CYIL vol. 12 (2021)

Monika Feigerlová CYIL 12 (2021) the exploration, extraction, refining, production, storage, land transport, transmission, distribution, trade, marketing, or sale of Energy Materials and Products except those included in Annex NI, or concerning the distribution of heat to multiple premises.’ 48 The ‘ Energy Materials and Products’ are in turn defined as items listed in Annexes EM I and EM II of the ECT. 49 These include nuclear energy, coal, natural gas, petroleum products, electrical energy, and other energy. Electrical energy is not further specified and in line with case law it is interpreted to include electricity generated from various renewable energy sources, such as solar power, 50 wind energy (land and offshore), and hydropower. In the first place, the EU suggested changes to the definition of the investment which are uncontroversial and respond to constantly criticized deficiencies of provisions typical for old-generation investment agreements and follow reforms that many states have already undertaken in their own investment policies. The new definition expressly requires that investment must have the characteristics of an investment, which includes a certain duration and other characteristics such as the commitment of capital or other resources, the expectation of gain or profit or the assumption of risk. 51 Further, investment must be made in accordance with the applicable law and the domestic law of the host contracting party. 52 The definition of the ‘ Economic Activity in the Energy Sector’ was presented by the EU in the EU Phase-Out Proposal and was only discussed during the fourth and fifth negotiation rounds in spring 2021. The definition of the ‘ Energy Materials and Products’ now includes new sub-categories of fuels important for a low carbon economy, such as biogas produced from biomass, renewable hydrogen, low-carbon hydrogen, formic acid, etc. 53 This amendment explicitly extends the ECT’s protection to selected renewable energy sources. 54 More importantly, the EU Phase-Out Proposal suggests the gradual removal of fossil fuels from the treaty’s protection. Existing fossil fuel investments would benefit from investment protection under the ECT for ten years after the entry into force or provisional application of the amendment to the ECT, but no longer than 31 December 2040. 55 It is not entirely clear whether the maximum period proposed by the EU is somehow linked to the ECT’s 20- year sunset clause which would apply in the event of the EU’s unilateral withdrawal from the treaty. From this perspective, the negotiated period does not look very ambitious. New investments, i.e., investments in fossil fuels made after the entry into force of the revised ECT, would no longer be protected by the ECT, with the exception of specific investments in qualified projects generating electricity from gas and in qualified pipelines, which would continue to benefit from the ECT protection either until 31 December 2030, or for ten years after the entry into force of the amendments to the treaty (but not later

48 Article 1, paragraph 5 of the ECT. 49 Ibid. 50 E.g., solar power investment disputes against Spain, the Czech Republic, or Italy.

51 Article 1, paragraph 6 of the EU Proposal. For greater certainty, certain types of transactions or economic values are further explicitly excluded from the definition, e.g., commercial transactions for the sale of goods or services, judgments or arbitral awards, and short-term loans and short-term financial contributions. 52 Ibid. 53 Article 1, paragraph 6 of the EU Proposal. 54 This is not supported by environmental groups that challenge the contribution of some of the substances to clean energy transition and in principle they oppose any further expansion of the ECT. 55 Article 1, paragraph 4 of the EU Phase-out Proposal.

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