Dr. Michael de Boeck:

The recent reform of the energy charter process reflects the shift by putting more emphasis on broadening the geographic membership of the charter. This could help to diversify the energy supply, including with regard to liquid natural gas and renewables. I will not wade too far into that because my primary area of expertise is the ISDS provisions, which I will now discuss.

I am sure members have already heard arguments from others who testified before this committee.

I want to address a counterargument often raised by proponents of ISDS and the Energy Charter Treaty, namely, the working of Article 19. It is often said that the Energy Charter Treaty already protects the regulatory margin of host states to a good extent in relation to environmental protection. I would offer the retort that the idea that Article 19 sufficiently incorporates environmental protection is a fallacy because that protection is only put into the context of investment protection principles on long-term energy investments, that is to say, that the host state may subject investments to conditions, impact assessments, the performance of building conditions, etc. However, it can only do so ex ante. It does not actually provide for an ex postright for a host state to change its regulatory framework even for the protection of the environment. Environment protection is then recognised as part of the regulatory framework, which can change over time within certain limits, but it is not recognised at the level of an overriding justification for breaches of the investment protection principles. That, in legal terms, is a wholly different dynamic than, for instance, a carve-out provision or an exception.

Moreover, as we see in practice, Article 19 is actually not subject to the ISDS provisions, yet we see a number of cases that concern regulatory incentive regimes, particularly for solar energy such as in Spain, the Czech Republic and Italy that have rather mixed outcomes. The reality is that investors who have legitimate expectations under international investment law to have regulatory stability may in fact block some of the needed reforms or at least render them excessively costly.

To come back to the idea of presenting the high-level tendencies, we have to recognise that we are at the precipice of a tremendous transition effort, which is almost inevitably likely to affect the regulator frameworks of many, if not all, sectors. We will fund that transition effort with a staggering €750 billion EU investment fund. However, we risk subsidising or incentivising investments with taxpayers' money only then to be faced with claims for damages and lost profits. This is an important caveat because whereas under national law the state can be sued for damages but not lost profits, under international investment law, a state can also be sued for lost profits. What we have then incentivised with taxpayers' money could ultimately turn against us in a suit for lost profits when the original regulatory efforts at the beginning of the long-term investment - investments could be for 25 or 30 years - turn out to be insufficient and we have to recalibrate our environmental measures in order to meet targets. That is a real risk.

My overarching message is that the Energy Charter Treaty has some merit with regard to all the other provisions but probably not with regard to the ISDS provisions as they are now. It is a fact that the Energy Charter Treaty is currently being modernised but the results of that process are as yet very unsure and it is very hard to make any prediction on that.