The Energy Charter Conference officially adopts modernization of the Energy Charter Treaty

Insights|December 5, 2024

Lengthy reform process officially concluded on 3 December 2024.

In a press release issued on 3 December 2024, the Energy Charter Secretariat announced that the Energy Charter Conference has adopted and approved several decisions and thus officially adopted a modernized version of the Energy Charter Treaty (“ECT”). As noted in a Public Communication issued by the Energy Charter Conference, these decisions represent the formal adoption by the Energy Charter Conference of the modernized text of the ECT, negotiated and agreed to earlier in an agreement in principle from June 2022. This concludes a lengthy reform process that entails a number of significant changes to the ECT.

Background

While most modernization negotiations regarding the ECT[1] were concluded in June 2022, the adoption of these amendments has been delayed due to disagreements within the European Union (“EU”) and between its member states on whether to proceed with the modernization process of the ECT or to withdraw from the ECT entirely. However, the deadlock was resolved in May 2024 when the EU Council adopted the so-called “Belgian roadmap“, allowing the EU, Euratom, and several member states to withdraw from the ECT without blocking the modernization process, while remaining member states could support the modernization of the ECT.

Amendments and revisions

The modernized ECT entails significant revisions to provisions on energy investment, transit, sustainability, and investor-state dispute settlement. According to the Energy Charter Conference, these revisions address current challenges in the energy sector and international investments, which have highlighted the need for modernization to promote environmental protection and energy security.

An overview of the main changes and amendments in the modernized text of the ECT is provided in a previous Decision of the Energy Charter Conference dated 24 June 2022. Some important revisions include the following:

  • New articles and preamble provisions highlighting each state’s right to regulate and address climate change.
  • An option for a carve-out for fossil fuel investments with various alternatives, outlined in a new Annex.
  • A provision specifying that the investor-state dispute settlement system in Article 26 of the ECT does not apply to relations between member states of a Regional Economic Integration Organization, notably excluding intra-EU investor-state claims.
  • More limited definitions of “investor” and “investment”.
  • More restrictive standards of protection.
  • Revised wording indicating that the denial of benefits clause can be invoked after arbitration has commenced.
  • Provisions on new expedited review mechanisms, treaty shopping, third-party funding, and security for costs.

Entry into force

Moreover, the Energy Charter Conference adopted a Decision on Entry into force and Provisional Application of the modernized ECT, providing for the following:

  • The amendments to the ECT and Section C of Annex NI enter into force 90 days after at least three-quarters of the contracting parties have deposited their instruments of ratification, acceptance or approval to the depositary (in accordance with Article 42(4) of the ECT).
  • The parties agree to a provisional application of the amendments to the ECT and Section C of Annex NI from 3 September 2025 onwards, unless a party chooses to opt out of the provisional application before 3 March 2025.
  • The modifications in Sections A and B of Annex NI enter into force on 3 September 2025, but they will not apply to ongoing disputes.

Roschier continues to follow closely the development of the modernization of the ECT and how this will affect ongoing and future investment disputes in the energy sector and the needs of its clients in this space. If you have any questions, please do not hesitate to contact the Roschier team.

[1] The ECT is a multilateral trade and investment agreement applicable to the energy sector that was signed in 1994 and entered into force in 1998. The ECT contains provisions on investment protection, trade and transit in energy materials and products, and dispute settlement mechanisms.