The European Union Proposal for the Modernisation of the Energy Charter Treaty – A Model for Climate-Friendly Investment Treaties?

Abstract

Abstract The Energy Charter Treaty (ECT), which provides for an investment protection regime in the energy sector, has been undergoing a modernisation process. The European Union (EU) submitted a proposal with a focus on aligning the ECT with the Paris Agreement. This article explores whether the EU proposal, which is largely reflected in the agreement in principle on the modernisation of the ECT, constitutes a model for a climate-friendly investment treaty. It analyses the aspired phase-out of protection for fossil fuels, the right to regulate, fair and equitable treatment and the sustainable development chapter together with its State-to-State dispute settlement mechanism. Given the phase-out of fossil fuel protection, the article argues that the proposal is too restrictive for climate-friendly investors. At the same time, its provisions on the right to regulate and sustainable development are not innovative enough for a climate-friendly investment treaty, although its State-to-State dispute settlement mechanism holds potential for inter-State climate litigation.