ECT modernization negotiations continue while agreement attracts criticism for impact on climate

Since our last report, two more negotiation rounds have taken place on ECT modernization. The seventh round took place from October 28–November 1, 2021, while the eighth round was held from November 9–11, 2021.

During both rounds, the modernization group discussed issues related to investor–state dispute settlement, including frivolous claims, security for costs, third-party funding, transparency, and valuation of damages.

During the eighth round, the group additionally discussed terms related to key investment treaty provisions, including the definitions of investment and investor, FET, indirect expropriation, MFN, and the right to regulate, among others. According to a public statement, discussions have concluded on the definitions of investor and investment, while “good progress” was made with regard to several others, including indirect expropriation and right to regulate.

In addition, the group discussed sustainable development and corporate social responsibility.

While these negotiations are ongoing, the ECT has begun to attract increasing attention from climate activists, particularly in the lead up to the COP 26 climate negotiations. As we discuss elsewhere, the ECT has proven to be a useful tool for the energy industry, particularly coal companies, to resist efforts to implement dirty energy phase-outs. Most recently, a former ECT employee has reportedly cast doubt on the success of modernization efforts, and called the ECT incompatible with the Paris Agreement.

The ninth negotiation round took place on December 13 2021. At this round, the modernization group discussed the definition of ‘Economic Activities in the Energy Sector’, which determines the type of energy investment covered by the treaty. In an effort to break a negotiation deadlock, the ECT Secretariat has suggested a flexible approach allowing some countries to maintain protection of fossil fuel investments while others may choose to opt out. The discussion of the proposal is set to continue at the next negotiation round on January 18-21, 2022.