Pieter Fritschy (Senior Associate, Nauta Dutilh)
“ENERGY CHARTER TREATY ARBITRATION AND THE PARIS AGREEMENT – FRIENDS OR FOES?”
On 28 October 2021, Annette Magnusson delivered the 7th Annual EFILA Lecture in Brussels. The topic of her lecture concerned the relationship between the Energy Charter Treaty and the Paris Agreement, more specifically the question of whether Energy Charter Treaty Arbitrationand the Paris Agreement should be considered “friends or foes”.
First, Prof. Dr. Nikos Lavranos, Secretary-General of EFILA, welcomed both the physical and the digital attendees of the lecture. In this introduction, he also updated the audience on some exciting new developments at EFILA (including the impending establishment of a Young EFILA Network and the upcoming Call for Papers for the European Investment Law and Arbitration Review for the 2022 issue) and on some of the upcoming EFILA events (most notably, the 7th EFILA Annual Conference on 4 February 2022 at NautaDutilh’s offices in Amsterdam).
After that, Annette Magnusson started her lecture by pointing out that there should be no doubt that all lawyers have to play a pro-active role in accelerating the reduction of carbon emissions in the coming years. As John Kerry recently put it at a meeting of the American Bar Association: “you are all climate lawyers now“.
Another observation fundamental to Magnusson’s lecture was that energy-related investments, as well as the stable, long-term policies that foster them, are an essential element of the necessary transition to clean energy. Seen from that perspective, it should be clear that the ECT has the potential to significantly influence the speed of that transition. Indeed, as Magnusson noted, the ongoing ECT modernization process will no doubt play an important role in determining the relationship between the (future) ECT and the Paris Agreement. For instance, one crucial and contentious issue is the question of whether the ECT should remain neutral between fossil and green investments or whether it should rather somehow differentiate between the two.
With respect to the present interplay between the ECT and the Paris Agreement, Magnusson pointed out that there exists a host of views with respect thereto. On one side of the spectrum, there are those who claim that the ECT already supports and strengthens the Paris Agreement, as the ECT provides a framework for the protection of green investments. On the other side of that spectrum, however, there are those who claim that the ECT in fact hinders the goals of the Paris Agreement, as the fear for ECT claims can undermine States’ willingness to implement policies aimed at phasing out fossil fuels. The coal phase-out cases of RWE and Uniper against the Netherlands could, for example, deter States from implementing similar phase-out policies.
With an aim to shed more light on the question of what the interplay between the ECT and the Paris Agreement actually is, the Climate Change Counsel is currently in the process of performing a review of ECT awards. The preliminary findings were presented by Magnusson (a final report is expected in the course of 2022).
Strikingly, although Article 19 ECT (“Environmental Aspects”) is sometimes referred to in ECT awards, climate change turns out almost never to be mentioned in those awards. The same goes for the energy transition, which, remarkably, is similarly missing in the reasoning of most of those awards. Magnusson noted that this raises the question of whether parties to ECT arbitrations might not be underestimating the potential of Article 26(6) ECT (“A tribunal established under paragraph (4) shall decide the issues in dispute in accordance with this Treaty and applicable rules and principles of international law“), which refers to the full spectrum of international law, including the Paris Agreement. As said, as things stand, references to the Paris Agreement have hardly ever made it to ECT awards, although this will no doubt be different in the future awards in the aforementioned phase-out cases of RWE and Uniper against the Netherlands.
So, are the ECT and the Paris Agreement friends or foes? Well, they are neither: as the preliminary findings show, they have never even talked to one another. This is unfortunate because, as Magnusson concluded, the Paris Agreement needs all the friends it can get.
After a lively Q&A session, which prompted questions from both digital participants and the audience physically present in Brussels, the 7th Annual EFILA Lecture came to an end. EFILA looks forward to welcoming everyone interested in investment law and arbitration at the 7th EFILA Annual Conference on 4 February 2022 at NautaDutilh’s offices in Amsterdam (https://efila.org/annual-conference-2022/).
The 7th Annual EFILA Lecture is available online at: https://www.youtube.com/watch?v=Nt1-5_kstYM