The European Commission formally proposes to withdraw from the ECT

On July 7, 2023, the European Commission issued a statement proposing that the European Union, its member states, and EURATOM (the supply agency of the European Atomic Energy Community) conduct a coordinated withdrawal from the Energy Charter Treaty (the ECT). This announcement follows France, Germany and Poland’s formal notification in December 2022 of their unilateral withdrawal from the ECT, and similar declarations of intent by other EU member states (Spain, The Netherlands, Luxembourg and Slovenia) in 2022.

According to the Commission, the ECT, which has not been amended since the 1990s, has become outdated and is no longer compatible with the EU’s climate change objectives set forth in the European Green Deal and the Paris Agreement.

The European Union was active in the ECT modernization efforts,[1]  but those negotiations stalled in 2022, prompting the wave of declarations by individual states of their intent to leave the ECT. The Commission now takes the position that the “most consistent approach from a legal and policy perspective” is to withdraw. This is likely to be a time-consuming process, as the Commission’s proposal must first be submitted to the Council of the European Union and then receive a majority vote. Once the vote has been cast, the European Union will need to serve a formal notification to the Depositary of the Energy Charter Treaty. Withdrawal takes effect one year after the receipt of this notification.

However, withdrawal does not mean the ECT no longer applies. The ECT contains a sunset clause, pursuant to which all investments covered by the ECT at the time a withdrawal takes effect continue to enjoy protection under the Treaty for 20 years. The European Commission considers that this provision does not apply to intra-EU investments, but the European Commission’s reasoning has been largely contested and, so far, consistently rejected by arbitral tribunals. For existing investors, the European Union’s withdrawal from the ECT may not necessarily lead to any lesser protection for the next 20 years.

The European Union’s likely exit from the ECT does not necessarily mean that Europe will not play a part in future endeavors to negotiate a modernized ECT or equivalent treaty. As the Secretary General of the Energy Charter Secretariat explained, even contracting parties that withdraw from the current ECT will have the opportunity to endorse and ratify the modernized text of the ECT. However, given that recent modernization efforts stalled, it remains to be seen whether there is still a path forward after the likely exit of the European Union, its member states, and EURATOM from the ECT.

[1]  For our prior discussion of the ECT’s Modernization Efforts see “The Energy Charter Treaty: What to look for from the next ad hoc Energy Charter Conference.”