The modernisation of the Energy Charter Treaty - ensuring consistency and mutual supportiveness between climate, energy and investment policies

The International Institute for Sustainable Development and ClientEarth argue that the Energy Charter Treaty (ECT) is an outdated obstacle to climate action due to its investor-state dispute settlement (ISDS) mechanism. They contend that the European Commission's current modernisation proposal is insufficient because it maintains the ability for investors to bypass national courts and seek high damages for climate-related regulations. The authors call for a redesign of the ECT that differentiates between low-carbon and carbon-intensive investments, carves out climate response measures from ISDS, and requires investors to exhaust domestic legal remedies first.

• The Energy Charter Treaty (ECT) is viewed as an outdated obstacle to climate action because it allows foreign investors to use the investor-state dispute settlement (ISDS) mechanism to challenge government environmental and energy measures, potentially leading to damages awards in the hundreds of millions or billions of EUR.
• The threat of ISDS claims creates a 'chilling effect' where governments may be discouraged from introducing new protections or may dilute existing environmental and social regulations to avoid litigation, regardless of whether the investors actually win their legal arguments.
• The European Commission's draft proposal for modernising the ECT is considered insufficient because it still allows foreign investors to initiate investment arbitration without first using national court systems and does not address the fact that acts not compensable under national law remain compensable under the ECT.
• To align the ECT with climate objectives, the authors recommend several reforms: carving out climate response measures from ISDS, differentiating between low-carbon and carbon-intensive investments to redirect capital away from fossil fuels, and requiring investors to seek redress in domestic legal systems before arbitration.

APA

International Institute for Sustainable Development (2020). The modernisation of the Energy Charter Treaty - ensuring consistency and mutual supportiveness between climate, energy and investment policies. https://www.iisd.org/system/files/uploads/documents/ect-modernisation-letter-iisd-client-earth.pdf

Chicago

International Institute for Sustainable Development. The modernisation of the Energy Charter Treaty - ensuring consistency and mutual supportiveness between climate, energy and investment policies. 2020. https://www.iisd.org/system/files/uploads/documents/ect-modernisation-letter-iisd-client-earth.pdf.

Wikipedia

{{cite press release |author=International Institute for Sustainable Development |title=The modernisation of the Energy Charter Treaty - ensuring consistency and mutual supportiveness between climate, energy and investment policies |date=23 April 2020 |url=https://www.iisd.org/system/files/uploads/documents/ect-modernisation-letter-iisd-client-earth.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@misc{internationalinstituteforsustainabledevelopment2020modernisation, author = {{International Institute for Sustainable Development}}, title = {{The modernisation of the Energy Charter Treaty - ensuring consistency and mutual supportiveness between climate, energy and investment policies}}, publisher = {International Institute for Sustainable Development}, year = {2020}, month = apr, url = {https://www.iisd.org/system/files/uploads/documents/ect-modernisation-letter-iisd-client-earth.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }