Charting fossil fuel investment protection in the EU beyond the Energy Charter Treaty

Abstract: Under international law, foreign direct investments are protected by a patchwork of bilateral or multilateral investment treaties. International investment agreements have been criticised for protecting foreign direct fossil fuel investments and limiting the regulatory space of host states, thus creating obstacles for a green transition. At the time of writing, the European Union and its member states are on the brink of withdrawing from the Energy Charter Treaty, the world’s largest international investment agreement. This raises the question of what regulation takes its place once it is gone. The purpose of this thesis is to clarify the legal framework for investment protection that currently coexists with the Energy Charter Treaty. Initially, the study examines the scope of two provisions that are often invoked in investor-state arbitration, namely the fair and equitable treatment standard and provision on expropriation found in the Energy Charter Treaty. These are then compared with substantive protection offered under two different sets of legal frameworks: bilateral investment treaties and internal EU law. In the first part of the study, it is concluded that the bilateral investment treaties that overlap geographically with the Energy Charter Treaty contain the same standards as it and offer investors equivalent protection. In the second part, the scope of the fair and equitable treatment standard and expropriation provision are compared with the direct investment protection found in EU law, especially in its general principles and Charter of Fundamental Rights. It is found that this substantive protection largely overlaps and is mainly equivalent to that of the Energy Charter Treaty. The analysis nonetheless gives reason to conclude that the space for host states to regulate for public interest purposes, such as environmental protection, is likely to be wider under EU law than under the Energy Charter Treaty. The chief difference between the frameworks, however, lies in the elimination of access to international arbitration in investor-state disputes that withdrawal from the Energy Charter Treaty will bring for internal EU investors. Without that possibility, their only recourse is to domestic judicial proceedings.