CYIL vol. 12 (2021)

Monika Feigerlová CYIL 12 (2021) Luxembourg specifically connects this amendment to the energy transition process and the implementation of the Paris Agreement’s commitments. 62 The state’s right to regulate has already been recognised by many investment arbitral tribunals despite finding violations of the ECT and from this perspective other clarifications contained in the EU Proposal are more important for safeguarding domestic policy space. For example, the EU Proposal stipulates that the investment protection provisions should not be interpreted as a commitment from the state that it will not change its legal and regulatory framework in the future, even if that may negatively affect the operation of investments or the investor’s expectation of profits. 63 Specifically, on subsidies, the EU Proposal states that a contracting state’s decision not to issue, renew, or maintain a subsidy in the absence of any specific commitment under law or contract to issue, renew, or maintain that subsidy shall not constitute a breach of the treaty. 64 Furthermore, the reformed ECT shall guarantee compliance with EU rules on state aid in the sense that the treaty shall not be construed as preventing a contracting party from discontinuing the granting of a subsidy and that reimbursement of a subsidy will not establish a right of an investor for compensation under the ECT. In this respect it is notable that recent numerous solar investment disputes brought under the ECT arose out of the states’ changes to support schemes adopted by the governments to promote investment in renewable energy sector. 65 Amendments to pre-existing incentive regime for the photovoltaic sector, including the introduction of a levy on electricity generated from certain solar power plants, were challenged by foreign investors, mostly EU nationals, on the grounds of the breach of fair and equitable treatment and the lack of a stable and predictable legal framework. The modernized ECT would eliminate such similar claims relating to subsidies whose unchangeability was not specifically guaranteed per law or contract. Interestingly, in the EU context, the EU has recently prohibited countries from changing their support schemes in an unpredictable manner on the basis of domestic legislation. 66 Fair and Equitable Treatment The right to regulate closely relates to the fair and equitable treatment (FET) standard that has raised a number of controversies and contributed to the criticisms of the overall investment protection system. The FET is contained in Article 10(1) of the ECT and the EU Proposal contains significant changes aimed at clarifying the scope of commitments that will be covered by the FET clause. Historically the protection afforded to foreign investments by international investment treaties has been exceptionally broad, including guarantees vis-à-vis the host state’s regulatory change, and unreasonable conduct. 67 The interpretation and application of the inherently ambiguous standard of the fair and equitable treatment produced inconsistent and divergent arbitral awards. According to the ECT Secretariat statistics, the FET standard together with 62 Decision of the Energy Charter Conference. CCDEC 2019 08 STR. 6 October 2019, p. 16. 63 Part III of the EU Proposal. 64 Ibid. 65 Under the ECT claims arising from changes to renewable energy regime were brought against Italy, Spain and the Czech Republic. 66 Recital (29) and Article 6 of Directive (EU) 2018/2001 of the European Parliament and of the Council of 11 December 2018 on the promotion of the use of energy from renewable sources. 67 Ortino, F. The Origin and Evolution of Investment Treaty Standards: Stability, Value, and Reasonableness. Oxford University Press. 2019, pp. 175–176.

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