On 30 May 2024, the Council of the European Union adopted the final decisions that will lead the EU, alongside Euratom, to leaving the Energy Charter Treaty. This article traces the steps that the EU has taken from wholehearted support for the ECT, to prevarication on whether to modernise it, and finally to a decision to leave the treaty. The EU’s departure from the ECT may mark the start of a concerning trend for investors who are looking to assess the EU’s continued membership of international treaty organisations.
Background: What is the ECT?
With the dissolution of the Soviet Union, in early 1991 the Prime Minister of The Netherlands, Ruud Lubbers, created the ‘Lubbers Plan’ to enhance cooperation between the former Soviet states, who needed investment, and European countries, who needed security of supply. Lubbers’ efforts culminated in the declaration of the European Energy Charter in December 1991. The Energy Charter Treaty was signed in December 1994, and provided basic protections for investments, non-discrimination rules for energy trade (based on World Trade Organization principles), dispute resolution provisions and the promotion of energy efficiency.
Whole-hearted support
The ECT is not the only multinational treaty organisation that the EU is a part of, as the EU was one of the founding members of the WTO. Much like its response to the WTO’s aims of economic integration, the EU found that the ECT’s policy goals of energy security, investment protection, market liberalisation, and economic integration with its neighbours was compatible with its long-term objectives.
Prevarication
Early signs of difficulty
With the arrival of the 2015 Paris Climate Agreement as well as European-level instruments such as the European Green Deal and the European Climate Law, the EU and its Member States began to regard the ECT as too friendly to carbon-intensive industries. This view crystalised in 2015 when 30 cases commenced, primarily against Spain, as a result of the withdrawal of regulatory measures that had incentivised investments in renewable energy. Despite several awards made against Spain and other EU Member States, concerted efforts to depart from the ECT did not begin at this stage (the exception, of course, being Italy, which deposited its notification of withdrawal on 31 December 2014). Instead, the ECT signatories embarked on a process of re-evaluating the treaty.
Modernisation
The Council of the EU gave a mandate to the European Commission to start negotiations on the modernisation of the ECT on 15 July 2019. In the years that followed, negotiations were kept under wraps; and the Commission announced on 24 June 2022 that negotiations on the modernisation of the ECT between the 53 Contracting Parties had concluded.
The Commission proposed to the Council of the EU a draft Decision on 5 October 2022 which covered (i) the proposed changes to the ECT (CC 761), (ii) the proposed changes to Understandings, Declarations and Decisions (CC 762), and (iii) the entry into force of a Modified ECT (CC763).
In its second reading of the Proposed Decision on 7 November 2022, the Council of the EU added in the preamble that one of the reasons why the EU should adopt the proposed amendments was to ensure that modern standards of investor-state dispute settlement would be included in the ECT.
Finally, on 10 November 2022, the EU Member States announced through their permanent representatives that they would accept the draft Council decision, which was published on 14 November 2022. This text was scheduled to be adopted in anticipation of the 33rd Meeting of the Energy Charter Conference which was due to be held on 22 November 2022.
But why did all of this momentum stop?
Withdrawal by individual EU Member States
On 20 October 2022, a fortnight after the European Commission had presented its draft Decision to the Council of the EU, Politico reported that Spain, the Netherlands and Poland had announced their intention to withdraw from the ECT, and Germany, France and Belgium were “examining their options”. A European Commission spokesperson was quoted by Politico as saying that “the Commission is not preparing a coordinated withdrawal [and] EU will remain party to the ECT in its own right.”
In a plenary meeting on 24 November 2022, the European Parliament passed a resolution on a statement calling for a coordinated exit from the ECT, citing the continued protection of fossil fuel investments under the treaty as being incompatible with the Paris Agreement, the EU Climate Law and the objectives of the European Green Deal. According to the political guidelines of the European Commission, the European Parliament would have to give its consent before the Commission could begin implementing the modernised text via a series of regulations and decisions. However, the European Parliament decided to follow domestic pressures to leave the ECT, and without the Parliament’s consent, the modernisation could not proceed.
The Commission was faced with two options: either revisit the proposals for modernisation of the ECT or accompany its Member States in withdrawing from the treaty. The Commission decided on a middle ground: it decided to allow individual Member States to affirm the modernisation of the ECT if they wanted to, but also began the process of withdrawing from the treaty.
Withdrawal by the EU
Following the European Commission’s announcement on 7 July 2023 that the EU, its Member States and the Euratom would withdraw, in a coordinated manner, from the ECT, the European Parliament’s Committee on International Trade (INTA) and Committee on Industry, Research and Energy (ITRE) published via the joint committee procedure the draft consent for the EU’s withdrawal on 7 March 2024. This recommendation was then passed by the joint committee on 9 April 2024, and the report was tabled for a single reading in the April 2024 plenary session of the European Parliament in Strasburg. Following a debate on 23 April, the European Parliament passed the resolution on 24 April 2024, by 560 votes to 43, with 27 abstentions.
Option for EU Member States to proceed with modernisation
On 1 March 2024, Commissioner for Energy Kadri Simson proposed a Council Decision which would have led to the EU, the remaining Member States that are contracting parties to the ECT, and Euratom to not prevent the adoption of the Modified EC. In other words, the Commission proposed an approach where it would not stand in the way of individual Member States to remain part of the ECT and to adopt the Modified ECT. This Decision was adopted on 30 May 2024.
This decision has caused a split within Member States: there are those that have decided to leave, including Spain, France, Germany and Poland; those who have decided to stay. For example, Péter Szijjártó, the Minister of Foreign Affairs of Hungary, confirmed Hungary’s continued commitment to the ECT’s modernisation when making the keynote speech at the Baku Energy Forum in June 2024.
Conclusion
The ECT has split the EU: some Member States have wanted to leave, others have wanted to stay and modernise it; and initially, at least, the Council of the EU and the European Commission supported modernisation. A political precedent has now been set: the EU has withdrawn from a multilateral treaty-based organisation because of political commitments at the domestic level. Questions could emerge about the stability of other international bodies subject to domestic political pressure following the EU’s departure from the ECT. An obvious example is the WTO – a body constantly subject to significant domestic political pressure in Member States. With the recent election of a new European Parliament, it would be wise for international investors to prepare for the EU to enter unchartered waters.
