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What Is the Energy Charter Treaty and What Does it Mean for Sustainable Development?

The Energy Charter Treaty is an outdated investment treaty that is threatening to protect fossil fuel investors at the expense of critical climate action.

April 22, 2022

What Is the Energy Charter Treaty?

The Energy Charter Treaty, commonly referred to as the ECT, is an investment treaty that was developed in the 1990s to enable multilateral cooperation in the energy sector in the wake of the Cold War. Its 53 contracting parties include countries in Europe, Asia, and the Middle East, as well as the European Union and Euratom.

However, the treaty is being used more and more frequently by fossil fuel investors to mitigate the losses they incur from public policies. Using a mechanism known as investor–state dispute settlement, or ISDS, the fossil fuel industry has sued governments and obtained record-breaking damages awards that cost taxpayers millions of dollars. 

IISD research shows that the fossil fuel industry uses ISDS more than any other sector. The average amount awarded—over USD 600 million—is almost five times the amount awarded in non-fossil fuel cases. The ECT is facilitating such claims more than any other investment treaty.

What Is at Stake?

Arbitration claims challenging government actions made in the public interest, such as environmental policies or the protection of human rights and local communities, are on the rise. In particular, privileges granted to foreign investments are increasingly in conflict with efforts to curb climate change and protect the natural world.

Widespread recognition that the ECT is an obstacle to the transition to a low-carbon economy has led its contracting parties to start negotiations on how to effectively “modernize” the treaty to better align it with their investment and climate goals.

What Is IISD Doing to Help?

At IISD, we work with governments, civil society, academia, legal experts, and others to influence the modernization process and develop legal and policy options that will support an expedited phase-out of fossil fuels. This work forms part of our wider mission to ensure that investment law and policy help to facilitate rather than impede progress toward achieving global sustainable development goals.

Together, we seek to break down the legal barriers that prevent countries from pursuing ambitious actions to protect our planet.

Find out more.