Client Earth | 27 April 2022
Energy Charter Treaty fundamentally incompatible with EU law, study finds
Withdrawal from the Energy Charter Treaty (ECT) is the only realistic way for the European Union to fix the outdated treaty’s incompatibility with the EU’s own laws, a new in-depth legal study has found.
In the first analysis to fully assess the ECT’s lawfulness in the bloc, conducted by Professor Christina Eckes and Dr Laurens Ankersmit at the University of Amsterdam and commissioned by ClientEarth, the research concluded that the international investment agreement as it currently stands is fundamentally at odds with the EU’s Treaties.
Legal experts found that the European Commission’s proposals to modernise the ECT and fix its legal flaws, a process that started in 2017, would not fully address the incompatibilities.
They concluded that the EU’s withdrawal from the treaty was therefore the best viable solution, given that certain proposals fall outside of the scope of the ECT negotiations and therefore are not politically feasible.
Amandine Van Den Berghe, ClientEarth lawyer, said: “It’s clear from the study that no amount of ‘modernisation’ will make this climate-wrecking investment treaty compatible with EU law.
“The only way forward is to abandon the ECT and finally break free from the shackles it places on climate action.”
At the core of the legal tensions is the controversial “investor-state dispute settlement” mechanism, which gives companies the power to sue states for billions in compensation when environmental or climate action harms their financial interests.
Last year, the EU Court of Justice confirmed in a landmark judgment known as Komstroy that arbitration proceedings by EU investors against European states is illegal and has no place in the Union.
However, the question of the compatibility of the ECT with EU law as regards “extra-EU arbitration”, involving non-EU investors or non-EU countries, has so far not been explicitly addressed by the court.
The study found that the line between these two types of arbitration is blurring as companies move their seat outside of the Union in order to sidestep the effect of the decision, meaning both avenues could adversely affect the judicial and institutional framework of the EU.
Dr. Laurens Ankersmit said: "The ECT has long been out of date, both in terms of legality and in terms of climate policy. Withdrawal of the EU from the ECT is the only realistic option at this stage to remedy these problems and member states will have to follow suit.”
Given the contradiction with the EU Treaties, the study also found that the validity of the European Council’s decision to join the ECT could be challenged before EU courts.
“Even in the unlikely event that an ambitious modernised deal is secured, the door will still be open to challenge the EU’s membership of the investment treaty in court,” Van Den Berghe said.
“This would mean both EU institutions and member states may be forced to quit this dangerous treaty after all.”
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