Can the EU withdraw from the Energy Charter Treaty? – The sunset clause problem

|Clémence Cantin, étudiante en Master 2 Droit International et Européen à la Faculté de Droit, d’Economie et de Gestion de l’Université d’Angers.

In a resolution adopted on the 24th of November 2022, the European Parliament affirmed its determination to see the European Union (EU) withdraw from the Energy Charter Treaty (ECT), which led the European Commission (EC) to recommend a collective withdrawal of all 27 Member States of the EU. Until then, and as of 2017, the EC had been leading negotiations between all the Contracting Parties in an attempt to modernize this very controversial treaty. This decision echoes a wave of ECT denunciations by some EU Member States, whom, last November, shared their opposition towards the proposition to adopt the reformed text of the ECT.

However, article 47(3) of the ECT includes a “sunset clause”, which states that its provisions shall apply to the contracting parties for 20 years should they unilaterally withdraw from it. Therefore, if the EU were to withdraw from the ECT in 2023, the provisions regarding the protection of investors would continue to apply until 2043.

  • The ECT: harmful, outdated and incompatible with the EU’s upcoming environmental ambitions

The ECT, which came into force in 1998, is binding on some 50 States and the EU. It aims to promote and facilitate investment in the energy sector. It establishes a mechanism for investors to bring cases before an arbitration tribunal if they believe that a state is violating protection afforded to them. As of 2022, 150 arbitration cases have been brought under the ECT, making it the most frequently invoked international instrument by investors.

Furthermore, a significant number of these claims relate to the enactment of environmental measures by the state in question. It must be noted that the exorbitant amounts of compensations demanded by investors, who often win the dispute, especially when the dispute is brought under the ECT, give rise to a widespread fear of being sued by investors on the part of States, resulting in a “regulatory chill” that often prevents the adoption of more ambitious, although necessary, environmental regulations.

Indeed, the EU and its Member States have set ambitious environmental protection targets for themselves: the European Green Deal adopted in 2019 aims for climate neutrality by 2050. The EU and its Member States have also adopted the 2015 Paris Agreement, and must therefore strive to limit global rise in temperatures to 1.5°C compared to pre-industrial levels.

These goals seem irreconcilable with the very wide protection granted by the ECT to energy investors, in particular fossil fuels investors. In this regard, in 2022, an opinion from the French High Council for the Climate stated that the ECT contravened the climate objectives set out by the Paris Agreement in particular. In June 2022, five alleged victims of climate change filed a complaint before the European Court of Human Rights denouncing the environmental impact of the ECT.

  • The sunset clause: insurmountable obstacle or petty hindrance?

While sunset clauses are not uncommon in bilateral investment treaties or free trade agreements, the ECT’s clause is notable for its longevity, and more generally raises questions about the ability of the EU and its Member States to unilaterally withdraw from their conventional obligations. However, the sunset clause is not in itself a forgone conclusion.

First, article 47(3) only provides for the activation of the sunset clause if a contracting party unilaterally withdraws from the ECT, but is silent on the consequences of a coordinated withdrawal by all Contracting parties. If all parties could agree to unanimously withdraw from the ECT, therefore terminating the treaty, it could be argued that the sunset clause would not activate, provided that the parties indicate that the termination of the treaty implies the extinction of the sunset clause. However, that solution seems unlikely at best.

Article 42 of the ECT also provides a possibility of amending the Treaty by unanimity. In this sense, the EU had proposed to limit the extent of the sunset clause for fossil energy investments to 10 years. However, the provisional agreement on the modification of the ECT maintains the sunset clause to its original duration and significant differences remain between the contracting parties on the need to prioritize environmental protection over foreign investment protection.

Alternatively, the EU and its Member States could, on the basis of the Achmea and Komstroy case law recently forged by the European Court of Justice (ECJ), argue that the jurisdiction of the ECJ overrides the jurisdiction of arbitral tribunals for intra-European investments, thereby subjecting the dispute to European law, which is less favorable to investors and more protective of the environment. However, arbitral tribunals do not feel bound by this case law, and most often dismiss this argument in favor of their own jurisdiction, on the basis of the jurisdiction clause in article 26 of the ECT.

It could also be argued that in environmental matters, the application of treaty protection to investors whose activities pollutes the most would be contrary to the Paris Agreement. Article 26 (6) ECT provides that, in case of conflict of norms, the applicable rules and principles of international law shall apply. It could therefore be argued that the Paris Agreement, lex posterior, should prevail. But this presupposes that the ECT and the Paris Agreement regulate the same subject matter, and arbitral tribunals have yet to settle on the matter. Such a solution seems unlikely : in the Ekosol (§146), EURAM (§184) and Addiko Bank v. Croatia (§293) cases, investment tribunals already rejected claims that EU law and BIT regulated the same subject matters, avoiding normative conflict. Furthermore, this solution would imply to bring EU Member States before a tribunal once again, potentially exposing them to substantial compensations.

In the absence of a specific provision in the ECT and on the basis of article 41 (1) of the Vienna Convention on the Law of Treaties, the EU and all its Member States could also agree to modify or ignore the sunset clause in their mutual relations. Unfortunately, it is not certain that such an agreement would fall within article 41 (1) provisions, as it is unsure whether it would be compatible with the object and purpose of the ECT.

As it stands, it seems that it is not possible to get around the sunset clause. The only possible solution for the EU and its Member States would be to follow the recommendation of the EC and collectively withdraw from the ECT: the longer the EU remains in the ECT, the longer the protection of investors in the energy sector will last and climate change doesn’t wait.



Citer ce billet
lighthouseua (2023, 6 mars). Can the EU withdraw from the Energy Charter Treaty? – The sunset clause problem. The Lighthouse. Consulté le 23 juin 2024, à l’adresse https://doi.org/10.58079/qw7f

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