Eamon Ryan (Dublin Bay South, Green Party) | Oireachtas source

I am grateful for the opportunity to address the House on the Energy Charter Treaty, ECT. I will be sharing my time with my colleague, the Minister of State, Deputy Ossian Smyth, who has responsibility for the circular economy in my Department. I will update the House on the recent and current situation with the Energy Charter Treaty, while the Minister of State will address the future scenarios arising from the charter as things progress in this fast-moving area of energy policy.

The Energy Charter Conference, an intergovernmental organisation, is the governing and decision-making body for the energy charter process and was established by the 1994 Energy Charter Treaty. All states or regional economic organisations that have signed or acceded to the treaty are members of the conference, which meets regularly to discuss issues affecting energy co-operation among the treaty's signatories, to review the implementation of the provisions of the Energy Charter Treaty and the protocol on energy efficiency and related environmental aspects and to consider possible new instruments and joint activities within the energy charter framework.

The roots of the Energy Charter Treaty date to a political initiative launched in Europe in the early 1990s, at a time when the end of the Cold War offered an unprecedented opportunity to overcome previous economic divisions. Nowhere were the prospects for mutually beneficial co-operation clearer than in the energy sector. There was a recognised need to ensure that a commonly accepted foundation was established for developing energy co-operation among the states of Eurasia. On the basis of these considerations, the energy charter process was developed. In a world of increasing interdependence between net exporters of energy and net importers, it was recognised that multilateral rules could provide a more balanced and efficient framework for international co-operation than was offered by bilateral agreements alone or by non-legislative instruments.

The Energy Charter Treaty and the energy charter protocol on energy efficiency and related environmental aspects were signed in December 1994 and entered into legal force in April 1998. The treaty was developed on the basis of the 1991 energy charter. Whereas the latter document was drawn up as a declaration of political intent to promote energy co-operation, the Energy Charter Treaty is a legally binding multilateral instrument. The fundamental aim of the Energy Charter Treaty is to strengthen the rule of law on energy issues by creating a level playing field of rules to be observed by all participating governments, thereby mitigating risks associated with energy-related investment and trade.

Governments aim to create low-risk scenarios for large energy investments to ensure ultimately low costs for their citizens. A large amount of investment is required, all along the supply chain, to meet energy demand by citizens and society. The international energy charter was based on the idea that international flows of investments, capital and technologies for the energy sector are mutually beneficial. A primary aim of the treaty was to promote the necessary climate of predictability that can attract private sector involvement and, by de-risking this investment, ultimately lead to lower costs of energy for citizens and businesses.

The Energy Charter Treaty aimed to assist this objective by offering binding protection for foreign energy investors against key non-commercial risks, such as discriminatory treatment, direct or indirect expropriation, or breach of individual investment contracts. This was seen as required in states that needed to rapidly modernise while putting in place new judicial, democratic and other institutions at the end of the Cold War. The Energy Charter Treaty covers all types of energy materials and products, inclusive of electricity and energy-related equipment, and the provisions on investment protection apply also to investments in hydropower, solar, wind energy and all other renewable energy sources. The treaty does not create investment opportunities for companies by forcing open access to resources or defining a certain market structure for international energy charter member countries. These are sovereign decisions for member governments.

A second priority for the treaty was to promote reliable international energy flows. This has always been an important issue for Eurasian energy security, since a high proportion of oil and gas in Eurasia is delivered through long-distance pipelines that cross multiple national borders and jurisdictions. Under the treaty, member countries are under an obligation to facilitate energy transit in line with the principle of freedom of transit and not to interrupt or reduce established energy transit flows.

Third, the treaty requires that all member states act to minimise the harmful environmental impact of energy-related activities. The treaty does not have binding targets in this area, but member countries use the international energy charter as a forum to exchange information on programmes and policies that have been successful in improving energy efficiency.

