EU withdraws from the Energy Charter Treaty

The Council of the European Union announced on 27 June 2024 that the EU has taken the final step to exit the Energy Charter Treaty (“ECT”) since it is not compatible with the EU’s climate and energy goals under the European Green Deal and the Paris Agreement. The ECT was signed in December 1994 and entered into force in April 1998. Currently there are 53 signatories and contracting parties to the ECT, including both the European Union and Euratom. The ECT contains, amongst others, provisions on investment protection, dispute settlement, transit and trade in the energy sector.

One of the reasons of the withdrawal is that the ECT is not in line with the EU’s climate and energy goals and its investment protection framework. The Commission stated that is has subsequently proposed withdrawal for the EU, Euratom and the Member States, mostly due to concerns over protection of fossil fuels investments. In May 2024 an agreement was found with Member States to proceed with the withdrawal and the modernisation process in parallel. At the same time, the Commission has been engaged with the Member States for years to clarify the legal context for disputes under the ECT. The problem of dispute resolution based on the ECT was addressed by the Komstroy judgment. In this judgement the EU Curia stated that although the ECT may require Member States to comply with the arbitral mechanisms for which it provides in their relations with third state investors’ investments in those Member States, preservation of the autonomy of EU law precludes the same obligations under the ECT from being imposed on Member States as between themselves.

In light of the foregoing, the EU Curia concluded that the ECT must be interpreted as not being applicable to disputes between a Member State and an investor of another Member State concerning an investment made by the latter in the first Member State. For the above-mentioned reasons, the Commission noted that two written notifications have been sent by the Council and Commission to the Government of Portugal, which is the official depositary of the ECT, notifying respectively of the withdrawal of the European Union and Euratom. These withdrawals will take effect in one year. At the same time, the remaining member states will be able to support the modernisation of the ECT when voted on during the next Energy Charter Conference.