The Energy Charter Treaty (ECT) came into force in 1998 and is currently ratified by 56 countries, primarily in Europe and Central Asia. Originally designed to enable Western oil and gas investments in former Soviet bloc countries, the treaty protects foreign private investments in energy (including fossils and renewables) from regulatory or political interferences.

This translates into companies being able to sue governments over energy policies that would undermine their investments. For instance, in 2021 German energy companies RWE and Uniper sued the Dutch government for EUR 2.4 billion for passing a climate law banning coal-fired power plants after 2030.

Initially, the Commission had tried to modernise the treaty to end protection for fossil fuels investments but failed as it faced resistance from the ECT members in Central and Eastern Asia, which eventually led it to back a call for a coordinated exit. The European Parliament called on the EU and Member States to organise a joint withdrawal from the treaty in its 

 from 2022, arguing that the ECT is not in line with the EU’s energy and climate goals, as the treaty can be used to legally shield fossil fuel projects. Taking all this into account, the European Commission 

 for the Council decision to quit the ECT.

A wave of withdrawals followed with several countries announcing plans to exit the treaty, including Spain, the Netherlands, Germany, and France. The current political configuration is such that so far only one country has already pulled out from the treaty (Italy in 2015), while other Member States, such as Cyprus, Hungary, and Slovakia oppose the move. Switzerland has no intention of leaving the treaty, while the Brussels exit plan sparked discussions in the UK.

For the Commission’s plea for exit to transpire, the proposal must be backed by 15 out of 27 member countries. Should the Council of the EU choose to support a coordinated departure, the withdrawal would take effect one year after a notification has been sent to the ECT Secretariat, placing the date around 2024. This will lower the risk of governments being sued by companies based in other member countries (intra-EU), nonetheless, they will still face the possibility of lawsuits from other signatory countries in the ECT.

Yet, even if the EU countries leave the treaty, the ECT has a 20–year sunset clause, meaning that Member States can be subject to litigation up to 20 years after withdrawing from the treaty. In effect, investors will only lose their investment protection after 20 years for investments that were made before the exit from the Energy Charter Treaty.

Statistics show that in the past 10 years, there has been a surge of cases brought by investors in the renewable energy sector citing the ECT. Data reveals that the total amount of known ECT-based investment arbitration cases has reached 158.

Among these, around 60% concern RES-E investments; so far approximately 87 cases have been brought in relation to renewable energy, averaging a total of USD 23 billion claimed by investors. This leads some to claim that the ECT has been used to protect the profitability of RES projects.

Solar power generation stands out as a sub-sector with the most claims (38%); fewer cases were filed for wind power (8%) and biomass/biogas (3%). More than half of all investment disputes under the treaty have been brought by SMEs (55%). For instance, in the case of Spain, an overwhelming majority (89%) of claimants are equity funds or other financial investors and not renewable energy companies.

The ECT exit alone will likely not be enough to deter investments in renewables; however, it will most likely lead to sinking investors’ confidence. Depending on the market assumptions, if safeguarded investment protection is removed in markets where investments rely primarily on governmental support for renewables, this could negatively change the optics for RES-E installations in those markets. Undermined investments could in turn decrease supported GO production volumes on the market. In comparison, where RES-E investments are underpinned solely by market conditions, exit from the ECT is unlikely to change much for the supply side of the market.

Yet is worth noting that most European countries have some type of support schemes for renewables.

As it stands, the GO market is overall oversupplied; quitting the ECT will not tip the balance of the scales. Exit from the treaty could prevent a “regulatory chill” effect whereby governments are dissuaded from changing their energy and climate laws to prevent being sued.

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Withdrawal effect: does exit from the Energy Charter Treaty spell trouble for renewables?

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