Report: Is the arbitration clause of the Energy Charter Treaty compatible with EU law in its application between EU Member States?
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Umweltinstitut München (Munich Environmental Institute) | 26 February 2018

Report: Is the arbitration clause of the Energy Charter Treaty compatible with EU law in its application between EU Member States?

In recent years, there has been an explosion in investor-state dispute
settlement (ISDS) cases brought by EU investors against EU Member
States. The majority of these are being initiated under the Energy
Charter Treaty (ECT). Most famously the Swedish energy company
Vattenfall’s challenges to Germany’s energy and environmental policies
have dragged the issue of ISDS from legal obscurity into mainstream
European politics.

A decision from the arbitral tribunal hearing Vattenfall’s 4.7billion
EUR compensation claim – for losses ostensibly incurred as a result of
Germany’s commitment to shut down its nuclear power stations – may be
expected any time. Some fifty intra-EU disputes based on the ECT are
pending, the majority of them arising from the reform of photovoltaic
energy policies in Spain, Italy and the Czech Republic.

Despite the fact that the ECT was initiated and designed by the EU,
there are compelling grounds to doubt the compatibility of the ECT’s
arbitration clause with the principles underpinning the EU’s judicial
system. This paper outlines the key legal issues, and describes what
is at stake in the interaction between the ECT cases and the relevant
principles of EU law.

The Court of Justice of the European Union (CJEU) has yet to rule
definitively on the compatibility of the ECT – or its ISDS clause –
with EU law. But the EU Commission has long argued that the ECT is
inapplicable to intra-EU disputes. Several pending decisions of the
CJEU may shed further light on this question. Essentially, the Treaty
creates a parallel administration of justice, and – in the absence of
any guaranteed mechanism to review the arbitral awards or block their
enforcement – the effectiveness of the EU judicial system is being
undermined.

The ECT however presents a uniquely complex case. It is the only
investment agreement in force to which the EU itself is a contracting
party. At a time when the EU is seeking to boldly negotiate and commit
to a new generation of investment agreements, the legal status of the
ECT – dubbed the “brainchild of the EU” – therefore demands close
analysis. What we find is a situation of profound legal uncertainty,
huge economic risk and political stalemate.

Click here for the report (pdf)