Ireland signed the European energy charter, which was the political foundation for the energy charter process, in December 1991. On 17 December 1994, Ireland signed the Energy Charter Treaty and the protocol on energy efficiency and related environmental aspects. These were ratified on 30 March 1999, deposited on 15 April 1999 and entered into force on 14 July 1999. On 20 May 2015, Ireland signed the international energy charter.

The Energy Charter Treaty provides a multilateral framework for energy co-operation. It is designed to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources. There are currently 53 signatories and contracting parties to the Energy Charter Treaty, including both the European Union and Euratom, including all EU member states except Italy, and the UK, Japan and many former Soviet states. The treaty also provides for dispute resolution procedures both between states themselves and between states and the investors of other states which have made investments in the territory of said states.

The Energy Charter Treaty has come under criticism for its dispute resolution mechanism, which gives investors a right to sue states for failing to protect investments in the energy sector of any kind, and also perceived conflicts with the objectives of the Paris Agreement on climate. All EU countries are parties to the European Charter Treaty, with the exception of Italy, which withdrew from the ECT in 2016. However, countries which withdraw from the ECT remain bound by its provisions with regard to pre-existing qualifying investments for a 20-year sunset period.

In 2017, the Energy Charter Conference decided to modernise the treaty in order to respond to the demands of member countries that found it obsolete with regard to current investment agreements and the climate policy objectives of the European Union to phase out fossil fuels in favour of renewables.

The conference on Modernisation of the Energy Charter Treaty in 2017 mandated a subgroup to prepare a report identifying potential topics for amendment of the treaty to aid its modernisation. This was published in June 2018. It was felt that in the absence of any substantial update of the ECT since the 1990s it had become increasingly outdated. It also became one of the most litigated investment treaties in the world, with EU member states being the principal target of claims by investors, most of them based in other EU countries.

As part of the modernisation the EU proposed the removal of protections for investments in fossil fuels, in order to bring the ECT in line with the Paris Agreement. After 15 rounds of multilateral negotiations held between July 2019 and June 2022, an agreement in principle to close negotiations was reached at the extraordinary Energy Charter Conference of 24 June 2022 in Brussels. This involved reaching agreement on key energy security areas such as the modernisation of investment protection rules, the inclusion of provisions to align with the Paris Agreement and future climate and clean energy agreements and the alignment of energy transit-related provisions with EU Internal Market rules. A headline provision of the agreement in principle removes protection for all new fossil fuel investments, and protections for existing fossil fuel investments will be phased out after a transition period of ten years. A qualified majority vote at the European Council was required to allow the European Commission to approve on behalf of the EU and Euratom the so-called agreement in principle.

Despite efforts to build a compromise allowing the EU and Euratom to take a position at the conference, the proposed Council decision for the EU and Euratom to endorse the modernised ECT did not get sufficient support in COREPER on 18 November 2022. This has led to the situation that the modernisation was neither adopted nor rejected by the Energy Charter Conference. In the absence of an EU and Euratom endorsement of the modernisation of the ECT, the unmodernised ECT, which is not in line with the EU's climate policy, continues to apply.

I have publicly stated previously that the Energy Charter Treaty is not fit for purpose. The removal of fossil fuels and the elimination or reduction of the sunset clause were key asks for Ireland as part of the modernisation process. The Energy Charter Treaty modernisation has not progressed adequately. Therefore, Europe has signalled a full exit from the treaty should be undertaken now that modernisation has not been possible. Throughout this process Ireland has expressed strong views within the EU on the compatibility of the Paris Climate Agreement and the ECT dispute resolution mechanism. We continue to express our views within the EU on these issues and we believe that our views carry more weight in international negotiations by advocating them as part of the European Union.

Ireland has signalled its intent to leave the Energy Charter Treaty, but wants to do so in a co-ordinated way with the other member states. We are engaging with our EU partners on the way forward to achieve this. Ireland is among nine EU member states which have indicated they are withdrawing from the Energy Charter Treaty. Italy left in 2015. The Department is engaging with the Office of the Attorney General on legal issues relating to the withdrawal process, which I expect to bring to Government to align with the co-ordinated EU withdrawal.

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