EU Finalizes Exit From Energy Charter Treaty To Align With Climate Goals

The European Union has officially begun the process of withdrawing from the Energy Charter Treaty (ECT), a multilateral trade and investment agreement for the energy sector. The decision comes as the ECT is deemed incompatible with the EU’s climate and energy objectives under the European Green Deal and the Paris Agreement.

The Council and Commission have sent two written notifications to the Government of Portugal, the official depositary of the Treaty, signaling the withdrawal of both the EU and Euratom. These withdrawals will take effect in one year.

This move follows the agreement by EU Energy Ministers last month to pursue both the withdrawal and the modernization of the Treaty concurrently. Additionally, the EU and its Member States have reached a formal agreement to end intra-EU arbitration proceedings under the ECT that are contrary to Union law. This agreement aims to clarify that the ECT’s arbitration clause does not and never has applied to disputes between EU investors and EU countries.

This clarification stems from the Komstroy judgment by the Court of Justice of the European Union (CJEU), which stated that arbitration clauses in the ECT are invalid within the EU framework. Despite this ruling, arbitral tribunals have continued to accept jurisdiction and issue awards in intra-EU cases. To address this, the Member States, the EU, and Euratom have negotiated an agreement under public international law to settle this matter.

A Declaration on the legal consequences of the Komstroy judgment was signed on June 26 and will be published in the Official Journal of the European Union. The inter se agreement is now subject to internal procedures for its signature and entry into force.

The Energy Charter Treaty, signed in 1994 and in force since 1998, includes the EU, Euratom, 22 EU Member States, and other countries such as Japan, Switzerland, and Turkey. Several EU Member States, including France, Germany, and Poland, have already exited the ECT, while others like Slovenia, Portugal, and Spain have initiated withdrawal procedures.

The European Commission has attempted to modernize the ECT to align it with the EU’s climate and energy goals but has faced a lack of majority support from Member States. Consequently, the Commission proposed withdrawing from the unmodernized Treaty, citing concerns over the protection of fossil fuel investments.

The Union joined the ECT as part of its external energy policy, with the arbitration offer never intended to replace the judicial protection system under EU Treaties. The CJEU’s Komstroy judgment recognized this interpretation as the proper way to view the ECT.