly but less publicly, capital exporting states have faced growing investment treaty claims under the ECT, such as Germany, Italy, Spain and The Netherlands.

These growing criticisms sparked efforts in 2017 to modernise the ECT—a lengthy diplomatic process led by the EU followed. By June 2022, a modernised ECT was “agreed in principle” by the Energy Charter Conference, but a blocking minority of four Member States meant the EU Council could not back the modernisation package. This was despite the fact that the European Commission considered the package to be in line with the EU’s own ECT modernisation mandate. 

As a result of the ensuing stalemate, the European Commission adopted proposals in July 2023 to withdraw the EU and Euratom from the ECT. The EU Council unanimously approved these proposals on 7 March 2024.

This significant step in the EU’s withdrawal from the ECT comes amidst proposed and actual departures from several individual EU Member States, including: France, Germany, Poland, Denmark, Luxembourg, the Netherlands, Portugal, Slovenia and Spain. Austria is reportedly considering following suit. The United Kingdom, no longer in the EU, confirmed its withdrawal from the ECT in February 2024. 

The ECT has not been passive: senior members of the organisation have been travelling to European capitals to persuade leaders to continue the reform route. This approach that has at least apparently delayed Belgium’s departure from the ECT and possibly altogether halted a Swiss departure (though in the latter case, the Swiss government has always expressed an intent to continue participation in the ECT).

With the ongoing mass departure of its capital exporting members, the ECT’s foundational purpose looks less secure than ever (though a sunset clause within the treaty protects investments made prior to withdrawal for 20 years from the withdrawal taking effect). Within days of the Council’s unanimous decision to adopt the withdrawal proposals, the European Commission published proposals calling on EU Member States still within the ECT not to prevent signatories from adopting proposed amendments. Whether this is eleventh hour push for reform is viable remains to be seen: but for now, it seems as though the Energy Charter Treaty has run out of gas.


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