More Countries Signal Intention to Withdraw from the Energy Charter Treaty – Why Now?

On November 18, 2022, Luxembourg became the seventh country to announce plans to withdraw from the Energy Charter Treaty (ECT), following in the footsteps of Poland, Spain, the Netherlands, France, Slovenia, and Germany.

The ECT is a multilateral framework agreement for energy cooperation that is unique under international law. It was created to promote energy security through the operation of more open and competitive energy markets. The agreement to establish the ECT was signed in Lisbon in 1994. Since then, 51 members, including predominantly European countries and the European Union, have ratified the ECT. Additionally, 15 countries, including the United States, Indonesia, and Australia, participate as observers.

Recently, there has been a growing wave of countries signaling their intention to pull out of the ECT. These countries are predominantly citing concerns stemming from the ECT’s Investor-State Dispute Resolution mechanism. There are also environmental concerns, specifically that the ECT is frustrating aggressive efforts against climate change through its protection of foreign fossil fuel investments and is incompatible with the Paris Climate Agreement.

Another contributing factor appears to be the Russian war against Ukraine and, particularly, its impact on Europe’s energy supply, which is causing some countries to rethink their reliance on traditional fossil fuels.

The ability of ECT Parties to withdraw from the agreement raises important questions. Under the treaty’s terms, member states can only exit because of “fundamental changes of circumstances.” It remains to be seen whether the withdrawing states will be required to demonstrate that such changes have occurred and, if so, how. Further, the ECT contains a 20-year sunset provision, according to which the treaty takes effect for an additional period of 20 years after a party withdraws from the treaty. However, given the number of members withdrawing, an amendment or bilateral or trilateral agreement to waive the 20-year sunset provision may be in the cards.

ArentFox Schiff LLP has experience working in the energy sector with both sovereigns and companies. If you have any questions, please do not hesitate to reach out.


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