Overview
Introduction
On 3 September 2025, the revisions to the Energy Charter Treaty (“the ECT”) approved by the Energy Charter Conference (“the ECC”) on 3 December 2024 came into effect. While some revisions have entered into force, others will apply on a provisional basis for the majority of the remaining Contracting Parties.[1]
This Blog Post aims to clarify where investors in the energy sector stand, as of 3 September 2025. It will first take a step back and set out the background that led to ECT modernisation (i). It will subsequently provide an overview of the main substantive and procedural revisions (ii); (iii). It will then indicate which Contracting Parties will be provisionally applying the revisions (iv) and address the requirements for their entry into force pursuant to Article 42(4) of the ECT (v). Finally, in conclusion, it will address the increased fragmentation that investors in the energy sector will face.
I. One step back: what were the catalysts of ECT reform?
The circumstances leading towards ECT modernisation can be summarised as follows.
First, the high number of disputes under the ECT (162 up to December 2023, (see here)) raised concerns over the protection of fossil fuel investments. Some argued that such claims hindered the Contracting Parties’ ability to meet their energy transition goals, casting doubts on the ECT’s compatibility with the Paris Agreement (see here). Revisions to the ECT were increasingly regarded by some commentators as imperative, on this basis alone.
In light of these considerations, and perhaps of the slow motion of the ECT modernisation process, several Contracting Parties withdrew from the ECT before the ECC’s adoption of the revisions – including Italy (see here), France (see here), Germany (see here), Poland (see here), Luxembourg (see here), Slovenia (see here), Portugal (see here), Denmark (see here), the United Kingdom (see here), Spain (see here), the Netherlands (see here), and the EU and the European Atomic Energy Community (Euratom) (see here).[2] These withdrawals may have accelerated plans already underway to modernise the ECT by striking a better balance between investment protection and the green transition. Ironically, for Contracting Parties that have withdrawn from the ECT, none of the revisions to the ECT discussed in this Blog Post will apply – during the applicable 20-year sunset period under the ECT (see here, Article 47(3)), they continue to be bound by the ECT as it existed prior to the current reform.
Second, the EU’s aversion to intra-EU investment disputes, culminating in the Court of Justice of the EU (“CJEU”)’s decisions in Achmea and Komstroy, played a key role. In Achmea, the CJEU stated that bilateral investment treaties between EU Member States were incompatible with EU law.[3] In Komstroy, the CJEU built on Achmea and determined that the ECT’s investor-State dispute settlement (“ISDS”) clause at Article 26 was also incompatible with EU law.[4]
Despite Komstroy, the majority of ECT tribunals involved in intra-EU disputes have refused to decline jurisdiction.[5] On 26 June 2024, 26 EU Member States[6] and the EU itself signed a Declaration on the legal consequences of Komstroy, in which they reiterated their “common understanding” that Article 26 of the ECT “cannot and never could serve as a legal basis for intra-EU arbitration proceedings”.[7] The Declaration, however, was a political statement and its legal effect under public international law has not been confirmed. The EU therefore has been advocating to amend the ECT to expressly exclude EU Member States from the application of the ECT’s ISDS clause (see below).
II. 3 September 2025 – Which revisions have entered into force?
On 3 September 2025, two revisions to the ECT entered into force – set out in new Sections A and B of Annex NI and concerning the exclusion of some fossil fuel investments from ECT protection. These revisions do not apply to ISDS disputes under the ECT submitted prior to 3 September 2025 (see here, at [1(b)(i)].
Under Section A of Annex NI, investments involving certain fuels, e.g. high temperature coal tar, fuel wood and wood charcoal, are to be excluded from ECT protection “[i]n relation to all Contracting Parties” (emphasis added) (see here). Section A of Annex NI is silent as to whether it will affect investments made prior to its entry into force.
Under Section B of Annex NI, “… investments made on or after 3 September 2025 in the European Union and its Member States which are Contracting Parties to [the ECT]” (emphasis added) that involve e.g. coal, natural gas, petroleum and petroleum products, electrical energy, high-carbon hydrogen, high-carbon synthetic fuels and similar materials, will be excluded from protection under the ECT” (see here).[8]
III. 3 September 2025 - which revisions will be provisionally applied?
Starting on 3 September 2025, the majority of the Contracting Parties have agreed to provisionally apply the following revisions (together, “the Amendments”): the revisions to the text of ECT; the modification to Section C of Annex NI; and the modification to other Annexes (see here, at [2]).
