Following a wave of withdrawals by Member States including Italy, France, Germany and Poland, the European Union (“EU”) will now withdraw from the Energy Charter Treaty (“ECT”).
Although the European Commission had initially called on EU member states to withdraw from the ECT in a coordinated manner, on 7 March the 27 Member States adopted a compromise solution consisting in a withdrawal of the European Union as an organisation, while allowing Member states that wish to do so to remain party to the ECT.
On 24 April, a majority of MEPs voted in favour of this European Council proposal (560 in favour, 43 against and 27 abstentions).
A process to modernise the TCE was launched in 2017, but the treaty remains one of the most controversial in the world. In particular, EU member states considered that the ECT was no longer compatible with the EU’s climate goals, especially in light of the Green Deal and the agreement reached in Paris at the end of COP 21.
However, the ECT contains a sunset clause providing that it will continue to apply to investments made in the host countries for a period of 20 years from the date on which the withdrawal takes effect (Article 47(3) of the ECT).
Discussions are underway to conclude an agreement between EU Member States to deactivate the sunset clause, thereby limiting the risk of arbitration claims brought by investors from the EU. For such investors, the effect of the sunset clause would be reduced from 20 years to 1 year.
