Frequently Asked Question about the Energy Charter Process
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Why an Energy Charter?
The Energy Charter is based on the recognition that all countries stand to benefit from a balanced framework for cooperation in the energy sector. Countries with natural resources get a means to attract investment, to protect their interests downstream, and to ensure reliable transportation for their energy exports to consumers.
Energy-importing countries get protection for their outward energy investments, and mechanisms to promote security of supply. All countries benefit from measures to encourage the efficiency of energy production and use and to minimise their environmental impacts.
The Energy Charter has two distinctive features. Firstly, the Treaty is the only body of international rules that is tailored to the specific needs of the energy sector. Secondly, the Energy Charter covers a broad and diverse range of countries across Eurasia, including energy producers, consumers and transit countries.
The Charter dates back 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 the previous economic divisions on the European continent. A political declaration on international energy cooperation, the European Energy Charter was adopted in 1991, and was followed by the legally binding Energy Charter Treaty, which was signed in 1994 and which entered into force in 1998.
What does the Energy Charter Treaty do?
The Treaty’s common 'rules of the game' for the energy sector are designed to encourage investment and trade, to ensure reliable transit, and to promote efficient energy use.
A huge volume of investment is required, all along the supply chain, in order to meet growing demand for energy. The Energy Charter is based on the idea that international flows of investments, capital and technologies for the energy sector are mutually beneficial, and a primary aim of the Treaty is to promote the necessary climate of predictability that can attract private sector involvement.
The Treaty does not create investment opportunities for companies by forcing open access to resources or defining a certain market structure for Energy Charter member countries. These are sovereign decisions for member governments.
However, once an energy investment is made, the Treaty is designed to provide a stable interface between the foreign investor and the host government. This stability is particularly important in the global energy sector, where projects are highly strategic and capital-intensive, and where risks have to be assessed over the long-term.
It is a major task to reduce these risks, as far as possible, by creating a stable and transparent investment climate. The Energy Charter Treaty assists 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.
A second priority for the Treaty is to promote reliable international transit flows. This is a particularly 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.
Thirdly, 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 Energy Charter as a forum to exchange information on programmes and policies that have been successful in improving energy efficiency.
Who are the members of the Energy Charter Treaty?
Currently there are fifty-three Signatories and Contracting Parties to the Treaty. This includes both the European Union and Euratom. However Australia, Belarus, and Norway have not yet ratified the Treaty.
Belarus accepted provisional application of the whole Treaty, which means that – pending ratification – it agreed to apply the Treaty to the extent that it is consistent with its constitution, laws and regulations.
With its current membership, the Energy Charter has a natural focus on the evolving Eurasian energy market, including the Mediterranean region, the Middle East and North Africa. Although the Treaty was conceived as a European initiative with a focus on 'East-West' cooperation, the scope of the Energy Charter is now considerably broader. Pakistan, China, Korea, Iran and Association of South-East Asian Nations have all have all taken on observer status in recent years; the role of the Energy Charter in Asia is becoming increasingly important. (See 'Members and Observers' page for more information).
How does a country join the Energy Charter Process?
The first step for a country wishing to join the Energy Charter is to sign the 1991 political declaration (the 'European Energy Charter'). On the basis of this commitment to the principles of the Energy Charter, the country then becomes an observer to the Energy Charter, with access to all meetings and documents.
The next stage, if a country wishes to take it, is accession to the Treaty itself. This is a more lengthy process, since a country must first assess the compatibility of its domestic legislation with the provisions of the Treaty. Once the relevant reports have been approved by the Energy Charter Conference - the Energy Charter's governing body in which all member countries are represented - the applicant country is invited to accede to the Treaty.
The Treaty is open for accession by any country that wishes to participate, that is ready to take on the obligations in the Treaty, and whose application is accepted by the Energy Charter Conference.
Does the Treaty oblige countries to provide foreign investors with access to their national energy resources?
While the Energy Charter is based on the idea that international flows of investments and technologies in the energy sector are mutually beneficial, national sovereignty over energy resources is a core principle of the Treaty (Article 18 of the Energy Charter Treaty).
Each member country is free to decide whether and how its national energy resources are developed, and also the extent to which its energy sector is open to foreign investors.
Does implementation of the Energy Charter Treaty mean mandatory third-party access to pipelines and energy networks?
The Energy Charter Treaty includes an obligation on member countries to facilitate energy transit across their territory, in line with the principle of freedom of transit, and an obligation to secure established transit flows. At the same time, an understanding included in the Treaty makes it clear that the Treaty provisions "do not oblige any Contracting Party to introduce mandatory third party access".
Does the Energy Charter Treaty require unbundling/privatisation of state-owned energy assets?
An objective of the Treaty is to promote transparency and efficiency in the operation of energy markets, but it is for governments to define the structure of their national energy sector. There is no obligation to privatise state-owned energy companies, or to break up vertically integrated energy companies.
Is the Energy Charter Treaty just about oil and gas? What about renewable sources of energy?
If a country becomes a member of the WTO, what is the added benefit of being part of the Energy Charter?
The Energy Charter shares core principles with the World Trade Organisation, in particular the principles of transparency and non-discrimination. The rules of the Treaty are fully compatible with those of the international trading system, and in practice the Energy Charter Treaty has been a valuable stepping stone for some member states on their way towards accession to the WTO.
