In 2024, the EU formally decided to withdraw from the ECT following mounting pressure from civil society and activists, who argued that the treaty obstructed efforts to combat climate change. This decision came after several high-profile withdrawals by individual member states that began as early as 2021. Italy was among the first to announce its exit, notably followed by Spain, France, the Netherlands, Germany, and Luxembourg in the years that followed. The momentum for a coordinated exit gained strength in 2023, with these countries openly criticizing the treaty for protecting the interests of fossil fuel companies at the expense of their ability to implement public interest measures, such as environmental and energy transition policies.

The European Parliament’s overwhelming vote in early 2024 in favour of exiting the ECT was a decisive moment, leading to the EU’s official withdrawal in May 2024. The EU’s decision was framed as a necessary step to align with its climate goals and commitments under the Paris Agreement, as attempts to modernize the treaty had failed to resolve the fundamental conflicts between the ECT’s provisions and modern climate policies. Meanwhile, in February 2024, the United Kingdom had also declared its intention to exit the ECT.

Despite such developments, the treaty continues to exert significant influence. Its ISDS mechanism allows investors to claim (often considerable) compensation for regulations they claim undermine their investments, which can include crucial measures aimed at addressing climate change or promoting social welfare. Compounding this issue is the ECT’s sunset clause contained in Article 47(3), which enables investors to initiate proceedings up to 20 years post-withdrawal. This means that states remain vulnerable to costly arbitration long after their exit. The sunset clause has been criticized for trapping states in outdated investor protections long after they have chosen to leave, hindering their ability to implement public interest policies without the constant threat of litigation. As a result, the ECT’s lingering impact continues to challenge governments’ decarbonization efforts and the transition to a sustainable energy future.

We have compiled an overview of recent publicly available fossil fuel cases based on the ECT,^[1] highlighting the persistent risks ECT state parties face even as they strive to implement policies in the public interest. While numerous recent cases under the ECT have involved the renewables sector—most notably the solar cases in Spain—a significant resurgence of fossil fuel-related disputes highlights the ongoing challenges the ECT presents in aligning its framework with global climate goals. It is notable that, in contrast to renewable energy cases, fossil fuel disputes often challenge states’ measures aimed at reducing carbon-intensive energy production (among other contested issues), while they represent an essential step in the global transition toward sustainable energy. By focusing exclusively on the most recent pending or recently decided fossil fuel-related cases under the ECT, this article illustrates how this treaty continues to constrain governments’ regulatory autonomy despite the decision of several member states and the EU to withdraw from it. This selection reflects the most recent developments in investor–state disputes, providing insights into how these recent claims and rulings may influence future regulatory decisions in the context of the energy transition.

• Azienda Elettrica Ticinese v. Germany (ARB/23/47): following the adoption of a coal phase-out by Germany in 2020 aimed at ending coal-powered electricity production by 2038, the Swiss electricity company Azienda Elettrica Ticinese (AET) sued Germany under the ECT in 2023. AET’s claim is based on the fact that the early closure of the coal power plant in which it had a stake was carried out without compensation. The precise amount of damages sought by AET has not been disclosed. In March 2024, an ICSID tribunal was constituted to hear the case and has since issued three (non-disclosed) procedural orders pertaining to procedural matters, transparency, and confidentiality.
• Towra v. Slovenia (ARB/22/33): in 2022, the Luxembourg-registered mining company Towra SA-SPF filed a claim against Slovenia under the ECT, alleging that the government devalued its investment in a coal mine by enacting legislation that compelled the mine to operate at a loss, purportedly to subsidize another state-run project. Towra is seeking at least EUR 60 million in damages for alleged breaches of the ECT’s provisions on fair and impartial treatment and expropriation. Experts have linked this case to Slovenia’s climate policy^[2] as it was initiated shortly after Slovenia unveiled its national plan to phase out coal by 2033. Nevertheless, while the case is currently pending, we cannot confirm this, given the lack of publicly available information concerning its scope and the specifics of the proceedings.
• Ascent Resources v. Slovenia (ARB/22/21): in May 2022, the UK-based energy company Ascent Resources initiated arbitration against Slovenia under the ECT and the UK–Slovenia BIT, claiming that Slovenia’s ban on hydraulic fracturing (so-called “fracking”) constitutes an unlawful expropriation of its investment in the Petišovci oil and gas field. Ascent also asserts that Slovenia’s actions violate the FET standards of the ECT and BIT, as well as their provisions pertaining to the state’s obligations not to arbitrarily, unreasonably, or discriminatorily impair investments. According to Ascent, this ban was, in fact, a targeted measure against the company and unfairly prevented the company from conducting low-volume hydraulic stimulation of the wells to enable gas production from the Petišovci Gas Field, thus depriving Ascent of the value of its investment in Slovenia. The company is seeking EUR 656.5 million in damages. An ICSID tribunal has been in place since March 2023 to adjudicate the case; the written proceedings on the merits are currently ongoing.
• Clara Petroleum Ltd v. Romania (ARB/22/10): the UK-based petroleum company Clara Petroleum filed a claim against Romania in 2022 under the ECT in relation to investments in the exploration and production of hydrocarbons. The details of the dispute (and the quantum) remain confidential, but it is believed to involve environmental concerns related to hydraulic fracking, which was the object of community protests in the concession area, given the environmental risks associated with this process. The case is still pending; the tribunal held a jurisdiction and merits hearing in April 2024.
• Lansdowne Oil & Gas v. Ireland: in 2023, the oil and gas exploration company Lansdowne Oil & Gas, which is UK-domiciled and headquartered in Dublin, announced its intention to initiate proceedings against Ireland under the ECT after the government refused to grant a lease for the development of the Barryroe offshore oil and gas field. Lansdowne argues that the decision was driven by environmental concerns, which it claims violate its rights under the ECT, particularly its right to fair and equitable treatment. It is still seeking financial backers to support its arbitration case against Ireland.
• Klesch v. Denmark, Germany, European Union (ARB/23/48, ARB/23/49, ARB(AF)/23/1): in 2023, the UK-based oil refiner Klesch initiated three investment treaty arbitrations under the ECT against Denmark, Germany, and the EU, challenging a windfall profit tax on energy companies, contemplated in Regulation 2022/1854, following Russia’s invasion of Ukraine. Klesch claims that the EU regulation establishing the tax and its implementing acts adopted by Germany and Denmark violate the ECT as it is allegedly “arbitrary, discriminatory and punitive.” On July 23, 2024, an ICSID tribunal issued a decision on provisional measures ordering Germany to refrain from (i) demanding Klesch pay any amount pursuant to the German act implementing the EU regulation and (ii) pursuing any action to compel any payments owed by the Klesch group pursuant to this act.
• ExxonMobil v. Netherlands (ARB/24/44): in September 2024, the Belgian subsidiary of ExxonMobil initiated arbitration against the Netherlands under the ECT concerning its investment in the Groningen gas field, jointly operated with Shell through a joint venture. The dispute originates from the Dutch government’s decision to phase out gas production at the Groningen field due to the occurrence of extraction-linked seismic activity in the region. The case is part of a broader dispute, with parallel contract-based arbitrations initiated by the joint venture and its shareholders, Shell and ExxonMobil. ExxonMobil did not disclose the level of compensation it seeks, but the potential impact is expected to be significant—the damages could reach billions of euros—given that the Groningen gas field was one of Europe’s largest, with substantial untapped reserves.
• GreenX Metals v. Poland: on October 8, 2024, following a 4-year dispute over two coal-mining projects, two “twin” tribunals reached unanimous decisions that Poland had breached the ECT and the Australia–Poland BIT. The tribunals awarded damages amounting to GBP 183 million under the ECT (and GBP 252 million under the BIT). The Australian company, previously known as Prairie Mining, had initiated arbitration proceedings against Poland in 2020 following the Polish Ministry of Environment’s refusal to grant mining rights and the subsequent awarding of the concession to a state-owned company.

