On 21 October 2022 President Macron announced France’s intention to withdraw from the Energy Charter Treaty (the ECT). This followed announcements by the Netherlands, Spain and Poland of similar plans to leave the Treaty. The news has left the future of the ECT more uncertain than ever, just under a month before the planned adoption of a re-vamped, “modernized” version of the ECT, by the Energy Charter Conference on 22 November 2022. Investors will still be able to bring claims but only during the 20-year sunset period.
The ECT allows investors to bring claims directly against states
The ECT was signed following the end of the Cold War in 1994 to offer protections to Western investors in Eastern Europe and the former USSR with the overall objective of securing Western Europe’s supply of fossil fuels. Over 50 states have since signed and ratified the ECT, including the EU.
Those protections are offered to investors across the energy sector, who can bring claims against individual states if they believe legislative or policy changes constitute breaches of the treaty’s substantive protections.
France ratified the Energy Charter Treaty on 1 September 1999. France has only been sued once in September 2022[1] while nine French investors have brought claims against other ECT signatories.
France’s withdrawal announced as part of France’s climate change strategy
The announcement of France’s planned withdrawal from the ECT came at the end of an European Council summit devoted to the energy crisis in Europe. Many believe the ECT deters signatories from implementing effective climate change policies, including plans to reduce their reliance on fossil fuels.
President Macron justified the withdrawal by plans to « move as quickly as possible towards the EU as an all-electric continent” and as consistent with the country’s commitments under the Paris Agreements.
The day before, on 20 October 2022, France’s High Council for Climate, an advisory body, said the ECT is incompatible with France and the EU’s efforts to decarbonize the energy sector by 2030 contrary to climate goals set out in the Paris Agreement in line with the Paris Agreement.
This is all despite the fact that the majority (91) of the 150 publicly known disputes[2] submitted to arbitration have involved investments in the renewable sector, with the Czech Republic, Italy and Spain on the receiving end of over half (70) of those disputes. The spectrum of the investors ranges from large corporations, holdings, banks, investment funds to SMEs and individual investors.
It may be that these disputes are arising because the sector, and its legislative framework, is still yet to fully mature, and the proliferation of claims relating to renewables is because of governments having to respond to the evolving risks of climate change. Or it may be that renewables dominate because they are not as well established or influential as the fossil fuel players. Whatever the reason, it is clear that France is joining an increasing number of states that do not see the ECT as encouraging investment in a way that furthers its climate goals.
What does the withdrawal mean for investors in France’s energy sector?
The ECT’s so-called “sunset clause” provides that investments made until the effective date of withdrawal continue to be protected for 20 years after withdrawal. The announcement is expected to be followed by concrete legal steps.[3]
The future of the ECT remains uncertain
France’s announcement is not isolated. It follows the Netherlands, Spain and Poland which have each similarly announced plans to withdraw from the ECT. Without the support of France, the EU could be next. Italy withdrew from the ECT in 2015.
The news comes weeks only before the planned adopted of a revised, “modernised” version of the ECT text by the Energy Charter Conference on 22 November 2022. The revisions were agreed in June. While the revised text would continue to protect coal, oil and gas investments, contracting states would have the option to exclude investment protection for fossil fuel related investments made after August 2023, and existing investments after 10 years.
The revised text must be approved by all current ECT signatories. Various European members of parliament such as the Chair of the European Parliament’s committee on International Trade have voiced their opposition to the revised ECT text. In these circumstances, possibility of further withdrawals cannot be ruled out.
[1] The note of the dispute available on the ICSID website indicates that the proceedings are currently suspended.
[2] As of 25 October 2022. Source: UNCTAD.
[3] Under Article 47 of the ECT withdrawal takes effect one year after the date of receipt of the notification of withdrawal by the Treaty’s depositary. We understand that France has not yet notified its withdrawal to the Treaty’s depositary, Portugal.
