Uncertain Climate Impact and Several Open Questions

The report analyzes the proposed modernization of the Energy Charter Treaty (ECT), concluding that the reforms are too modest to support the energy transition. Key criticisms include the continued protection of fossil fuel investments in most contracting parties, the retention of a 20-year survival clause, and the failure to reform the investor-state dispute settlement (ISDS) mechanism. The authors argue that the 'flexibility mechanism' for fossil fuel carve-outs is limited in practice and that broad investment protection standards, such as Fair and Equitable Treatment (FET), remain out of step with modern treaty practice, potentially exposing states to significant financial liabilities for climate-related regulatory actions.

• The proposed reforms are insufficient to make the Energy Charter Treaty (ECT) compatible with the global climate agenda, as they are described as "too modest, too piecemeal, and too untested" to support states' energy transition goals.
• Fossil fuel investment protection remains largely intact; only the European Union and the United Kingdom have opted for carve-outs. In more than 20 other contracting parties, existing and future fossil fuel investments will continue to be protected indefinitely.
• The 'flexibility mechanism' intended to allow states to exclude fossil fuel protection is hindered by high voting thresholds, requiring unanimity for unilateral exclusions, which the report labels as a "misnomer" or "deliberate greenwash."
• The treaty's scope is expanded to include new energy materials and technologies, such as carbon capture, utilisation, and storage (CCUS), which increases the risk of investor-state dispute settlement (ISDS) claims and may restrict regulatory flexibility.
• The revised Fair and Equitable Treatment (FET) provision remains problematic because it includes the frustration of an investor's 'legitimate expectations' as a stand-alone ground for a breach, contradicting modern treaty trends.
• The report identifies a major failure to reform the ISDS mechanism itself and the 20-year survival clause, the latter of which locks in investment protection for two decades after a state withdraws from the treaty.
• The agreement fails to address valuation techniques, specifically the 'discounted cash flow' (DCF) method, which can lead to massive compensation awards for early-stage projects without a track record of profitability.
• The new Regional Economic Integration Organization (REIO) provision aims to prevent intra-EU arbitration, but its effectiveness is uncertain as it is framed as a clarification rather than a new rule, and tribunals may still claim jurisdiction.

APA

Schaugg, L., & Brewin, S. (2022). Uncertain Climate Impact and Several Open Questions. International Institute for Sustainable Development. https://www.iisd.org/system/files/2022-07/energy-charter-treaty-agreement-analysis.pdf

Chicago

Schaugg, Lukas, and Sarah Brewin. Uncertain Climate Impact and Several Open Questions. International Institute for Sustainable Development, 2022. https://www.iisd.org/system/files/2022-07/energy-charter-treaty-agreement-analysis.pdf.

Wikipedia

{{cite report |last1=Schaugg |first1=Lukas |last2=Brewin |first2=Sarah |title=Uncertain Climate Impact and Several Open Questions |publisher=International Institute for Sustainable Development |date=October 2022 |url=https://www.iisd.org/system/files/2022-07/energy-charter-treaty-agreement-analysis.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{schaugg2022uncertain, author = {Schaugg, Lukas and Brewin, Sarah}, title = {{Uncertain Climate Impact and Several Open Questions}}, institution = {International Institute for Sustainable Development}, year = {2022}, month = oct, url = {https://www.iisd.org/system/files/2022-07/energy-charter-treaty-agreement-analysis.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }