Amendments to the Energy Charter Treaty
On 3 December 2024, the Contracting Parties to the Energy Charter Treaty (ECT) voted in favour of adopting a modernised version during the Energy Charter Conference. Clément Bonnechère, Ciarb’s policy and professional practice intern, takes us through the amendments.
The background
In 2017, the Energy Charter Secretariat and Conference[1] began discussions on modernising the Energy Charter Treaty (ECT), leading to 15 rounds of negotiations. By June 2022, an agreement (in principle) on the modernisation was approved, with a final vote scheduled for 22 November 2022.
However, following the agreement, several Contracting Parties announced their plans to withdraw, largely citing climate change related concerns. This delayed the final vote, and on 24 November 2022 the European Parliament passed a resolution calling for a coordinated EU withdrawal from the ECT.
As of now, 10 Contracting Parties, including Germany, France, the UK, Spain, the Netherlands, Poland, Slovenia, Luxembourg, Portugal, and the EU, have formally notified their withdrawal. The deadlock was eventually resolved through a political compromise, allowing the EU Council to vote for the EU’s withdrawal while permitting EU Member States to either approve or not oppose the modernisation.
Nevertheless, after two years of repeated postponements and uncertainty, on 3 December 2024 the modernised version of the ECT was approved by the Contracting Parties .
The modernised text
The amendments in the final version of the ECT align with those outlined in the 2022 agreement, the key features of which are summarised below.
Amendments to the dispute resolution provisions
The modernised treaty introduces several significant changes to the arbitral dispute resolution process under the ECT.
The new Article 26 of the ECT provides for the direct application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (The Mauritius Convention) by the arbitral tribunals constituted under the ECT.
Other changes include the introduction of mechanisms allowing arbitral tribunals to summarily dismiss frivolous or unfounded claims[2], or allowing states to request investors to post security for costs[3], disclosure of third-party funding[4], and monetary damages in the case of expropriation[5].
Clarification for what constitutes “Fair and Equitable Treatment” and “Indirect Expropriation”
The 1994 version of the ECT imposed a broad obligation on States to provide investors with fair and equitable treatment[6]. The modernised version now includes a detailed, exhaustive list of six specific actions that define a violation of the fair and equitable treatment standard[7].
Similarly, the indirect expropriation standard in the previous version of the ECT has been modified by introducing a set of factors for consideration and explicitly excluding measures aimed at achieving public policy goals, such as environmental protection (including climate-related concerns)[8].
Flexibility mechanism allowing signatories to exclude investment protections for fossil fuels
The new version of the ECT now provides for adjustments to the fossil fuel investment protections. New exclusions have been introduced for certain investments, which are tailored to specific countries, with varying scopes[9]. In summary, the key changes are as follows:
- Investments made before 3 September 2025 in the EU that involve a broad range of fossil fuels, including coal, oil, petroleum gases, and similar materials, will be excluded from investment protection 10 years after the amendments come into force, but no later than 31 December 2040.
- Investments made before 3 September 2025 in the UK that involve (i) certain environmentally harmful fuels, such as coal, lignite, and peat, will be excluded from investment protection upon the amendments' entry into force, and (ii) other fossil fuels like oil and petroleum gas will be excluded 10 years after the amendments come into force.
- Investments made on or after 3 September 2025 in the EU and its Member States, or the UK, related to any coal, oil, petroleum gas, or similar materials, will be excluded from investment protection from the date the amendments enter into force.
- Investments made on or after 3 September 2025 in Switzerland, related to non-low-carbon hydrogen and synthetic fuels with no significantly reduced life cycle greenhouse gas emissions, will be excluded from investment protection from the date the amendments enter into force.
Carve-out for intra-EU investment disputes
The amendments clarify the applicability of the dispute resolution provisions in Article 26 of the ECT to intra-EU disputes. Specifically, a new sub-clause has been added to Article 24, clarifying that Articles 7, 26 (concerning investor-State disputes), 30, 30 bis, and 32 will not apply between Contracting Parties that are members of the same Regional Economic Integration Organisation in their mutual relations (e.g. between EU Member States).
Amended definitions of “Investor” and “Investment”
The 1994 version of the ECT allowed any citizen or permanent resident of a contracting state to seek protection under the ECT for a qualifying investment. From now on, this provision does not include natural person investors who are residents of, or hold the nationality of, “the host Contracting Party at the time the investment was made or acquired”. Similarly, corporate entity investors that do not conduct “substantial business” in the territory of a contracting state are now explicitly excluded. New provisions further outline how the “substantial business” requirement should be assessed[10].
Furthermore, the amended ECT has revised the definition of “investment” to include only those investments “made or acquired in accordance with the applicable laws” of the host state, and which meet certain criteria, including capital commitment, the expectation of gain or profit, and the assumption of risk[11].
Sustainability commitments
Article 19 has been revised to emphasise that States acknowledge the importance of environmental protection[12], with the addition of a new "right to regulate" provision that affirms States' authority to safeguard the environment[13]. A completely new Article 19 bis has also been introduced, outlining a general commitment by Contracting Parties to honour their obligations under the United Nations Framework Convention on Climate Change and the Paris Agreement. Additionally, the modernised ECT now includes a dispute resolution mechanism for addressing issues related to Article 19, allowing Contracting Parties to refer any disputes to the Secretary-General, who may appoint a conciliator[14].
The applicability of the ECT
Applicability of the ECT to active Contracting Parties
The amendments outlined above will be provisionally applied starting from 3 September 2025, although Contracting Parties have the option to opt out of this provisional application before 3 March 2025[15]. The amendments to the ECT will take effect on the ninetieth day after at least three-fourths of the Contracting Parties have submitted their instruments of ratification, acceptance, or approval to the ECT Depositary, but they will only apply to those Contracting Parties that have ratified, accepted, or approved them.
Post-withdrawal applicability of the ECT: the sunset clause
As per Article 47(2) of the ECT, a one-year notice period is required before a withdrawal takes effect ("shall take effect upon the expiry of one year after the date of receipt of the notification"[16]). Contracting Parties wishing to withdraw from the ECT before the modernised version becomes effective must have therefore given written notification of such decision to the ECT Depositary before 3 September 2024.
Once the withdrawal becomes effective, the sunset clause is triggered. Under this clause, the ECT remains applicable to investments made before the withdrawal for an additional 20 years[17]. Any investments made during the notice period are also covered by the sunset clause.
This mechanism is illustrated by the Rockhopper case[18]. In this international centre for settlement of investment disputes (ICSID) case, after Italy withdrew from the ECT, Rockhopper initiated legal proceedings against Italy over its offshore oil and gas drilling ban, which led to the rejection of its application for an exploitation concession. Italy notified the ECT Depositary of its withdrawal on 31 December 2014, and the withdrawal became effective on 1 January 2016. The proceedings were filed in 2017, falling under the sunset clause provisions of the ECT, which will remain in effect until 1 January 2036.
While awaiting a clearer understanding of the implications of the above-mentioned amendments, the adoption of the modernised version marks a significant milestone for the ECT, as it is set to influence ECT arbitrations within the EU, while contributing to efforts in combatting global climate change.
[1] The Energy Charter Conference, an inter-governmental organisation, is the governing and decision-making body for the Energy Charter process, and was established by the 1994 Energy Charter Treaty. All 48 states or Regional Economic Integration Organisations who have signed or acceded to the Energy Charter Treaty are Members of the Conference
[2] Modernised version of the ECT, Article 27.
[3] Modernised version of the ECT, Article 28.
[4] Modernised version of the ECT, Article 29.
[5] Modernised version of the ECT, Article 26(10).
[6] 1994 version of the ECT, Article 10(1).
[7] Modernised version of the ECT, Article 10(2).
[8] Modernised version of the ECT, Article 13(3).
[9] For more details, see Annex NI of the ECT.
[10] Modernised version of the ECT, Article 1(7).
[11] Decision of The Energy Charter Conference on Modifications and Changes to Annexes to the Energy Charter Treaty, 3 December 2024, Section I.3.
[12] Modernised version of the ECT, Article 19(1).
[13] Modernised version of the ECT, Article 16.
[14] Modernised version of the ECT, Article 30 BIS.
[15] Decision of The Energy Charter Conference on Modifications and Changes to Annexes to the Energy Charter Treaty, 3 December 2024, Section
[16] Modernised version of the ECT, Article 47(20), also present in the 1994 version.
[17] Modernised version of the ECT, Article 47(3), also present in the 1994 version.
[18] Rockhopper Italia S.p.A., Rockhopper Mediterranean Ltd, and Rockhopper Exploration Plc v. Italian Republic, ICSID Case No. ARB/17/14.
Clément Bonnechère is currently working at Ciarb as an International Arbitration Professional Practice Intern. He holds an LLM in International Commercial Law from the University of Exeter, a Master's degree in Corporate Litigation from the University of Paris 1 Panthéon-Sorbonne and a Law degree from the University of Rennes 1. With a strong interest in national and international dispute resolution, he is committed to contributing meaningfully to this field.
