Agreement for a modernized Energy Charter Treaty is insufficient for ambitious climate action

IISD experts say new ‘agreement in principle’ for a modernized Energy Charter Treaty (ECT) falls short of promises to make trade and investment deal better fit for purpose achieving international climate goals.

Contracting parties to the Energy Charter Treaty announced the agreement on Friday, June 24, capping years of talks that were launched after growing concerns over the excessive use of ECT by investors in disputes and disputes. record financial rewards against governments. The treaty has long been used to challenge climate action measures. IISD research shows that the ECT is the most common international investment agreement used by fossil fuel investors to file legal claims under international law.

Yet despite promises from many ECT contracting parties that this modernization process would lead to a more climate-friendly deal, Friday’s Energy Charter Conference public communication says the revised treaty will still leave investments in protected fossil fuels for at least a decade or more.

For example, the European Union and the United Kingdom have agreed that investments in fossil fuels that already exist in their territories will only cease to benefit from investment protections from 10 years after the entry into force of the new treaty. That means fossil fuel investors can still file Investor-State Dispute Settlement (ISDS) claims for much of the next decade, even as new research shows that phasing out production and consumption of oil and gas must occur in a much faster timeframe and that no new oil and gas fields must be developed if global warming is to be limited to 1.5°C.

“Allowing fossil fuel investors to continue to sue governments using ISDS for more than 10 years from when the new agreement takes effect undermines governments’ ability to address our climate crisis,” Nathalie said. Bernasconi-Osterwalder, Executive Director of IISD Europe and Senior Director of IISD’s Economic Law and Policy Program.

To date, the other contracting parties to the ECT have not publicly indicated that they will end investor and ISDS protections for fossil fuel investments in their territories.

“We don’t yet know if other contracting parties to the ECT will set limits on fossil fuel investments, but even if they do, the modernized treaty will still make it difficult for governments to take environmental action to address other sustainability challenges,” said Lukas. Schaugg, international law analyst at IISD.

Over the next few months, the agreement will undergo “editorial and legal review” and, if no contracting parties object, it will be forwarded for adoption in November. Entry into force then requires at least three quarters of the contracting parties to ratify, which can take months or years.

“Until then, the existing treaty remains in place. Yet both versions will make it difficult for governments to take the necessary steps to put the goals of the Paris Agreement into practice,” said Suzy Nikièma, IISD’s Head, Sustainable Investing.

Contracting parties must recognize that the outcome as it stands is not fit for the purpose of undertaking ambitious climate action. The modernized treaty will also continue to hamper the ability of governments to adopt crucial environmental measures in other areas, such as tackling biodiversity loss or pollution. Unless the contracting parties still have the ability and the will to address these major concerns, they will have to consider withdrawing from the treaty, rather than replacing one problematic agreement with another.