Markus Krajewski, professor of law: “It is not easy for the EU states to get out of the Energy Charter Treaty directly.”

Our research revealed that the Energy Charter jeopardises the achievement of European climate goals. But it was founded with a different goal: the Charter was supposed to protect investments. Is it still necessary for this?

So far, there is little evidence that states that have signed the Energy Charter Treaty enact fewer laws that disadvantage investors. But companies benefit from the Charter in other ways. This is because it gives them the opportunity to sue the states before a court of arbitration and receive high compensation payments.

You can see this in the case of Vattenfall against Germany, which is currently being heard by the ICSID arbitration court in Washington. Vattenfall is demanding compensation for two reactors that the company was no longer allowed to use in the course of the German nuclear phase-out. However, the Swedish state-owned company did not only go to the arbitration court. It also sued in national courts. Last autumn, the Federal Constitutional Court ruled in favour of Vattenfall. However, it did not award the company any compensation, but instructed the legislature to consider how it could adequately compensate Vattenfall. The situation is different in the arbitration proceedings. There, Vattenfall is demanding parallel compensation of more than six billion euros. The arbitrators want to decide on this in the spring.

Originally, Europe’s states wanted to use the Charter to secure investments in countries with unstable legal systems. What do you think of the fact that today it is mainly EU corporations that use the treaty to sue EU states?

The Energy Charter Treaty is not at all necessary for this. Incidentally, the EU states could have foreseen from the beginning that such a situation could arise. For this can be read from the text of the treaty they once drew up. In this respect, the Energy Charter Treaty is a historical mistake. If a European government discusses a new climate law today, the heads of the energy companies like Vattenfall consult their legal department and ask: What can we do now? Then the machine is cranked up and it ends up with the Energy Charter Treaty.

Such intra-EU proceedings before arbitration courts are not admissible, the European Court of Justice ruled, at least if they are based on bilateral investment protection agreements. Soon the ECJ judges will decide whether this also applies to energy charter proceedings. Which ruling do you expect?

At the moment, this is legal coffee-table guesswork. I can only make one assumption. In the ruling you mentioned, the ECJ judges ruled that the bilateral investment protection agreements threatened the integrity of Union law. With the Energy Charter Treaty, it is a different situation. Because here, the European Union is a contracting party. It could therefore be that the judges do not see the integrity of EU law at risk here. But this cannot be predicted seriously.

What could the EU states do if the ECJ does not help and allows intra-EU procedures to continue?

The EU states, as parties to the Energy Charter Treaty, would have the possibility to conclude an additional treaty among themselves, a so-called inter se agreement. In this agreement, they could agree that investors from the EU could no longer sue EU states. However, it is questionable whether the arbitration courts would accept such an agreement. For there is certainly the view that such an inter se agreement between the contracting parties would curtail the rights of investors that they have under the Energy Charter.

The EU seems to have manoeuvred itself into a dead end with the Energy Charter.

Well, the states still have the option of modifying the Energy Charter and thus adding clauses to make the treaty compatible with the Paris climate agreement. But even here there could be uncertainties, for example when it comes to the binding nature of amendments. The only legally secure solution would be for the EU states to jointly terminate the Energy Charter Treaty and not revive it. Then the problem would be finally solved.

The EU states would only be rid of the treaty after 20 years. That is how long the Charter will continue to apply even after it has been terminated. Critics speak of a “zombie clause”.

If the contracting parties were to succeed in revising the contract beforehand, the revision clause would apply. Whereby it would remain disputed whether investors could not invoke the old text of the contract after all. This cannot be reliably assessed, because there are simply too few practices that can be relied on. One thing is certain: it is not easy for the EU states to get out of the Energy Charter Treaty directly.

Read more about our investigation into the Energy Charter Treaty.