Two arbitration victories for Spain under the Energy Charter Treaty (ECT) have sparked hopes that efforts to halt the intra-EU disputes that dominate claims under the controversial global pact are starting to bear fruit. 

On October 11, the World Bank’s International Center for the Settlement of Investment Disputes tribunals dismissed more than €80m-worth of ECT investor claims brought by Belgium’s Sapec and Denmark’s European Solar Farms against the Spanish government.

The decisions, which have not yet been published, bucked the legal trend by ruling that ECT lawsuits between investors and governments within the bloc violate EU law. This upholds views pushed by the European Commission and follows its clampdown on intra-EU energy disputes which are tainting a market that has generated $1.6tn in FDI over the past decade, according to fDi Markets estimates.

Climate scholars believe the tribunal wins this month signal growing acceptance in international legal circles that EU investors cannot bring ECT claims against other member state governments. 

“We can see a gradual shift there. This could be an indicator of future tendency of tribunals to increasingly respect that intra-EU [argument],” says Lukas Schaugg, policy advisor at the International Institute for Sustainable Development. 

A shorter sunset

ECT data shows that intra-EU disputes account for more than half the total 162 claims brought under the pact since 2001. These have sometimes led to large payouts, including the €1.4bn settlement in 2021 between Sweden’s Vattenfall and the German government over the latter’s nuclear power phase-out, and Rockhopper’s receipt of €190m in damages from Italy for its ban of oil and gas exploration. 

To curb ECT lawsuits — many of which are sparked by climate change reforms — the EU withdrew from the treaty in July 2024. Its governments still remain vulnerable to ECT claims for another 20 years under the pact’s sunset clause. However, the EU has sought to mitigate this through a so-called ‘inter se agreement’ among its member states. This agreement affirms that ECT disputes between EU investors and governments are against EU law, as originally determined by Europe’s top court in a 2021 ruling known as Komstroy. 

That court ruling had largely been disregarded by arbitrators hearing intra-EU disputes, explains Audrey Changoe, trade and investment policy co-ordinator at NGO Climate Action Network Europe. But Spain’s recent victories show “some arbitrators are now taking this principle into account”, she says. “With the EU leaving the ECT, and the inter se agreement, there is now more jurisprudence on the illegality of intra-EU arbitration.”

Before this month, the only other example of an international arbitrator rejecting an investor’s ECT claim on these grounds came in a 2022 case brought by Danish group Green Power, also against Spain. The country has been the primary target of ECT claims, accounting for 51 of the total 162 disputes to date. 

An official from Spain’s Ministry of Ecological Transition said via email that these cases show “Spain is succeeding in [ECT] renewable energy arbitration cases”. He added: “Arbitral tribunals … have acknowledged that they lack jurisdiction to hear investment disputes that are purely European.”

More on the Energy Charter Treaty:

• Opinion | In defence of a modernised Energy Charter Treaty
• Is this the end for the Energy Charter Treaty?
• Realigning investment treaties for climate resilience

Legal loopholes

Despite the EU’s progress, investors have shown they are willing to challenge the case against intra-bloc ECT disputes. On October 9, US-headquartered ExxonMobil announced it is suing the Dutch government for accelerating its phase-out of gas exploration in the country’s north. The US is not part of the ECT, so the company brought the claim via a Belgian affiliate. 

The energy giant’s lawsuit is testament to the legal doubts hanging over the EU’s ability to fully eliminate its ECT exposure. Arbitration tribunals that hear these disputes are constituted under international law, and are not bound to follow EU law. 

What’s more, the inter se agreement can only neutralise the sunset clause and avoid disputes between countries once they have ratified it. Even then, it is not clear whether it can legally prevail over the earlier-agreed ECT. “There is at least an argument that partners to an international treaty may not be able to take away rights that have accrued” before the withdrawal, says Markus Burgstaller, a partner at law firm Hogan Lovells. 

Under the ECT, that decision will most likely be made by dispute arbitrators on a case-by-case basis, he says, because there is no system of precedent in international law forcing them to follow other arbitrators’ decisions.

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