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

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

Dispute resolution: Increased Transparency and Procedural Safeguards 

The amendments introduce several procedural refinements to increase legal certainty and procedural efficiency in investment disputes, including: 

• Mandatory application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration of 1 April 2014 to all investor-state disputes. This ensures public access to arbitration documentation, hearings, and key procedural decisions, addressing long-standing criticisms about ISDS secrecy.  
• Arbitral tribunals now have explicit powers to summarily dismiss claims that are manifestly without legal merit, on application from a party.  
• A tribunal may now require investors bringing claims to provide security for costs. The intention is to discourage speculative or abusive claims, and to provide states with financial protection against unfounded litigation.  
• Mandatory disclosure of third-party funders in arbitration proceedings, including the names, addresses, ultimate beneficial owners, and corporate structures (where applicable) of those funders. This rule aims to enhance transparency and prevent conflicts of interest in arbitral proceedings.  
• Confirmation that the investor-state arbitration provision in Article 26 does not apply in disputes where both parties are part of the same regional economic integration organisation (for example, between EU member states). This reaffirms the decisions of EU courts that intra-EU ISDS claims are contrary to EU law (such as Slovak Republic v. Achmea BV [2018] Case C-284/16). 

Investment: Strengthened Eligibility Criteria and a More Targeted Scope of Protection  

The modernised ECT now introduces narrower definitions of an ‘investor’ and ‘investment’. This amendment aims to prevent forum shopping and ensure that only genuine economic activities benefit from its protections. These changes reflect a broader shift in international investment law towards greater scrutiny of corporate structures and financial arrangements.  

Under the new framework, a natural person can no longer claim protection under the treaty if they were a national or resident of the host state at the time the investment was made or acquired. This change is intended to prevent domestic investors from using foreign subsidiaries or special-purpose vehicles to gain access to investment treaty protections against their own governments. The definition of a corporate investor is also refined to exclude companies lacking substantial business operations in the home state in which they are incorporated. Instead of allowing any entity incorporated in an ECT party to qualify for protection, tribunals will now assess whether the investor has a real economic presence, using criteria such as whether it has a physical office, employs staff, generates revenue, and pays taxes in its home jurisdiction. These criteria may effectively exclude shell companies—with no meaningful operations in their home state—from bringing claims under the ECT. 

The modernised ECT further tightens the definition of investment to ensure that only commercially significant, long-term contributions to the energy sector qualify for protection. With this, an investment must now satisfy specific economic characteristics, including a commitment of capital or resources, an expectation of gain or profit, a certain duration, and an assumption of risk. This shift is designed to exclude purely financial transactions—such as speculative shareholdings or short-term portfolio investments—that do not contribute to energy sector development. In addition, the finalised amendments explicitly extend investment protections to carbon capture, utilisation, and storage (‘CCUS’) projects, as well as certain types of hydrogen and synthetic fuels. However, parties may exclude non-low-carbon hydrogen and synthetic fuels, alongside fossil fuels such as oils, fuel woods, and other outdated energy materials from coverage, through the treaty’s flexibility mechanism.  

Taken together, these revisions create a more structured and targeted investment protection regime. By limiting ECT protections to businesses that have a substantive presence and contribute to the energy sector, the amendments intend to reduce the scope for abuse, while maintaining legal safeguards for legitimate cross-border energy investments. Investors should now carefully assess whether their corporate structures and investment models meet the revised eligibility criteria, particularly when structuring transactions in ECT jurisdictions.  

Fair and Equitable Treatment: Enhanced Legal Certainty and Regulatory Flexibility  

The modernised ECT refines the fair and equitable treatment (‘FET’) standard, ensuring greater legal certainty for both investors and states. By clearly defining what constitutes a breach, and carving out protections for legitimate regulatory measures, the amendments attempt to balance investment stability with governments’ right to regulate in the public interest. 

Previously, the ECT’s FET provision remained undefined, leaving tribunals to interpret its scope inconsistently. Investors often invoked the provision—arguing legitimate expectations of policy stability—to challenge regulatory changes. The revised treaty now limits legitimate expectations to situations where a state has made a clear and specific commitment to an investor, upon which the investor reasonably relied when making the investment. General changes in policy or regulation—particularly in response to evolving environmental or economic priorities—no longer qualify as breaches of FET.  

The amendments also define actions that violate FET. Under these new provisions, a state breaches its obligations if it engages in denial of justice, fundamental violations of due process, targeted discrimination, abusive treatment such as coercion or harassment, or unjustified interference with an investor’s rights. By listing these categories of violations explicitly, the ECT removes some ambiguities around the FET standard, thereby constraining the ability to bring speculative claims.  

The modernised treaty also strengthens protections for states’ regulatory autonomy. It clarifies that indirect expropriation—where a government’s actions do not directly seize property but produce an equivalent effect—must be evaluated on a case-by-case basis. Tribunals must consider the measure’s economic impact, its purpose, and whether the investor’s expectations were reasonable. Crucially, the amendments introduce a carve-out for legitimate public policy measures, such as laws or regulations aimed at protecting public health, safety, or the environment (including climate change mitigation and adaptation). Unless a state’s actions are manifestly excessive in relation to its purpose, a situation will not qualify as indirect expropriation.  

These refinements align the ECT with contemporary investment treaties, which increasingly endeavour to preserve regulatory autonomy while maintaining investor protections. Investors may no longer be able to assume that policy continuity, but they do remain protected against arbitrary or discriminatory state actions. For businesses, these changes may evoke a clearer, more predictable legal framework: one that strives uphold fairness and due process, while allowing states to respond to pressing policy challenges. 

Conclusion  

Ultimately, the ECT’s modernisation marks a significant, yet incomplete, evolution in international energy investment law. The amendments introduce greater flexibility for states to phase out fossil fuel protections, enhances sustainability commitments, and refines dispute resolution mechanisms, aligning the treaty more closely with energy transition priorities. The amendments also impose stricter eligibility criteria for investors and investments, reducing forum shopping and ensuring that only substantive economic activities receive protection. While these reforms address many longstanding criticisms of the ECT, they apply only between ratifying parties and retain the treaty’s controversial sunset clause, which enables existing investments to remain protected for up to 20 years post-withdrawal. 

With the UK and EU having withdrawn, the ECT’s role in global energy governance remains uncertain. While it remains a robust investment protection instrument, its shrinking membership limits its influence, and investor-state disputes may continue under its revised framework. Businesses and investors could closely monitor the ratification process, evolving case law, and individual state policies to assess how these changes may affect their investments. With international energy law also increasingly influenced by regional agreements, bilateral treaties, and domestic policy shifts, the ECT’s modernisation may raise more questions as it answers about the future of investment protection in the energy sector.