The Amendments will provisionally be applied prior to their entry into force pursuant to Article 42(4) of the ECT (see below), creating binding obligations for the Contracting Parties that have agreed to the provisional application.[9]
We provide below an overview of the key aspects of the Amendments, i.e. the main revisions to the text of the ECT (highlighting both substantive and procedural revisions) and the modification to Section C of Annex NI.
A. Revisions to the text of the ECT
1. Revisions to the ECT’s substantive provisions
a. Limitation of the fair and equitable treatment standard (FET)
New Article 10(2) limits the scope of FET in different ways. First, it expressly identifies the State conduct that may give rise to a breach. These include arbitrariness, targeted discrimination, fundamental breach of due process, denial of justice, abusive treatment, and frustration of an investor’s legitimate expectations. These amendments follow in the footsteps of the EU’s efforts to define the content of FET in prior treaties such as the Comprehensive Economic and Trade Agreement between the EU and Canada (“CETA”) (see here, Article 8.10). Second, it removes the reference to stable, equitable, favourable and transparent conditions for investors, which had been a springboard for claims based upon alleged unexpected regulatory change. Finally, it explicitly provides that a breach of another provision, or of another treaty, does not establish a breach of FET (see here, p. 9) – a revision that harks back to the 2001 NAFTA Free Trade Commission Note of Interpretation (see here).
b. Limitation of the full protection and security standard (FPS)
Pursuant to new Article 10(3), FPS is limited to physical security of investors and investments, as opposed to, e.g., legal security (see here, p. 9). Through this, the Contracting Parties seek to confirm the traditional customary international law content of this protection, contra arguments by investors that have sought to expand its scope.
c. Limitation of the most-favoured nation standard (MFN)
New Article 10(8) expressly limits the scope of MFN by providing that “‘treatment’ … does not include dispute settlement procedures provided for in other international agreements.” Furthermore, it provides that “substantive provisions in other international agreements concluded by a Contracting Party with a non-Contracting Party do not in themselves constitute the ‘treatment’” (see here, p. 9). Accordingly, investors will be prevented from importing more favourable dispute resolution and substantive provisions from other treaties. Again, this goes back to reforms already seen in the CETA treaty practice (see here, Article 8.7(4)), to limit perceived “treaty shopping” abuses.
d. Limitation of indirect expropriation
New Article 13(4) provides that indirect expropriation shall be determined based on various factors, such as the economic impact of the measure and its character, “including its objective and context.” It further clarifies that “non-discriminatory measures by a Contracting Party that are designed and applied to protect legitimate policy objectives, such as public health, safety and the environment … do not constitute indirect expropriations”, unless they are “manifestly excessive” (see here, p. 11). Once again, this builds on early treaty reform in the North American Free Trade Agreement (“NAFTA”) context that has been picked up in modern treaties such as the CETA, seeking to provide guardrails on the applicability of “indirect expropriation” designed to maintain regulatory flexibility.
2. Revisions to the ECT’s procedural provisions
a. Narrower definition of investment and investor
New Article 1(6) provides that investments must have been “made or acquired in accordance with the applicable law in the [host state]”, and must comply with certain requirements, e.g. commitment of capital or other resources, expectation of gain or profit, certain duration, or assumption of risk (see here, p. 3).
As to investors, new Article 1(7) explicitly excludes any natural persons with permanent residence in, or the nationality of, the host country, and requires companies and organisations to have “substantial business activities” in the host country (see here, p. 4).
