On 3 December 2024, the Energy Charter Conference adopted and approved the amendments to the Energy Charter Treaty (“ECT”), commonly referred to as the “Modernised ECT”. The Modernised ECT provides for substantive and procedural changes that will impact foreign direct investment and investor-State dispute settlement.
Right to regulate: The Modernised ECT reinforces the Contracting Parties’ commitment to environmental protection and explicitly acknowledges their right to regulate. A new Article 19 bis outlines a general commitment by Contracting Parties to honour their obligations under the UN Framework Convention on Climate Change and the Paris Agreement.
Definition of protected investors: Entities must have “substantial business activities” in their home State to qualify as protected investors. Relevant circumstances that “may” be taken into consideration include whether the entity “has a physical presence”, “employs staff”, “generates turnover”, or “pays taxes” in the area of the Contracting Party. Also, the new text excludes any natural persons who are nationals or permanent residents of the host State at the time the investment was made or acquired.
Definition of protected investments: The Modernised ECT includes only those investments that (i) fulfil certain characteristics, including the commitment of capital, the expectation of gain or profit, and a certain duration or the assumption of risk; and (ii) are made or acquired in compliance with the host State laws.
Optional exclusion of fossil fuel investments from protection: Contracting Parties can exclude protection for certain categories of investments in fossil fuels in their territories. Those exclusions apply to certain investments in fossil fuels made after 3 September 2025; existing investments will remain protected for 10 years from the Modernised ECT’s entry into force.
Protections extended to new energy: The Modernised ECT extends protections to new green technologies and cleaner energy (such as biomass, biogas and synthetic fuels). The “Energy Materials and Products” list will be reviewed every five years, so it can be updated in light of technological and political developments.
Narrowed scope of investment protections: The Modernised ECT narrows several substantive and procedural protections: (i) non-discriminatory measures designed to protect legitimate policy objectives–such as public health, safety and the environment–will not constitute an indirect expropriation except in “rare circumstances” where the impact of the measure is “so severe” that it is “manifestly excessive”; (ii) the revised most-favoured nation (“MFN”) clause specifically excludes importing more favourable dispute resolution provisions from other investment treaties, and clarifies that substantive provisions in other investment treaties do not, in themselves, constitute “treatment” for purposes of MFN protection; and (iii) the fair and equitable treatment (“FET”) clause now specifies measures that constitute FET violations (such as violation of investors’ legitimate expectations).
Exclusion of intra-EU claims: The Modernised ECT excludes intra-EU investor-State dispute settlement under Article 26.
Dispute resolution: The Modernised ECT includes procedural changes meant to increase transparency and efficiency in investor-State arbitration. The main changes include: (i) the integration of the UNCITRAL Rules on Transparency in treaty-based investor-State arbitration; (ii) a new provision allowing an arbitral tribunal to dismiss frivolous claims; (iii) an explicit power for an arbitral tribunal to require a claimant to pay security for all (or part) of the costs of proceedings; and (iv) a requirement that the parties disclose third-party funding when the dispute is submitted or as soon as a funding agreement is concluded.
Unique dispute resolution mechanism for provisions on sustainable development available to Contracting Parties: The Modernised ECT introduces a tiered dispute resolution mechanism for interpreting provisions on sustainable development. If amicable settlement efforts through diplomatic channels fail, the parties are directed to use mechanisms available in other international fora, mirroring the original approach under Article 19 which allowed the recourse to mechanisms found in other international agreements for the resolution of disputes concerning environmental matters. If those avenues are unsuccessful, either party can resort to a specific conciliation mechanism similar to that for transit disputes under Article 7.
Entry into force: The Modernised ECT will fully enter into force for a Contracting Party 90 days after three quarters of the Contracting Parties ratify the amendments. This process is expected to take several years. In the meantime, the Modernised ECT will provisionally apply to Contracting Parties (that did not opt-out) from 3 September 2025. States that withdraw from the ECT before the modernisation takes effect will continue to be bound by the original ECT for 20 years by virtue of the “sunset clause”.
The Energy Charter Conference Adopts Decisions on the Modernisation of the Energy Charter Treaty is here.
The Modernisation of the Energy Charter Treaty, available at here.
Amendments to the Energy Charter Treaty, available at here.
In Conversation with Atsuko Hirose, Acting Secretary-General of the Energy Charter Secretariat, following the Official Adoption of the Modernised ECT, available at here.
The Completion of the Modernisation of the ECT and the Provisional Application of the Modernised ECT, available at here.