The Energy Charter Treaty (ECT) is an international agreement, in force since 1998, which currently has more than 50 signatories. The ECT provides international investors in the energy sector with the power to sue governments over policies that damage the value of their investment. Cases are heard by tribunals, rather than by domestic courts – in effect, an ISDS mechanism that applies to energy companies.
This means that corporate profits are protected, at the expense of the ability of governments to legislate in the interests of people and planet. The ECT is a significant obstacle to international climate action, providing energy corporations with a means through which to challenge and frustrate policies that phase out fossil fuel usage.
Countries transitioning away from fossil fuels are starting to face massive lawsuits from fossil fuel companies. Even when lawsuits are not successful, they are extremely expensive for states to fight.
- The number of ECT lawsuits has hugely increased – half of the 136 arbitrations ever brought under the ECT have happened since 2015.
- Under the ECT, governments have been ordered or have agreed to pay more than $52 billion in damages from the public purse
- 97% of investors using the ECT were fossil fuel companies
Countries are able to leave the ECT, but the rules of membership mean that they remain vulnerable to being sued by investors for 20 years after having withdrawn. Regardless, in October and November 2022, a number of European countries including France, Germany and Spain signalled their intention to exit the ECT, dramatically weakening the Treaty. In June 2023 the European Union announced plans for a coordinated withdrawal of all EU Member States from the ECT, saying that continued membership was not aligned with the bloc's energy and climate goals. The formal proposal for a coordinated withdrawal was published by the European Commission in July 2023.
Despite this clear indication that countries are turning against the ECT, the Treaty's secretariat has expressed its intention to expand its membership by encouraging countries in Africa, Asia and South America to accede to the Treaty. Reforms to the Energy Charter Treaty, which remove the protections offered to fossil fuel investors but over a ten-year transition period, have been criticised by campaigners as insufficient.