Article from: TDM 1 (2019), in Editorial
The Energy Charter Treaty ('ECT') provides a multilateral framework for energy cooperation that is unique under international law. It is a binding multilateral agreement, designed to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources. The ECT's core areas of cooperation are investment, trade, transit, energy efficiency and dispute resolution.
Under the auspices of the Energy Charter Conference, the Parties to the ECT meet regularly to consider both the implementation and the improvement of the ECT. Since 2015, and in line with global trends in the fields of investment and trade, the ECT members have been focusing increasingly on the 'modernisation' of the ECT. The first phase of modernisation of the Energy Charter Process was finalised successfully in 2015, with the adoption of the International Energy Charter (which updated the initial political declaration signed in 1991). Today, 87 countries and international organisations have signed it.
The next step in the modernisation process is to consider the potential need and/or usefulness of updating, clarifying or modernising the ECT, in view of the rapidly evolving energy landscape (not least in the areas of technology and climate change). In order to contribute to this discussion, we decided to convene a TDM Special Issue on the "Modernisation of the Energy Charter Treaty (ECT)" in July 2018.
After a thorough review process, we selected a number of papers based on high academic quality and relevance for legal practice, while ensuring that a broad range of different issues and perspectives were covered.
Urban Rusnák, Secretary General of the Energy Charter Secretariat, provides the introduction, setting out the historical background to modernisation of the ECT and the issues considered by the Parties.
Graham Coop and Isabella Seif examine the modernisation of the Energy Charter Treaty from an institutional perspective. Their contribution first considers this phase of modernisation in the context of the evolution of the Energy Charter Process so far and then examines what impact the potential amendments of the Energy Charter Treaty may have on the institutional framework of the Energy Charter Process.
Marie Stoyanov and Stephanie Hawes explore whether the definition of 'investor' should be narrowed, making it more difficult for investors to qualify for ECT protections. Additional criteria to do so include a stipulation that a company must have its "seat" and engage in "real/substantial business" activities in the home State; exclusion of individuals with dual nationality (including that of the host State); and exclusion of investors whose ultimate beneficiary is a national of the host State. The article questions whether a "modernised" approach should, indeed, be adopted and suggests that a wide definition can be considered as accounting for the fact that investments, nowadays, are made in a myriad of complex ways or dual nationality with increased global mobility.
Next, Simon Maynard and Agnieszka Ason examine whether the ECT is equipped to embrace energy transition. The answer turns, at least in part, on the breadth and flexibility of the definition of "investment" under the ECT. The purpose of their article is to examine this multi-layered concept, in particular the stipulation that an "investment" must be "associated with an Economic Activity in the Energy Sector", by reference to two rapidly expanding technologies - liquefied natural gas (LNG) and hydrogen. In doing so, the paper shows that the notion of an Economic Activity in the Energy Sector may fail to deliver a clear answer as to whether such growth technologies will be considered covered investments for the ECT's purposes, and thus attract the broad substantive protections it offers.
Philippe Pinsolle puts forward a proposal to modernise Article 13 ECT (on expropriation) in order to address the increasing prevalence of disputes regarding indirect expropriations, resulting from continuous series of State actions. The paper takes as a starting point the proposition that an expropriation is not per se unlawful. It further suggests codifying the principle that, if the expropriation is unlawful, the asset is to be valued at either the date of the expropriation or the date of the award. Regardless of the date, the investor is to be entitled to the value of the asset and to compensation from any additional damages arising from the expropriation.
In her paper, Crina Baltag calls for an amendment of Article 26(6) of the ECT that would expressly refer to the international rules concerning environmental protection, including other areas of relevance for sustainable development, such as the protection of human rights. She argues that such an amendment would be timely in the light of the current debate regarding the legitimacy and efficiency of investor-State dispute settlement (ISDS). A direct reference to environmental protection may restore the balance between the different interest groups, while strengthening the rule of law and the principle of systemic integration. Baltag further suggests that arbitral tribunals ought to be compelled to consider such rules in the law applicable to the merits, rather than leaving a broad margin of discretion to the tribunal. Furthermore, this amendment would align the provisions of Article 26 of the ECT with the general goals of the ECT, for the benefit of all disputing parties.
Following up on this topic, Sarah Keay-Bright argues that the Energy Charter Treaty's coverage of sustainable energy resources is incomplete - but could be addressed by amending the Treaty, particularly by redefining economic activity in the energy sector. This is however challenging to do as the energy sector is increasingly integrating with other sectors. Defining the boundary of the energy sector and extending ISDS to demand-side management, however, could be sub-optimal and alternatives should be evaluated.
The final paper in the special issue is written by Martin Dietrich Brauch and Nathalie Bernasconi-Osterwalder, and focuses on how to make the ECT work for the low-carbon transition, in light of developments in international investment law and policy, the Sustainable Development Goals and the Paris Agreement on Climate Change. The authors note that the proposed list covers important issues that need to be addressed to deal with government concerns about policy space and rebalancing rights and obligations, but it must be widened so as to include ISDS, climate change and related issues such as fossil fuels phase-out and low-carbon transition, if it is to be relevant for the advancement of the priorities set by the international community in relation to climate change.
We are grateful for the authors' contributions, and hope that this collection of very fine scholarship will help inform decisions by key stakeholders on the modernization of the ECT.
Freya Baetens, Ilija Mitrev Penusliski, Martins Paparinskis, and John Gaffney