Withdrawal from the ECT: European Commission calls for a coordinated exit

In a recent statement, the European Commission called for a coordinated withdrawal by the European Union (“EU”) and its Member States from the Energy Charter Treaty (“ECT”). This statement seems to represent a shift in the support for the modernisation of the ECT, previously backed by the European Commission.

As we discussed in a previous post and in our recent webinar dedicated to the Protection of Foreign Investments in the Energy Sector, throughout the five years of negotiations, the modernisation of the ECT has been criticized by energy sector investors and states. In fact, several EU Member States have expressed their intention to withdraw, claiming that the reform is insufficient considering their environmental protection goals. Against this background, the vote of the modernised text of the ECT was scheduled for 22 November 2022, during the 33rd Meeting of the Energy Charter Conference, but the EU Commission’s failure to procure a mandate from EU Member States in favour of the reform led to its postponement. Meanwhile, the EU Parliament adopted a motion calling the EU Commission and Member States to prepare a coordinated withdrawal and an agreement excluding the application of the sunset clause between willing contracting parties.

Despite encountering sturdy opposition, up until now the Commission seemed to persist with its support for the modernisation process. However, this past Tuesday, the European Commission noted that the current text of the ECT is not in line with the EU’s policy on investment protection or the European Green Deal, and that, despite its successful efforts to negotiate a modernised version of the ECT, there is no qualified majority in the EU Council to adopt this new text. This has led the Commission to call for a coordinated withdrawal by the EU and its Member States.

Referring to the ECT’s sunset clause, which extends the application of the treaty’s investment protection provisions to existing investments at the time of withdrawal, for 20 years from such date, the European Commission is reported to have further suggested member states to make a deal and agree that the ECT “does not apply, and has never applied in intra-EU relations”, in order to mitigate the effects of this clause and the impact of a coordinated withdrawal.

This proposal has already sparked reactions from some non-EU Member States. For example, Swiss officials stated in the press that Switzerland would not intend to join the EU’s proposed exit from the ECT, and the UK government is reported to have stated that it would continue to closely monitor the situation.

Given these recent developments and the increasing uncertainty on the future of the ECT and its modernization, stakeholders are recommended to closely follow any evolution in this respect, the outcomes of which may affect their business in the energy sector.