Atomic Modernisation of the Energy Charter Treaty: Incremental Change or Fundamental Reform? - Part I

This blog is the first instalment of a two-part series examining the recent amendments to the Energy Charter Treaty. 

Introduction

The Energy Charter Treaty (‘ECT’) has long served as a cornerstone of cross-border energy investments. However, it has also faced increasing scrutiny, particularly for shielding fossil fuel investments at a time when many states are accelerating their energy transition policies. Following a prolonged deadlock, and the high-profile withdrawals of the UK and several EU member states, the remaining contracting parties reached an agreement on 3 December 2024 to modernise the treaty. The December 2024 amendments finalise the provisions outlined in the 2022 Agreement in Principle, introducing greater specificity regarding implementation timelines and procedural details. These amendments represent the culmination of a seven-year negotiation process, marking the first comprehensive update to the treaty since its adoption in 1994. 

More specifically, the reforms introduce greater flexibility for parties to phase out fossil fuel investment protections, reinforce sustainability commitments, and refine dispute resolution mechanisms, including the explicit exclusion of intra-EU investor-state arbitration. ECT parties may provisionally apply the amendments, starting from 3 September 2025, provided that they do not opt out by notifying their intention before 3 March 2025. The amendments will enter into full force 90 days after ratification by at least three-fourths of parties, and even then, will apply only between ratifying parties.  

While these reforms represent a step towards aligning the ECT with evolving climate and investment priorities, their impact remains uncertain. The ECT’s 20-year sunset clause remains intact, and with the UK and EU no longer bound by the treaty, questions remain as to whether these reforms amount to incremental change, or a fundamental shift in the treaty’s future. With this, we analyse each aspect of the amended ECT, and its significance for project developers and investors. 

Sustainability: Commitments and Limitations 

The modernised ECT integrates sustainability considerations more explicitly than its predecessor, reflecting growing international pressure to align investment frameworks with climate commitments. The amendments reinforce parties’ discretion to regulate in the public interest, reaffirm obligations under the Paris Agreement, and encourage responsible business conduct. In particular, the revised treaty introduces several provisions aimed at embedding sustainability principles into the investment framework: 

• Non-regression principle: Parties commit not to lower their domestic environmental or labour standards to attract investment.  
• Responsible business conduct: States are encouraged to promote investor adherence to internationally recognised sustainability standards and principles of responsible business conduct (such as the UN Sustainable Development Goals, OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights).  
• Regulatory autonomy for environmental protection: Under the new text, the parties may adopt environmental protection measures that impact energy investments, provided they are non-discriminatory and proportionate. The amendments also reaffirm parties’ climate-related commitments and obligations under the UNFCCC and the Paris Agreement. 
• Environmental impact assessments: The amendments also require environmental impact assessments for energy investment projects.  

Nevertheless, the modernised ECT does not enable settlement of disputes arising from these obligations through investor-state arbitration. Instead, parties may refer disagreements to the Secretary-General of the Energy Charter Secretariat for non-binding conciliation. A conciliator may attempt to broker an agreement or issue a non-binding report for the ECT’s subsidiary body to determine further actions or measures. Fundamentally, this mechanism underscores the treaty’s reliance on diplomatic, rather than legal, enforcement of sustainability commitments. While these amendments strengthen the ECT’s rhetorical commitments to sustainability, the UK’s and EU’s withdrawals also mean that many of the strongest proponents of climate-aligned reforms are no longer bound by the new provisions, reducing their influence over future treaty developments.  

Fossil Fuel Flexibility Mechanism: A Phased Approach 

The amendments introduce a flexibility mechanism that allows parties to exclude investment protection for fossil fuel projects on their own terms. This mechanism reflects a shift away from the treaty’s historical role in safeguarding fossil fuel investments, offering states greater discretion to align with climate targets and energy transition policies. However, practical impact of these exclusions remains constrained by the ECT’s unamended sunset clause, which extends investment protections for up to 20 years after a state’s withdrawal. 

Nonetheless, the amendments allow states to exclude fossil fuel investments from protection based on asset type and investment timeline. This phased approach may allow parties to tailor their investment protections to national energy policies, although its effectiveness will depend on whether enough states choose to ratify and implement these exclusions. The primary exclusions appear in Table 1 below.  

Table 1: Key Exclusions Under the Flexibility Mechanism