However, the Energy Charter goes further than the WTO framework in addressing specific challenges for the energy sector. There is no counterpart in the WTO system to the Energy Charter Treaty's provisions on the protection of investment. The Charter also covers in more detail the issue of energy transit, and includes a distinctive mechanism for the resolution of energy transit disputes. In relation to the energy sector, memberships in the WTO and in the Energy Charter are complementary; these organisations are not substitutes for one another.
Is the Energy Charter an institution of the European Union?
The idea of an Energy Charter to promote international energy cooperation was launched by the (then) European Community in June 1991. However, the Energy Charter is a separate international organisation, which aims to find balanced solutions to key energy challenges among a diverse range of member countries across Europe and Asia, including producers, consumers and transit states, participating in the Charter on an equal basis. And although the Charter Process was originally conceived in Europe as a forum for East-West cooperation, the Asian dimension of the Charter Process has become an increasingly important priority in recent years.
What is the difference between the Energy Charter and the Energy Community?
The Energy Charter is an independent international intergovernmental organisation, based on the 1994 Energy Charter Treaty, bringing together 52 states in Europe and Asia. The Energy Charter Treaty focuses on cross-border cooperation in the energy sector: promotion of investments, stable energy flows and increased energy efficiency.
The Energy Community is an international organisation dealing with energy policy. The key aim of the organisation is to extend the EU internal energy market to South East Europe and beyond on the basis of a legally binding framework. The organisation was established by an international treaty in 2005. The Treaty establishing the Energy Community brings together the European Union, on one hand, and countries from the South East Europe and Black Sea region on the other.
What happens if a country does not comply with its obligations under the Energy Charter Treaty?
The Treaty contains a variety of mechanisms to settle disputes, each of these being designed to address a particular aspect of the Treaty.
If a member country feels that another state is not complying with its obligations under the Treaty - and if no resolution is possible through bilateral diplomatic channels - then the matter can be taken to binding international arbitration. This mechanism is applicable to almost all disputes arising under the Treaty, with the exception of the articles on competition and on the environment.
The Treaty also grants foreign investors the right to take Contracting Parties to international arbitration, in the event of an alleged breach of the Treaty's investment provisions (for more information see - All Investment Dispute Settlement Cases -).
The Treaty also includes a unique conciliation procedure to deal specifically with disputes over transit. This can be invoked by member states, and is faster and less formal than taking a case to arbitration. Under this procedure, an independent conciliator is appointed in order to assist the parties in reaching an agreement. If no agreement is reached quickly, then the conciliator ultimately has the power to fix interim transit tariffs for up to twelve months while negotiations between the parties continue. The aim of this procedure is to reduce the risk of interruptions to transit flows while an agreement is being found.
The Secretary General of the Energy Charter Secretariat has a role in appointing the conciliator in this case, but - apart from this specific instance - the Secretariat itself is not involved in the dispute settlement mechanisms. The Secretariat has no mandate to act as arbiter on disputes arising under the Treaty, nor can it recommend or take any sanctions against member countries.
What is Russia's status with the Energy Charter?
Russia signed the Energy Charter Treaty in 1994 and accepted provisional application of the Treaty pending ratification. This meant that Russia had agreed to apply the provisions of the Energy Charter Treaty to the extent that they are consistent with Russia's constitution, laws and regulations.
On 20 August 2009 the Russian Federation officially informed the Depository that it did not intend to become a Contracting Party to the Energy Charter Treaty and the Protocol on Energy Efficiency and Related Environmental Aspects. In accordance with Article 45(3(a)) of the Energy Charter Treaty, such notification results in Russia's termination of its provisional application of the ECT and the PEEREA upon expiration of 60 calendar days from the date on which the notification is received by the Depository. Therefore, the last day of Russia's provisional application of the Energy Charter Treaty and the PEEREA was 18 October 2009. In 2018, Russia confirmed that they are not to be considered as Signatories of the Energy Charter Treaty.
How can I find out more about an individual investment dispute raised under the Energy Charter Treaty?
The Secretariat has no formal role in relation to the settlement or administration of investment disputes under the Energy Charter Treaty, and parties to any dispute are not obliged to release information about the progress of individual cases. However, some information is in the public domain, and the Secretariat has compiled a list of cases containing - to the best of our knowledge - relevant public information about the investor-state disputes that have been formally initiated.
What does the Energy Charter Treaty say about provisional application?
Initially, two countries applied the Energy Charter Treaty provisionally, namely the Russian Federation and Belarus.
The Energy Charter Treaty provides in Article 45(1) that "Each signatory agrees to apply this Treaty provisionally pending its entry into force … to the extent that such provisional application is not inconsistent with its constitution, laws or regulations" (emphasis added).
Provisional application of the Treaty was a possibility only for countries that signed the Treaty when it was initially open for signature (from 17 December 1994 until 16 June 1995). At the time of signing, each state had the option of filing a declaration to the effect that it was unable to accept provisional application of the Treaty, and a number of countries filed such declarations. The other signatories - among them the Russian Federation and Belarus - accepted provisional application. However, in 2009 the Russian Federation withdrew from the provisional application of the Treaty.
Since end-June 1995, any new member wishing to be bound by the Treaty has to accede; this is a different procedure that does not entail signing of the Treaty itself, and so the question of provisional application does not arise in these cases.
As of May 2018, three of the original signatory countries have not ratified the Treaty. Of these three, Norway and Australia filed declarations at the time of signing to the effect that they were unable to accept provisional application. Belarus has not ratified the Treaty and has accepted provisional application.