The treaty's provisions focus on four broad areas:
Energy Trade, Investment,
Energy Efficiency,
Dispute Settlement, Energy Transit.
Trade The Energy Charter Treaty's purpose in Energy Trade is to create open and non-discriminatory energy markets throughout its member states. This framework follows the rules of the multilateral trading system as embodied in the
General Agreement on Tariffs and Trade (GATT), which later became the
World Trade Organization (WTO). The Energy Charter Treaty extends the GATT and later the WTO rules in the energy sector amongst its members. Additionally, the treaty covers the trade of all energy materials (e.g.
crude oil, natural gas,
wood fuel, etc.), all final energy products (e.g. petroleum, electricity, etc.) and energy-related equipment. The rules of trade only cover trade in goods, not trade in
services, nor does it concern itself with intellectual property rights.
Investment The treaty is responsible for the protection of
foreign direct investment. It is estimated that just in the European Union, the United Kingdom and Switzerland, the treaty protects fossil investments of at least €344.6 billion. Its provisions protect investors and their investments from political risks involved in investing in a foreign country such as
discrimination,
expropriation,
nationalisation,
breach of contract, damages due to war, etc. The legally binding nature of the Energy Charter Treaty makes it the world's only
multilateral framework for matters specifically related to energy.
Dispute settlement Whereas Article 27 sets out the provisions for dispute resolution between two contracting states, Article 26 of the Energy Charter Treaty provides express provisions for resolving disputes arising under the treaty between an investor of a Contracting State and another Contracting State. This process is generally known as
Investor State Dispute Settlement or ISDS. The choices of arbitration rules are: •
ICSID Rules • ICSID Additional Facilities Rules •
UNCITRAL Ad hoc Rules • The Arbitration Rules of the Stockholm Chamber of Commerce The most significant claims against Russia, pertaining to the Yukos decision, arose under the provisions of Article 26. The drafting of the treaty has raised some difficult questions in the area of Investor-State Disputes by academics. In 2021 the treaty was struck down by the European Court of Justice for intra-EU disputes only. Some areas of discussion are: • the standards of protection granted by the treaty; • the international responsibility of States for breaches of the treaty; • the various procedures available for the vindication of rights under the treaty; • the conditions to be satisfied before a claimant's complaint may be considered on the merits; • the impact of EU law on claims under the treaty; • the treaty's provisions concerning taxation; • possible effects of the ECT on climate; • possible geopolitical, climate and financial impacts and also: • allegedly deleterious effects on states' budgets. • Nathalie Bernasconi-Osterwalder, a lawyer at the International Institute for Sustainable Development (IISD), criticises the ECT for not having "more precise definitions of investment protection standards, [for not] set[ting] out responsibilities for investors and [for not] integrat[ing] innovations with respect to dispute settlement to ensure transparency and independence," unlike more modern approaches. Moreover, she claims it is following expansionist ambitions. • Tania Voon, a Professor in Law at the University of Melbourne, criticises the modernization of the ECT for not including a removal of the art. 47 survival clause, and for failing to introduce "a distinction between investments based on
fossil fuels and those based on renewable energy" in order to achieve climate goals. • Cross-party members of the European Parliament advised the commission to withdraw if modernization is not adequate.
Energy efficiency The Energy Charter's involvement in matters of
energy efficiency and its relation to a cleaner environment was introduced in the 1991 European Energy Charter. The subsequent Energy Charter Treaty, and in particular Article 19 of the treaty, requires that each Contracting Party "... shall strive to minimise in an economically efficient manner, harmful Environmental Impacts arising from energy use." Building on Article 19 of the Energy Charter Treaty, the Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) defines in more detail the policy principles that can promote energy efficiency and provides guidance on the development of energy efficiency programmes. PEEREA was negotiated, opened for signature and entered into force at the same time (16 April 1998) as the Energy Charter Treaty. In contrast to other activities in the Charter process, the emphasis in the work on energy efficiency is not
legally binding, but rather on practical implementation of a political commitment to improve energy efficiency. This is promoted through policy discussions based on analysis and exchange of experience between the member countries, invited independent experts and other international organisations. The implementation of PEEREA provides its member countries with a range of best practices and a forum in which to share experiences and policy advice on
energy efficiency issues. Within this forum, particular attention is paid to national energy efficiency strategy, taxation, pricing policy in the energy sector, environmentally related subsidies and other mechanisms for
financing energy efficiency objectives.
Transit Protocol The Energy Charter Transit Protocol is a draft protocol which negotiations are not finalised yet. The Protocol would amplify and strengthen the treaty provisions on energy transit issues to mitigate some specific operational risks that continue to affect energy transit flows. Negotiations on the text of the Transit Protocol began in early 2000 and a compromise text reflecting an extended discussion between the European Union and Russia was tabled for adoption at the meeting of the Energy Charter Conference on 10 December 2003. It became clear during the meeting that a unanimous decision could not be reached on the basis of the compromise text; a complicating factor was that energy issues, including transit, were a subject on the bilateral agenda for the European Union and Russia in the context of Russian negotiations for accession to the World Trade Organization. The Protocol negotiations were then temporarily suspended. In December 2007, the Energy Charter Conference reaffirmed its support for the finalisation of negotiations and adoption of the Energy Charter Protocol on Transit to expand the existing provisions of the treaty. This work proceeded until October 2011, when the
European Union argued that, given current developments in the international energy situation and the lack of progress in negotiations and consultations, it appeared no longer opportune to continue talks. A review of the issue at the end of 2015 noted the continued demand for a multilateral legally-binding framework for energy transit, and recommended further exploring the basis for negotiations of such an agreement, which could address various aspects of oil, gas and electricity transportation and transit. The Energy Charter Treaty includes an obligation of member countries to facilitate energy transit across their territory, in line with the principle of freedom of transit, and to secure established transit flows. At the same time, the treaty provisions do not oblige any country to introduce mandatory third-party access.
The principle of national sovereignty The principles of the Energy Charter are based on the idea that international flows of investments and technologies in the energy sector are mutually beneficial. But at the same time, national sovereignty over energy resources is a core principle of the treaty (ECT Article 18). An objective of the treaty is to promote transparency and efficiency in the operation of energy markets, but it is for governments to define the structure of their domestic energy sector. Each country is free to decide whether and how its national energy resources are developed, and the extent to which its energy sector is open to foreign investors. The treaty does not deal with the ownership issues of the energy companies–there is no obligation to privatise state-owned energy companies, or to break up vertically integrated energy companies. ==Membership==