| Spotlight


Likewise, there are around 50 cases pending against Spain following a change to its renewable energy policy in 2013. It is said that such “intra-EU” claims represent two-thirds of ECT claims since 2014.8 This trend worries EU legislators who view the ISDS


bygone age” that “is being weaponised by fossil fuel companies to sue governments for introducing climate policies”. 6 There does seem to have been a perceptible turning of the tables over the last decade. Claims are now increasingly being made by EU investors against EU member states, rather than non-EU states as was envisaged when the ECT was signed. Rockhopper’s successful £210 million award last year arising from Italy’s 2015 coastal offshore oil drilling ban is a recent example of such a claim where, critics note, the damages awarded greatly exceed the initial investment.7


system generally as undermining the coherence and autonomy of EU law.9


In a landmark 2018 ruling


the EU’s Court of Justice concluded that investment arbitration under a BIT between two EU member states was contrary to EU law. A further 2021 ruling extended this rationale to intra-EU arbitration proceedings under the ECT.10


Although EU member


states have tried to resist arbitral jurisdiction on these grounds and EU rules against state aid, Spain recently failed to secure the annulment of a €30,875,000 award made in 2020 against it by an ICSID tribunal under the ECT in favour of Swedish/Liechtenstein investors in 33 hydropower generation plants in Spain.11


Each of these criticisms could be the subject of a full-length article. However, the issues may also be somewhat overstated, and appear either to overlook the impact that modernisation may bring, or proceed on the premise that it is doomed to fail. Others, such as the suggestion that claimant investors should not be able to recover loss of profit as part of a treaty breach claim, are not specific to the ECT regime, and are moreover difficult to justify on legal grounds. The ECT already reflects each Contracting Party’s


right to “take precautionary measures to prevent or minimise environmental degradation” (Art. 19). The “right to regulate” would strengthen this and potentially mitigate the risk of future claims. In any event, apparently only 4 out of the 157 known ECT cases arose from environmental policies.12


Directorate-General for Trade praised the agreement in principle: “it provides legal certainty and ensures a high level of investment protection while reflecting clean energy transition goals and contributing to the achievement of the objectives of the Paris Agreement.”Supra No 5 The statement concluded that “we have thereby aligned the ECT with the Paris Agreement and our environmental objectives”, noting also the phasing out of fossil fuel investment protection in a shorter period than the 20 years which would otherwise result from withdrawal. It will therefore have come as a surprise to many when the EU Parliament on 24 November 2022 adopted a lengthy resolution calling upon the EU Commission and member states to withdraw from the ECT (Resolution).14


The Resolution is in direct


opposition to the above statement and contradicts its conclusion that the modernised ECT was aligned with the Paris Agreement and the EU’s climate objectives. The Resolution appears premised upon the almost certain impossibility of modernisation being approved, although this of course is a by-product of the paralysis the EU has caused. It moreover betrays evident hostility towards the ISDS system in general, both under the ECT and BITs. The prominence given to these issues, and the stated threat of claims by fossil fuel investors, suggests that risk mitigation is central to the EU’s position. It is also relevant to observe that even before the adoption of the Resolution, certain individual EU member states voiced their opposition. In October 2022, France announced its intention to withdraw from the ECT, following the Netherlands, Germany and Poland. President Macron was quoted in the press speaking of the ECT leading to “…significant compensation for certain actors”15


confirming that


the “regulatory chill” issue is an important political consideration. The Resolution is echoed by an unofficial EU Commission “non-paper” that was leaked in February 2023.16


It advocates an immediate withdrawal from Moreover,


the majority of those cases (59%) concerned renewable energy investments. Only 39 cases of that total led to an award with compensation.13 The “flexibility mechanism” in the agreement in principle also provides a path to an eventual phase- out of protection for fossil fuel investment under the ECT. Whether and the extent to which the timeline to achieve this is in line with the Paris Agreement and EU climate objectives remains open to debate, and is beyond the scope of this article. However, the EU now appears to take the position that this phase-out must begin immediately, a position which is irreconcilable with the agreement in principle and which now represents an existential threat to the ECT.


EU position and withdrawal


proposal The EU and UK played an important role in the modernisation negotiations. On 24 June 2022, the EU


the ECT by way of a separate treaty between the withdrawing parties agreeing inter se not to give effect to the ECT’s 20-year sunset clause. This might be complemented by a further treaty with other non- EU states withdrawing from the ECT, on a reciprocal basis, to disapply the sunset clause. Central to this position is the Commission’s assessment that most energy investment within the EU comes from investors in other EU member states who cannot, in light of the EU jurisprudence mentioned above, bring claims against EU member states under the ECT dispute settlement provisions. The EU position is somewhat lacking in coherence. Firstly, the ECT is not the only available international investment protection instrument. The Resolution records that EU member states have concluded around 1,500 BITs which are likely to protect fossil fuel investments. Similarly, recent multilateral agreements negotiated by the EU, such as CETA, did not expressly carve out protection for fossil fuel investment. Secondly, the ISDS system will continue to exist for some time to come, notwithstanding the EU position. As the non-paper recognises, arbitration tribunals need not accept EU law objections and, although


www.waterpowermagazine.com | May 2023 | 11


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