These cases illustrate the significant limitations imposed by the ECT on states’ ability to regulate in the public interest. Whether it concerns energy transition measures like coal phase-outs, regulations on hydraulic fracturing, or tax policies, the ECT’s ISDS mechanism enables foreign investors from the fossil fuel sector to challenge and seek compensation for public policy shifts. This dynamic forces states into costly legal battles and, in many cases, results in states being compelled to financially support the sector they seek to reform or transition away from. Sometimes, they are even compelled to backtrack and withdraw their planned policies. The consequence is a significant constraint on state sovereignty, leaving governments vulnerable to arbitration claims whenever they implement measures that affect investors’ profits, regardless of the broader public interest they seek to protect. Furthermore, the mere threat of costly arbitration proceedings, potentially leading to high damages awards, can serve as a powerful deterrent and may influence states to modify or revoke policies. This chilling effect,^[3] as documented in various studies, underscores the far-reaching implications of the ECT’s ISDS mechanism, as it encourages states to pursue settlements or abandon regulatory measures, even in the absence of a clear and definitive legal defeat.

The ongoing arbitration claims against several EU member states under the ECT also exemplify a paradox: as previously stated in the introduction, although the EU (and the United Kingdom) decided to withdraw from the ECT, the treaty’s sunset clause ensures that its impact will be felt for years to come. Therefore, while the EU and UK’s withdrawals are significant, addressing the ECT’s long-term legal and financial impacts requires comprehensive strategies. In particular, the EU and its member states should actively negotiate an “inter se” agreement neutralizing the sunset clause with other non-EU states like the United Kingdom and Switzerland. This would be all the more relevant since two-thirds of the arbitration claims presented above were initiated by investors based in the United Kingdom or Switzerland.^[4] This recommendation aligns with a recent decision by the European Economic and Social Committee, which urged the European Commission and member states to conclude inter se agreements with third countries to mitigate the risks associated with the ECT’s 20-year survival clause. The Committee referenced the IISD Model Agreement published earlier this year to facilitate this process.

Ultimately, the challenges posed by the ECT underscore the urgent need for reform in international investment law to better align with global climate goals. As the world grapples with the existential threat of climate change, it is imperative that legal frameworks evolve to support, rather than hinder, the transition to a sustainable energy future.

Author

Clémentine Baldon, Founding Partner at Baldon Avocats, Paris, France

Rosanne Craveia, Lawyer at Baldon Avocats and PhD Candidate at Paris 1 Panthéon-Sorbonne University

^[1] The following presentation is based solely on publicly available information; many documents and details related to arbitration proceedings are often confidential, which may sometimes limit the full understanding of the cases discussed.

^[2] Hinrichsen, E. (2024). Reconciling international climate law and the Energy Charter Treaty through the use of integrative interpretation. Laws, 13(2) 24, 34. https://doi.org/10.3390/laws13020024

^[3] See, e.g., Tienhaara, K. (2017). (2017)/Regulatory chill in a warming world: The threat to climate policy posed by investor-state dispute settlement. (2018) Transnational Environmental Law, 7(2). https://www.cambridge.org/core/journals/transnational-environmental-law/article/regulatory-chill-in-a-warming-world-the-threat-to-climate-policy-posed-by-investorstate-dispute-settlement/C1103F92D8A9386D33679A649FEF7C84

^[4] See Braoudakis, N., Craveia, R., & Baldon, C. (2024). Neutralising the ECT sunset clause inter se. ICSID Review. https://doi.org/10.1093/icsidreview/siae011