The thrust of both provisions is to clarify the circumstances in which jurisdiction over a dispute may be found, and in both cases to raise the bar for qualifying investments and investors.
b. Carve-out for intra-EU disputes
Under new Article 24(3), the ECT’s ISDS mechanism “shall not apply among Contracting Parties that are members of the same REIO [Regional Economic Integration Organization, such as the EU] in their mutual relations” (see here, p. 18). The effect of this is that an investor from one Contracting State that is a member of a REIO cannot sue a Contracting State member of that REIO. Therefore, it crystallises the CJEU’s position in Komstroy, i.e. the inapplicability of the ECT’s ISDS provision under Article 26 to intra-EU disputes (see above). This was one of the main policy objectives of the reform, from the EU’s perspective.
c. Enhanced transparency
With a view to enhancing transparency, the modernised ECT introduced two main revisions.
First, new Article 26(6) requires the application of the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration (“the Rules on Transparency”) (see here) to all ECT disputes (see here, pp. 19-20). The Rules on Transparency aim at increasing public access to case documents (e.g. requests for amicable resolution, and agreements to mediate) and public information (e.g. through open hearings, and the participation of non-disputing parties).
Second, new Article 29 requires disclosure from each party to an ECT dispute of the name, address, ultimate beneficial owner and corporate structure of any natural or legal person providing third-party funding for the pursuit of the case (see here, pp. 23-26).
In adopting these provisions, the ECT modernisers are following on a longstanding push for enhanced transparency in ISDS.
d. Mitigation of the risk of abuse of process
The modernised ECT introduced revisions with regard to frivolous claims and treaty-shopping.
New Article 27 provides for two mechanisms for respondent States to dismiss frivolous claims. The first aligns with Rule 41 of the 2022 Arbitration Rules of the International Centre for the Settlement of Investment Disputes (“2022 ICSID Arbitration Rules”) (see here). Accordingly, within 45 days from the constitution of the tribunal (or within 30 days from becoming aware of the facts on which the objection is based), a respondent State may file an objection that a claim (or any part thereof) is manifestly without legal merit. The second mechanism entitles a respondent State to file an objection that, as a matter of law, the claim (or any part thereof) is not a claim in respect of which an award in favour of the investor may be made, even if the facts alleged by the investor were assumed to be true (see here, pp. 20-21).
New Article 27(4) requires ECT tribunals to decline jurisdiction “if the dispute arose, or was foreseeable … at the time when the Investor … acquired ownership or control of the Investment” (see here, p. 22).
These reforms address concerns on the part of respondent States that they may be required to expend considerable State resources responding to obviously unmeritorious claims. As noted, the reforms pick up on previous models to the same effect (e.g. the CETA, see here, Article 8.32). However, the bar for early dismissal remains high.
e. New provision on security for costs
Under new Article 28, respondent States in ECT disputes may ask the tribunal to order the investor to post security for all or part of the costs of the proceedings. Mirroring Rule 53 of the 2022 ICSID Arbitration Rules (see here) (under which Steptoe has recently obtained a security for costs order), a Tribunal shall take into account all relevant circumstances, including the risk of non-payment by the investor; the effect that providing security might have on the investor’s ability to pursue its claim; and the conduct of the parties.
Again, this reform picks up on State concerns that they may be required to expend significant State resources defending a claim, only to be unable to collect on an award of costs in the event the claim is dismissed with costs. However, the balanced language takes heed of the circumstance in which the claimant alleges that its main asset has been taken by the State, making it inequitable to shut down the claim on the basis of impecunity.
B. New Section C of Annex NI – progressive exclusion of fossil fuel investments
Section C follows the line of Section B of Annex NI (see above). It concerns investments involving coal, natural gas, petroleum and petroleum products, electrical energy, high-carbon hydrogen, high-carbon synthetic fuels and similar materials in the EU and its Member States which are Contracting Parties to the ECT. If such investments were made before 3 September 2025, under Section C they will be excluded from ECT protection ten years after the start of Section C’s provisional application (i.e. 3 September 2035), and in any event no later than 31 December 2040 (see here, at [Section C(1)]).[10]
IV. Which Contracting Parties will provisionally apply the Amendments?
The ECC agreed that, before 3 March 2025, the Contracting Parties could submit a declaration to the Depositary (currently, the Energy Charter Secretariat) confirming that they did not accept the provisional application of the Amendments.
