Is the proposed modernisation of the Energy Charter Treaty heading in the right direction? This is an open and controversial question. In a recent speech to the European Parliament, EU Energy Commissioner Kadri Simson put the ‘greening of the Treaty’ at the heart of the European Commission’s modernisation proposals. In essence, one of the Commission’s aims is to remove fossil fuels from the protections provided by the Treaty and thereby deny investment protection to fossil fuels, and promote investment in renewables.
In other recent news, UK Chancellor Rishi Sunak has set out his post-Brexit vision for the City of London, with a heavy emphasis on green initiatives. In an attempt to ensure that the UK hits a net zero-carbon target by 2050, the chancellor announced plans to launch the UK’s first green sovereign bonds — a form of government borrowing to fund low-carbon infrastructure projects already used in 16 countries, including Germany and Sweden. The chancellor also announced that Britain would become the first country in the world to make large listed and private companies, including banks, insurance companies and pension schemes, disclose the threats to their business from climate change by 2025.
However, as the International Energy Agency’s World Energy Outlook 2020 points out, the collapse in price of producing electricity via solar PV has now reached a point that it is generating the cheapest electric power ever recorded. Equally, onshore wind has seen significant falls in cost of electricity production over the last decade. As a result, even without subsidies renewables are now competitive with fossil fuels. Thus, it may be argued, developing renewable energy does not require the removal of investor protection from fossil fuels. The price mechanism, combined with national environmental regulations, will ensure that investment capital will be increasingly allocated to renewables rather than fossil fuels.
The speakers at this online seminar considered these issues as well as recent broader criticisms of the ECT and other investment protection treaties. They considered the challenges in obtaining sufficient foreign investment in the absence of investor protection, particularly in the energy sector, and the reasons for differences in the state of development of the legal order in different countries.
If one accepts that the concept of investment protection is worth preserving and that there is no need to remove fossil fuels from the scope of the ECT, then what benefits can be achieved through modernisation? The difficulty of achieving agreement on any amendment to the Treaty suggests that any modernisation programme should focus on reforms which can realistically garner widespread public support. In this context, there is clearly an argument for ‘greening the Treaty’. While renewables are within the scope of the Treaty, it may be argued that there is a lack of clarity in respect of both hydrogen and carbon capture and storage technology. This is unsurprising given that the ECT was drafted and negotiated in the early 1990s.
It would be possible to amend the Treaty in order to make it clear both hydrogen and CCS are fully within its scope. Other areas for reform which could potentially gather widespread support could include new transparency rules to underpin the ECT’s legitimacy, and measures to enhance the Secretariat’s mediation role.
The speakers for this seminar were:
Dr Alan Riley, Senior Fellow at the Atlantic Council. He was formerly Professor of Law at City, University of London. He is also a Member of the Advisory Committee of the Energy Community, the judicial panel which applies EU energy law to the EU states, Ukraine, Georgia and Moldova and the non-EU Balkan States.
Dr Riley has written extensively on energy law, economics and strategy issues, particularly in respect of central and eastern Europe. He also has written extensively on EU competition law issues and questions concerning international arbitration, anti-corruption and the rule of law.
Dr Riley holds a PhD in European Union law from the Europa Institute, Edinburgh University, and is qualified as a Solicitor of the Supreme Court of England and Wales.
Dr Riley discussed the ECT in the global context. This included a discussion of the current Treaty’s energy neutrality, its multilateral nature and its potential for further expansion.
Mr Norbert Czerniak, Board Member (Policy Lead) of the YES-Europe Energy Network. Mr Czerniak is a law graduate of the Faculty of Law and Administration of the Adam Mickiewicz University in Poznań, Poland, as well as an alumnus of the Energy Academy of the Lesław A. Paga Foundation (Warsaw). Mr Czerniak is a PhD Candidate at the University of Bayreuth, Germany, where he is conducting his research on the Energy Charter Treaty (ECT).
Mr Czerniak’s PhD research focuses on the ECT investment protection regime and its interactions with the broader international framework. Mr Czerniak has published on the interpretation of the ECT’s scope of application, including with regard to some widely disputed issues. In his latest paper entitled “Evolutive Interpretation of Treaties – the Case of Green Hydrogen under the Energy Charter Treaty” (OGEL, upcoming) he applies the rules of treaty interpretation to show that hydrogen is arguably covered by the current ECT. Mr Czerniak has also published specifically on the Modernisation of the ECT.
Mr Czerniak discussed possible approaches to modernising the ECT and optimising its green potential. In this context, he addressed:
(a) The ‘green potential’ of the current ECT
Mr Czerniak considered how the ECT can be interpreted so as to cover emerging green energy carriers and technologies. This included a discussion of the product-activity-asset nexus set out in the Treaty as well as the interpretation of the Treaty’s generic terminology in relation to hydrogen from different sources, and carbon capture and storage (CCS).
(b) Possible approaches to modernising the ECT
Mr Czerniak reviewed possible approaches to modernising the ECT. These included: explicitly extending Treaty coverage to include key climate-friendly energy carriers and technologies; removing coverage from fossil fuels; making both of these changes; or not amending the ECT but allowing policy and economic changes to bring about effective greening organically.
The event was chaired by Mr Graham Coop, Partner at Volterra Fietta. Mr Coop’s thirty-year legal career includes seven years as General Counsel to the Energy Charter Secretariat between 2004 and 2011. Mr Coop has lectured and published extensively on the Energy Charter Treaty and acted as expert witness in investor-State arbitration proceedings in relation to its interpretation and legal effects.
Mr Coop is qualified as a barrister and solicitor in New Zealand and as a solicitor with higher rights of audience (Civil) in England and Wales. He advises and represents companies, governments and international organisations on international dispute resolution and public international law, with a particular focus on the energy, natural resources and infrastructure and banking sectors. Mr Coop currently represents an EU member State in relation to banking measures taken in response to developments arising out of the 2008 global financial crisis. Mr Coop has appeared as counsel, advocate and expert before a wide range of international courts and tribunals, including the International Court of Justice, ICSID, the PCA and the ICC. He is on the UK Attorney General’s list of public international law practitioners.
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