The European Union, the Energy Charter Treaty, and the tightrope between law and conscience

Keywords: EU, ECT, withdrawal, investment, Article 21, treaty, ISDS

The European Union (EU) and the Energy Charter Treaty (ECT) share a history that reflects the evolving dynamics of international investment law and regional governance. Established in 1994, the ECT aimed to facilitate cooperation in the energy sector, fostering cross-border investments and ensuring legal protection for investors. ¹⁾ Over the years, however, tensions have emerged between the EU's evolving legal and policy priorities - particularly its ambitious climate goals - and the provisions of the ECT, which some perceive as favouring fossil fuel investments and investor-centric dispute resolution mechanisms. ²⁾

One of the most disputed developments in this relationship is the EU's recent decision to withdraw from the ECT without endorsing the modernised treaty text negotiated over several years. ³⁾ This decision has sparked significant debate regarding its alignment with international legal principles, particularly those codified in the Vienna Convention on the Law of Treaties (VCLT), and with the EU's own obligations under Article 21 of the Treaty on European Union (TEU). Article 21 of the TEU ⁴⁾ obliges the EU to promote the rule of law, human rights, and the principles of international law in its external actions. The refusal to ratify the modernised ECT raises critical questions about the EU's adherence to these obligations and its commitment to , which is the foundational principle of treaty law.

Italy's withdrawal from the ECT in 2016 ⁵⁾ , followed by announcements from other EU member states such as Spain ⁶⁾ , France ⁷⁾ , Germany ⁸⁾ and Poland ⁹⁾ , underscores a broader trend of discontent with the treaty among EU stakeholders. These withdrawals, coupled with the EU's leadership in modernisation negotiations that ultimately failed to reconcile the diverging interests of member states, have challenged the treaty's legitimacy and the coherence of the EU's collective approach to international agreements. ¹⁰⁾ The "sunset clause" ¹¹⁾ within the ECT, which extends protections to existing investments for 20 years post-withdrawal, further complicates this landscape by exposing withdrawing states to potential investor-state dispute settlement (ISDS) claims.

This paper seeks to examine these issues from a legal perspective, addressing the question of whether the EU's withdrawal strategy and its refusal to endorse the modernised ECT align with its obligations under international and EU law. Specifically, the analysis will focus on Article 21 TEU, ¹²⁾ the principle of good faith as outlined in Article 31 of the VCLT, ¹³⁾ and the broader implications for international investment law. By analysing these questions, the paper aims to provide a detailed legal assessment of the EU's relationship with the ECT and propose a framework for navigating future treaty engagements, particularly in the context of climate transition and energy governance.

The relevance of this analysis is multifaceted. First, it contributes to the ongoing debate about the compatibility of international investment treaties with regional and global climate goals. Second, it examines the role of legal obligations in shaping the EU's policy decisions, particularly when these obligations intersect with political and environmental priorities. Finally, it offers insights into the broader implications of treaty withdrawal for the integrity of multilateral frameworks and the future of international investment law.

This introduction sets the stage for an in-depth exploration of the legal intricacies at the intersection of the ECT and EU law, highlighting the need for a coherent and principled approach to treaty engagement and withdrawal. Central to this analysis is the question: does the EU's withdrawal from the ECT align with its obligations under international and EU law? Through this analysis, the paper aims to address not only the immediate legal questions but also the broader challenges of harmonising international investment protection with the EU's commitment to sustainable development and climate leadership.

The ECT - signed in 1994 and entering into force in 1998 - stands as one of the most significant multilateral agreements governing the energy sector. Born out of the post-Cold War environment, the ECT was initially designed to foster energy cooperation between Western Europe and former Soviet states. Its overarching goals were to ensure energy security, promote foreign investments in energy infrastructure, and establish a reliable framework for resolving disputes. ¹⁴⁾

The ECT offers significant and robust investment protection, with Articles 10 and 13 mandating fair and equitable treatment (FET) and prohibiting expropriation without compensation. It provides extensive guarantees to foreign investors, creating a stable and predictable environment for energy investments. The treaty's definition of "investment" is broad, encompassing tangible assets like energy infrastructure and intangible rights such as permits and intellectual property.

Article 10 requires Contracting Parties to create stable, transparent, and favourable conditions for foreign investments. It incorporates the principles of FET, protection against unreasonable or discriminatory measures, and the obligation to provide constant protection and security. ¹⁵⁾ The FET standard is flexible, covering legitimate expectations, transparency, due process, and non-arbitrary behaviour. This standard has been invoked in cases such as , where state intervention in judicial proceedings was found to violate it, ¹⁶⁾ and , where Latvia's discriminatory tariff measures breached the provision. ¹⁷⁾ However, damages in such cases are determined independently of expropriation principles. This "security" clause obligates states to safeguard investments against harm, traditionally related to violence or civil unrest but now extended to legal and economic protection. However, one should not overlook the most significant aspect of Article 10, which is the umbrella clause, elevating state commitments to investors into treaty obligations and providing a pathway for breach of contract claims under the ECT.

Article 13 of the ECT prohibits expropriation or measures equivalent to expropriation of investments unless specific conditions are met. These conditions include (i) public interest, meaning the measure must serve a legitimate public purpose; (ii) non-discrimination, ensuring that it does not unfairly target a particular investor; (iii) due process, requiring that the expropriation follows legal procedures; and (iv) compensation, which mandates that the investor receives prompt, adequate, and effective compensation. ¹⁸⁾ The provision recognises both direct expropriation ¹⁹⁾ and indirect expropriation. ²⁰⁾ Indirect expropriation includes instances such as regulatory measures or a series of actions that collectively deprive an investor of economic benefits. In the case, the tribunal rejected claims of indirect expropriation, emphasising the absence of state interference with property control. ²¹⁾ Similarly, the case tribunal dismissed claims of de facto expropriation, finding no evidence of measures specifically targeting the investor or transferring economic value to the state. ²²⁾

Many investment treaties also include sunset or survival clauses that maintain treaty protections for a specific period even after a state officially withdraws. These clauses primarily aim to support investor confidence by ensuring continued protections, but they also limit a state's ability to disengage from its treaty obligations fully. ²³⁾ The ECT incorporates such a provision in Article 47(3), which extends investment protections for 20 years after withdrawal. ²⁴⁾ This ensures that investors remain safeguarded even after a state's exit, complicating efforts to completely sever treaty obligations. A notable example is the case of , where the company sued the Italian government under the ECT following Italy's withdrawal in 2016, highlighting the lasting impact of the sunset clause. ²⁵⁾

The ECT boasts one of the most comprehensive and widely utilised dispute resolution frameworks in international investment law, making it both a significant asset and a source of controversy. ²⁶⁾ Its mechanisms, particularly those under Articles 26 and 27, provide distinct pathways for resolving conflicts, ensuring legal recourse for investors and states alike while fostering an environment of accountability within the energy sector.

Article 26 of the ECT establishes the cornerstone mechanism for ISDS, enabling private investors to directly initiate arbitration proceedings against host states. ²⁷⁾ This provision is particularly significant because it circumvents the traditional requirement of diplomatic protection, allowing investors to pursue claims