Multiple Contracting Parties have done so, in particular: the Czech Republic (see here); Lichtenstein (see here); Finland (see here); Switzerland (see here); Belgium (see here); Japan (see here); Estonia (see here); Latvia (see here), and Austria (see here). Moreover, Lithuania has denounced the ECT in July 2025 and explicitly opted out provisional application of the Amendments (see here and here), and the Netherlands, whose withdrawal took effect on 28 June 2025, also explicitly opted out provisional application (see here).
Therefore, as of 3 September 2025, the following Contracting Parties should have begun provisionally applying the Amendments: Afghanistan, Albania, Armenia, Azerbaijan, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Greece, Hungary, Iceland, Ireland, Jordan, Kazakhstan, Kyrgyzstan, Malta, Moldova, Mongolia, Montenegro, North Macedonia, Romania, Slovakia, Sweden, Tajikistan, Türkiye, Turkmenistan, Ukraine, Uzbekistan, and Yemen.
V. When will the Amendments come into force?
The Amendments will fully enter into force pursuant to Article 42(4) of the ECT, i.e. on the ninetieth day from when three-fourths of the Contracting Parties have ratified, accepted or approved them, only for such Contracting Parties. For countries ratifying, accepting or approving the Amendments thereafter, the Amendments will enter into force on the ninetieth day after the deposit of their ratification, acceptance or approval with the Depositary (see here).
Conclusion
3 September 2025 represents a significant milestone in the rocky path towards ECT reform, giving effect to substantial changes to the framework of investment protection in the energy sector.
Whether the modernised ECT will achieve a better balance between investment protection and sustainability goals remains to be seen. What is certain, however, is that investors in the energy sector will face increased fragmentation in the international law framework of protection of their investments.
As of 3 September 2025, the ECT applies at three different speeds: first, the Contracting Parties that have withdrawn from the ECT continue to apply the old version for the 20-year duration of the ECT’s sunset period. Second, as to the Contracting Parties that remain in the ECT but have opted out of provisional application of the Amendments, the old version will continue to apply, until they ratify, accept or approve the Amendments – except for Section A and B of Annex NI, which entered into force on 3 September 2025. Third, for Contracting Parties that did not opt out from provisional application, all the revisions apply, subject to their right to terminate provisional application.
[1] The remaining Contracting Parties are the following: Afghanistan, Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia and Herzegovina, Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, Finland, Georgia, Greece, Hungary, Iceland, Ireland, Japan, Jordan, Kazakhstan, Kyrkyzstan, Latvia, Liechtenstein, Lithuania, Malta, Moldova, Mongolia, Montenegro, North Macedonia, Romania, Slovakia, Sweden, Switzerland, Tajikistan, Türkiye, Turkmenistan, Ukraine, Uzbekistan and Yemen.
[2] Moreover, Belarus suspended provisional application of the ECT as of 24 June 2022 (see here), and Norway declared its intention not to become a Contracting Party on 12 November 2024 (see here).
[3] Slovak Republic v. Achmea B.V., Case C-284/16, 6 March 2018 (see here); see also Laurens Ankersmith, Achmea: The Beginning of the End for ISDS in and with Europe?, ISSD (24 April 2018) (see here).
[4] Republic of Moldova v. Komstroy, Case C-741/19, 2 September 2021 (see here).
[5] See e.g. Sevilla Beheer B.V. and others v. Kingdom of Spain, ICSID Case No. ARB/16/27, Decision on Jurisdiction, Liability and Principles of Quantum (11 February 2022) (see here); Encavis AG and others v. Italian Republic, ICSID Case No. ARB/20/39, Award (11 March 2024) (see here).
[6] Except for Hungary, which issued a separate declaration (see here).
[7] Declaration on the legal consequences of the judgment of the Court of Justice in Komstroy and common understanding on the non-applicability of Article 26 of the Energy Charter Treaty as a basis for intra-EU arbitration (see here).
[8] N.B. slightly different rules with regard to the materials involved apply to Switzerland (see Annex NI, Section B(2)) and to the United Kingdom (see Annex NI, Section B(3)).
[9] Article 25 of the Vienna Convention on the Law of Treaties (see here)
[10] N.B. slightly different rules with regard to the materials involved apply to the United Kingdom (see Annex NI, Section B(2)). See also here, at [2].
