The Energy Charter Treaty and Protocol

KEY POINTS

The key clauses of the Energy Charter Treaty concern protecting investment, trade in energy materials and products, transit and dispute settlement.

Commerce, investment, trade and protections

The treaty’s provisions include:

• promoting access to international markets on commercial terms, and generally to develop an open and competitive market, for energy materials and products;
• protecting foreign investment, based on treatment no less favourable than that accorded by the best national investment terms, and against key non-commercial risks;
• working to alleviate market distortions and barriers to competition in economic activity in the energy sector;
• ensuring reliable cross-border energy transit flows through pipelines, grids and other forms of transportation;
• recognising the importance of open capital markets to encourage the flow of capital to finance trade in energy materials and products and investment in economic activity in the energy sector;
• encouraging and creating stable, fair and transparent conditions for investors of other parties to make investments in the area covered by the treaty.

Sovereignty over energy resources

The treaty recognises countries’ sovereign rights over energy resources and reaffirms that these must be exercised in accordance with international law, without affecting the general objective of promoting access to energy resources, and their exploration and commercial development.

Environmental aspects

• Parties to the treaty agree to promote energy efficiency, and attempts to minimise the environmental impact of energy production and use.
• The polluter should, in principle, bear the cost of pollution, including trans-boundary pollution, without distorting investment in the energy cycle or international trade.

Transparency

Parties to the treaty must designate at least one inquiry point to which requests for information on laws, regulations, legal decisions and general administrative decisions regarding energy materials and products may be addressed.

Dispute settlement

The treaty includes provisions for resolving disputes between participating states through diplomatic channels and ad hoc tribunals, and — in the case of investments — between investors and host states. If an investor dispute cannot be settled amicably within 3 months, investors may choose to submit it for resolution to:

• the courts or administrative tribunals;
• any previously agreed dispute settlement procedure; or
• international arbitration or conciliation.

Signatories, the Energy Charter Conference, protocols and declarations

• Signatories to the treaty include EU countries and regional economic integration organisations (such as the EU) committed to observing its principles of open and non-discriminatory energy markets.
• The parties meet periodically in the Energy Charter Conference where each is entitled to have one representative. Ordinary meetings are held at intervals determined by the Charter Conference. It may also authorise the negotiation of Energy Charter Protocols or Declarations to pursue the objectives and principles of the charter.

Exceptions

Parties must not make any trade-related investments inconsistent with the 1994 General Agreement on Tariffs and Trade (GATT) which established the World Trade Organization (WTO), and nothing in the treaty exempts WTO members from the agreement.

The treaty does not preclude any signatory from measures:

• necessary to protect human, animal or plant life or health;
• essential to getting or distributing energy materials and products where there is short supply arising from external causes;
• designed to benefit investors who are indigenous people or socially or economically disadvantaged individuals or groups.

Energy Charter Protocol

The protocol was adopted in accordance with the treaty. Its objectives include:

• promoting energy-efficiency policies compatible with sustainable development;
• creating conditions for producers and consumers to use energy efficiently, respecting the environment;
• encouraging cooperation on energy efficiency;
• formulating energy efficiency policies and legal and regulatory frameworks to promote effective market mechanisms, including market-led pricing.

International Energy Charter

A new International Energy Charter was adopted and signed in 2015 by over 65 countries and organisations, including the EU and all EU countries. The purpose of this new charter is to engage as many new countries as possible who are willing to cooperate in the field of energy and who recognise the importance of energy security for energy-producing, -transit and -consuming countries. The new charter builds upon and modernises the Energy Charter of 1991.