The Energy Charter Treaty: Letting the sun set on sunset clauses

Abstract

AbstractThis article focuses on the sunset clause of the Energy Charter Treaty (ECT). The ECT is a multilateral investor‐state arbitration treaty which allows for the use of investor‐state dispute settlement (ISDS) tribunals to arbitrate challenges arising from shifts in energy policy that lead to a loss in profits for relevant energy companies. The treaty has become controversial as climate activists have alleged it is slowing down efforts to transition away from fossil fuels. Withdrawal from the ECT does not necessarily solve the alleged issues as the treaty contains a sunset clause, allowing for the provisions of the ECT to remain in force for 20 years post withdrawal. This article seeks to analyse various mechanisms and strategies for neutralising the sunset clause as part of a wider effort to ensure the ECT does not interfere with the phasing out of fossil fuels. It will be argued that such neutralisation should be possible through the use of Article 62 of the Vienna Convention on the Law of Treaties (VCLT), on the basis that there has been a fundamental change in circumstances since the inception of the treaty. This use of the rebus sic stantibus doctrine can be justified on the basis that a swift and substantial transition away from fossil fuels is now required to ensure states can meet their obligations under the Paris Agreement. This article will also explore alternatives to an Article 62 VCLT argument (i.e. a fundamental change in circumstances) that could nonetheless achieve the primary goal of ensuring that states are not bound to a pro fossil‐fuel treaty. Examples of alternatives include the insertion of a climate carve‐out to remove protections from investments that hinder climate action or the use of the defence of necessity in future ECT arbitration cases to argue that the state should not remain bound to the sunset clause. Regardless of whichever scenario is pursued by states, the article seeks to highlight that any and all efforts must be made to neutralise the sunset clause to ensure there is no interference with necessary efforts to pursue climate action.