EU announces withdrawal from the Energy Charter Treaty

With contribution from Thea Messina

On 24 April 2024, the European Parliament voted to withdraw from the Energy Charter Treaty (the ECT). The vote follows several years of negotiations and deadlock amongst ECT contracting states and comes only two months after the UK’s announcement that it will withdraw. The decision was made by an overwhelming majority (560 votes to 43, with 27 abstentions) and will require adoption by the Council of the European Union (the EU) before coming into force (albeit that is likely to be a formality). 

As explained in our previous article (here), the ECT, established in 1994 to protect investments in the energy sector, has been under close scrutiny and subject to criticism for being overly investor-friendly and outdated in view of global climate objectives. Recent modernisation efforts, intended to align the ECT with these objectives, have reached an impasse. The EU has not been able to put forward a common position as to the proposals, thereby blocking adoption of the modernised ECT (which requires a unanimous vote).

The EU had initially proposed in July 2023 that it and its member states would exit the ECT as part of a coordinated withdrawal. However, because some members states continue to advocate for reform, the EU has adopted a compromise position whereby it will withdraw but give its approval to the modernised ECT (provided non-EU contracting states do the same). The EU’s departure means that individual EU member states can only remain ECT contracting states if authorised to be so by the EU.

The EU’s withdrawal represents a further blow to the ECT, although it may also pave the way to modernisation (albeit among a significantly smaller group of contracting states). Importantly, due to the sunset clause protecting investments made pre-withdrawal, EU members states may continue to be bound by the ECT for a further 20 years (and tribunals may continue to have to grapple the intra-EU objection wherever ECT claims involve member states on both sides). It may be that, following its withdrawal, the EU pushes forward with previous proposals to enter into an agreement restricting the application of the ECT’s sunset provisions intra-EU (save for those authorised to remain ECT contracting states).