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Communication of the Secretary General on the modernisation of the Energy Charter Treaty

After two years of intense negotiations, on 24 June 2022, the Contracting Parties concluded the negotiations for the modernised Energy Charter Treaty (ECT) by reaching an agreement in principle.

This is a significant milestone, a historical one, for the International Energy Charter process.

A call for modernisation of the Energy Charter Process was made in 2010 when the Energy Charter Conference recognised “the need for investments in the energy sector […] to mitigate climate change" and that “the interaction between the states’ climate change policies and the ECT investment regime merits further analysis”. However, it was not until the end of 2017 that the Energy Charter Conference confirmed in Ashgabat, Turkmenistan, the launch of a discussion on the potential modernisation of the ECT itself. After consultations in 2018, the Conference approved in Autumn 2019 some suggested policy options for each of the agreed topics  and the mandate for the Modernisation Group to conclude negotiations expeditiously.

The ECT’s modernisation is a culmination of a long journey that paves the way for the energy transition to reach carbon neutrality in the longer term, based on the UNFCCC principle of “common but differentiated responsibilities”.

I would like to thank the delegates who participated in the negotiation process for their commitment, dedication and constructive approach to making this happen, especially under the constraints caused by the COVID-19 pandemic. I would also like to mention the important role of civil society in contributing to the modernisation of the ECT. We would not have succeeded without your support, and constructive criticism publicly expressed throughout the process.

Many critics saw the ECT as a threat to the global energy transition and an obstacle to the objectives of the Paris Agreement and the Contracting Parties’ climate ambitions, including the European Union's Green Deal.

On the contrary, once approved and ratified, the modernised ECT will have a much stronger climate focus, will be aligned with the objectives of the Paris Agreement and will support the global energy transition while ensuring affordable energy for all.

The amended ECT will strengthen the right of the governments to pursue their public policy objectives in the area of climate change adaptation and mitigation by, for example, excluding or phasing out the investment protection for fossil fuels. At the same time, it will facilitate sustainable energy investments as the extended definition of Economic Activity in the Energy Sector now includes carbon capture, utilisation and storage (CCUS), and the updated list of Energy Materials and Products cover hydrogen, biomass and biogas. In addition, every five years, or on such date as may be determined by the Energy Charter Conference, the governments will have a right to review the list of energy resources and technologies to reflect the up-to-date developments in the global energy market.

A solid and reliable legal environment for all existing and new ECT members is a prerequisite for any acceleration of energy investments. It is at the heart of the ECT that will provide more clarity and transparency in its updated text to facilitate clean energy investments and gradually phase out protection for fossil fuels. In the same vein, dispute settlement provisions of the ECT have been clarified with greater transparency in line with international best practices.

Indeed, it is widely known that the ECT is the most frequently invoked international investment agreement. However, what is essential to know is that the majority of investment disputes under the ECT are brought by small and medium enterprises and are related to renewable power generation. Of 150 publicly known investment arbitration cases under the ECT, 60 % are related to renewables.

Another critical aspect that raised many debates within the European Union in recent years is the clarity on the status of the Regional Economic Integration Organisation (REIO). The new text of the ECT clarifies that specific provisions related to transit, trade and dispute settlement, including investment arbitration, shall not apply among members of a REIO. This clarification particularly addresses concerns within the European Union, which is currently the only REIO-Contracting Party to the ECT.

The constituency of the International Energy Charter is unique – it brings together energy exporting, importing and transit countries. The transit provisions of the ECT were further strengthened to enhance energy security by introducing general principles for facilitation of transparent and non-discriminatory access to existing and future Energy Transport Facilities as well as denial of access, capacity allocation mechanisms and congestion management procedures and application of tariffs required for access to or the use of Energy Transport Facilities, as well as the methodologies used for their calculation.

There are also countries at different stages of development – developed, emerging and developing countries with various development needs and priorities. The updated ECT must ensure investment facilitation and protection in line with the policy objectives of these diverse countries. The critical role of the ECT is to create a legal framework so emerging and developing economies can attract much-needed investments to modernise their energy systems and advance their energy transition to clean energy much faster and more efficiently than today. It is precisely the role of the Energy Charter Secretariat to help its member constituency develop an enabling investment environment and facilitate the transfer of technologies and know-how to promote open and competitive energy markets.

We are on the path to a carbon-neutral future. By defining rules and incentives, we are sending a clear signal to investors to deploy clean energy technologies for economic growth without compromising the environment.

With around 40 countries in the queue for accession, the modernised ECT has a worldwide future, and I hope that as more countries follow suit, it will become universal.