Redesigning the Energy Charter Treaty to Advance the Low-Carbon Transition

The authors argue that the Energy Charter Treaty (ECT) currently hinders the low-carbon transition by treating fossil-fuel and renewable energy investments identically. They propose a modernization process that abandons 'energy-source neutrality' in favor of state-specific lists that encourage low-carbon investments and phase out carbon-intensive ones. The paper also suggests reforming Investor-State Dispute Settlement (ISDS) by requiring the exhaustion of local remedies, introducing state-to-state dispute settlement, and clarifying 'denial of benefits' clauses to protect climate policy space. Substantive recommendations include narrowing the 'Fair and Equitable Treatment' (FET) standard, defining indirect expropriation to protect public welfare measures, and adopting a 'sunk-costs' approach for valuing damages in the phase-out of fossil fuels.

• The ECT's current 'energy-source neutrality' treats fossil-fuel and renewable energy investments the same, which may entrench carbon-intensive investments and make it expensive for governments to transition to clean energy.
• There is a legal tension between the ECT and the Paris Agreement; while not strictly inconsistent, the ECT's strong enforcement mechanisms for investors contrast with the Paris Agreement's non-penalizing compliance mechanism, potentially creating a 'chilling effect' on climate policy.
• To align the ECT with the Paris Agreement, the authors propose replacing universal definitions with state-specific lists of low-carbon and carbon-intensive investments, allowing countries to determine their own pathways for protection and phase-outs.
• The authors recommend reforming Investor-State Dispute Settlement (ISDS) by requiring investors to exhaust local remedies before seeking international arbitration and considering a shift toward state-to-state dispute settlement.
• The 'denial of benefits' clause in the ECT should be revised to cover both substantive and procedural elements and be granted retrospective effect to prevent investors from challenging climate measures.
• The 'Fair and Equitable Treatment' (FET) standard is identified as a primary source of regulatory chill due to its open-ended nature and the protection of 'legitimate expectations,' which can be used to challenge environmental permits.
• The authors suggest that the ECT should adopt a 'sunk-costs' approach for valuing damages when carbon-intensive investments are phased out, rather than forward-looking methodologies that include lost profits.
• The current ECT 'umbrella clause' (Art. 10(1)) is criticized for allowing investors to bring contractual obligations under treaty protection, which shrinks the policy space for environmental and health measures.

APA

Bernasconi-Osterwalder, N., Brauch, M., Bernasconi-Osterwalder, N., & Brauch, M. D. (2019). Redesigning the Energy Charter Treaty to Advance the Low-Carbon Transition. International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/tv16-1-article08.pdf

Chicago

Bernasconi-Osterwalder, N., M.D. Brauch, Nathalie Bernasconi-Osterwalder, and Martin Dietrich Brauch. Redesigning the Energy Charter Treaty to Advance the Low-Carbon Transition. International Institute for Sustainable Development, 2019. https://www.iisd.org/system/files/publications/tv16-1-article08.pdf.

Wikipedia

{{cite report |last1=Bernasconi-Osterwalder |first1=N. |last2=Brauch |first2=M.D. |last3=Bernasconi-Osterwalder |first3=Nathalie |last4=Brauch |first4=Martin Dietrich |title=Redesigning the Energy Charter Treaty to Advance the Low-Carbon Transition |publisher=International Institute for Sustainable Development |date=February 2019 |url=https://www.iisd.org/system/files/publications/tv16-1-article08.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{bernasconiosterwalder2019redesigning, author = {Bernasconi-Osterwalder, N. and Brauch, M.D. and Bernasconi-Osterwalder, Nathalie and Brauch, Martin Dietrich}, title = {{Redesigning the Energy Charter Treaty to Advance the Low-Carbon Transition}}, institution = {International Institute for Sustainable Development}, year = {2019}, month = feb, url = {https://www.iisd.org/system/files/publications/tv16-1-article08.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }