1. Introduction

Investment treaty reform has become increasingly important for energy projects because energy investments are typically long-term, capital-intensive and highly dependent on government regulation. Power plants, transmission networks, renewable-energy facilities, LNG infrastructure, pipelines, hydrogen projects, batteries and carbon-capture facilities may operate for decades. During that period, governments may change electricity tariffs, subsidies, environmental standards, carbon policies, licensing requirements or fossil-fuel phase-out rules.

Traditional bilateral investment treaties (BITs) and multilateral treaties such as the Energy Charter Treaty (ECT) were largely drafted before climate change and the energy transition became central regulatory concerns. Older treaties commonly contain broad standards such as fair and equitable treatment (FET), protection against expropriation, full protection and security, national treatment and most-favoured-nation treatment, together with investor–State dispute settlement (ISDS).

UNCTAD reports that older investment treaties continue to dominate the system and can constrain States' regulatory space, while newer treaties increasingly refine substantive protections, reduce reliance on investor–State arbitration and incorporate sustainable-development and investment-facilitation provisions. (UNCTAD)

The central reform question is therefore:

How can investment treaties protect legitimate energy investment without preventing governments from regulating electricity, fossil fuels and renewable energy systems in response to climate, affordability, security and technological changes?

2. Why Energy Projects Require Investment Treaty Reform

Energy projects have several characteristics that make treaty protection particularly significant.

A. Long investment periods

A solar plant, nuclear facility, transmission line or offshore wind farm may require substantial capital expenditure before generating returns.

Investors therefore seek protection against unexpected regulatory changes.

B. Heavy regulatory dependence

Energy projects cannot normally operate without:

generation licences;

environmental approvals;

grid-access rights;

electricity-market rules;

tariffs;

subsidies or support mechanisms;

land permissions;

construction permits;

transmission arrangements; and

environmental and safety standards.

Consequently, a regulatory change can significantly affect the economic value of an investment.

C. Energy transition

Governments increasingly need to:

retire coal plants;

restrict oil and gas development;

reduce fossil-fuel subsidies;

impose carbon standards;

promote renewable electricity;

develop hydrogen;

regulate batteries and storage;

strengthen grid infrastructure; and

introduce climate-related environmental standards.

UNCTAD's 2026 analysis specifically identifies safeguarding policy space, supporting clean-energy investment and know-how, strengthening domestic capacity, and improving implementation and monitoring as priorities for modern treaty design. (UNCTAD)

3. Problems with Traditional Investment Treaties

3.1 Broad Fair and Equitable Treatment

FET is one of the most frequently invoked investment protections.

Depending on the treaty and tribunal, FET can address:

arbitrary governmental conduct;

lack of transparency;

procedural unfairness;

discrimination;

fundamental changes to the regulatory framework;

frustration of legitimate expectations.

The difficulty for energy regulation is that governments must sometimes change policies that investors previously relied upon.

For example, a government might introduce a generous feed-in tariff for solar projects and later reduce it because the original system has become financially unsustainable.

The treaty question becomes whether the investor was entitled to expect that the regulatory framework would remain unchanged.

4. Legitimate Expectations and Regulatory Change

This is one of the most important areas of investment treaty reform.

Modern treaty drafting increasingly attempts to clarify that investment protection does not normally guarantee regulatory immutability.

At the same time, investors may have stronger arguments where the State made:

specific contractual commitments;

explicit guarantees;

individualized representations;

stabilization commitments; or

other specific assurances.

Charanne B.V. and Construction Investments S.à.r.l. v. Spain

SCC Case No. V 062/2012, Award, 21 January 2016

The dispute concerned Spanish reforms affecting photovoltaic renewable-energy investments under the ECT.

The tribunal rejected the investors' claims for breach of FET and expropriation. The Energy Charter Treaty records the case as involving legal reforms affecting the renewable-energy sector and reports no breach and zero damages. (Energy Charter Treaty)

The significance of Charanne is that the tribunal did not treat an investor's expectation of regulatory stability as an unlimited guarantee against legislative change. Contemporary commentary on the award emphasizes that, absent specific commitments, international investment law does not generally require States to freeze their regulatory frameworks. (Wiley Online Library)

Importance for reform

Modern energy treaties can therefore clarify that:

regulatory measures adopted for legitimate public purposes do not automatically violate FET merely because they adversely affect an investment.

This provides greater certainty for both governments and investors.

5. Renewable-Energy Subsidy Reform

Renewable energy has produced a particularly important body of investment arbitration.

Spain provides the most prominent example.

Spain introduced support mechanisms to encourage renewable-energy investment. Subsequent fiscal and regulatory pressures led to significant modifications.

Investors brought numerous ECT claims.

UNCTAD reports that at least 119 renewable-energy-related ISDS cases had been brought in the period covered by its analysis, many involving reductions in feed-in tariffs. Spain was the respondent in approximately 45% of those cases. (Investment Policy Hub)

This demonstrates a central treaty-reform problem:

How can governments encourage investment without creating an expectation that financial incentives will remain permanently unchanged?

6. Eiser v. Spain

Eiser Infrastructure Limited and Energía Solar Luxembourg S.à r.l. v. Spain

ICSID Case No. ARB/13/36

The dispute concerned investments in Spanish concentrated solar-power facilities.

The tribunal found a breach of FET and awarded approximately €128 million. UNCTAD records that the original award was subsequently annulled, with a later resubmission proceeding resulting in another investor-favourable award in October 2025. (Investment Policy Hub)

The case illustrates the importance of:

stability of the investment framework;

reasonable investor expectations;

regulatory coherence;

proportionality of regulatory intervention; and

the relationship between legitimate regulation and treaty protection.

Reform lesson

Modern treaties can reduce uncertainty by defining FET more precisely rather than leaving tribunals to develop the standard entirely through case law.

7. Reform of Expropriation Rules

Investment treaties traditionally protect against:

direct expropriation, such as compulsory nationalisation; and

indirect expropriation, where government measures substantially deprive an investor of the economic use or value of an investment.

Energy regulation creates difficult indirect-expropriation questions.

For example:

Does a coal phase-out amount to expropriation?

Does cancellation of an oil exploration licence constitute expropriation?

Does a reduction in renewable subsidies amount to indirect expropriation?

Can environmental regulation substantially reduce the value of an energy asset without generating compensation?

Modern treaties increasingly clarify that non-discriminatory public-interest regulation ordinarily should not constitute indirect expropriation, except in exceptional circumstances.

8. Rockhopper v. Italy

Rockhopper Exploration Plc, Rockhopper Italia S.p.A. and others v. Italy

This dispute concerned an offshore oil project.

Italy introduced restrictions on offshore oil and gas activities near its coastline. Rockhopper challenged the measures under the ECT.

The case demonstrates the difficulty created when States change energy policy after investors have committed capital. Academic analysis of the case notes that Italy's regulatory measures affected Rockhopper's attempt to obtain an offshore production concession and that the claims included FET and expropriation. (OUP Academic)

Reform lesson

Modern treaties may expressly address:

fossil-fuel phase-outs;

environmental restrictions;

climate legislation;

protected areas;

emissions regulation; and

termination of fossil-fuel projects.

This can reduce uncertainty regarding the legal consequences of climate-related energy regulation.

9. Vattenfall v. Germany

Vattenfall I

Vattenfall AB and others v. Germany

ICSID Case No. ARB/09/6

The dispute involved the construction of the Moorburg coal-fired power plant and environmental permitting requirements.

ICSID identifies the dispute as concerning a power plant construction project under the ECT. (ICSID)

The case illustrates how environmental conditions attached to energy projects can become investment-treaty disputes.

Vattenfall II

Vattenfall AB and others v. Germany

ICSID Case No. ARB/12/12

The second Vattenfall case concerned Germany's nuclear phase-out following the Fukushima disaster.

UNCTAD records that the investors challenged Germany's legislation phasing out nuclear power plants by 2022. The case was ultimately settled, with the proceedings discontinued in November 2021. (UNCTAD Hub)

ICSID likewise identifies the dispute as involving nuclear power and the ECT. (ICSID)

Reform lesson

Vattenfall illustrates why investment treaties need to account explicitly for:

environmental regulation;

energy-security policy;

nuclear policy;

climate transition;

emergency regulation; and

changing public-interest priorities.

Without carefully drafted exceptions and definitions, tribunals may be required to balance investment protection against evolving energy policy through general treaty standards.

10. Reform of the Energy Charter Treaty

The Energy Charter Treaty has been particularly important because it provides investment protections specifically in the energy sector.

The ECT modernization process sought to update the treaty for contemporary energy systems.

The proposed modernized framework expanded coverage to technologies and energy materials including:

hydrogen;

anhydrous ammonia;

biomass;

biogas;

synthetic fuels; and

carbon capture, utilisation and storage (CCUS).

It also developed a flexibility mechanism allowing Contracting Parties to exclude certain fossil-fuel investments from investment protection according to specified procedures and circumstances. (Energy Charter Treaty)

This represents an important conceptual shift:

investment treaties can be designed to distinguish between different categories of energy investment rather than treating every energy asset identically.

11. Fossil-Fuel Phase-Out and Treaty Reform

One of the most difficult issues is the treatment of existing fossil-fuel investments.

A State may decide that:

new coal plants will no longer be permitted;

existing coal generation must close;

new oil and gas exploration will be prohibited;

fossil-fuel subsidies will be eliminated; or

emissions standards will make certain facilities uneconomic.

Traditional treaties may allow investors to argue that these measures violate treaty protections.

UNCTAD has specifically warned that investment treaties can create risks when governments seek to phase out investments inconsistent with sustainable energy production. (Investment Policy Hub)

Possible reform approaches

Treaties can include:

1. Explicit climate exceptions

Measures necessary to achieve climate objectives can receive additional protection.

2. Fossil-fuel carve-outs

Certain fossil-fuel investments can be excluded from treaty protection.

3. Transition provisions

Existing investments may receive different treatment from new investments.

4. Temporal limitations

Protection may cease after a specified transition period.

5. Compensation principles

Treaties can clarify when compensation is and is not required.

12. Reforming Investor–State Dispute Settlement

Investment treaty reform is not limited to substantive rights.

The ISDS mechanism itself is undergoing reform.

Modern treaties increasingly experiment with:

narrower arbitration rights;

mediation;

consultation periods;

domestic litigation requirements;

appellate mechanisms;

standing tribunals;

transparency;

third-party participation;

limitation periods; and

restrictions on frivolous claims.

UNCTAD's recent assessment finds that investor–State arbitration appears less frequently in newer IIAs, while sustainable-development provisions are becoming more prominent. (Investment Policy Hub)

13. Treaty Reform and the Right to Regulate

A modern energy investment treaty must reconcile two interests:

Investor interest

Investors need confidence that governments will not:

arbitrarily confiscate assets;

discriminate against foreign investors;

act unpredictably;

breach specific commitments; or

deny procedural justice.

State interest

Governments must retain authority to:

protect the environment;

regulate electricity markets;

control emissions;

protect consumers;

ensure energy security;

promote renewable energy;

phase out coal;

regulate nuclear energy;

manage public health and safety.

The modern approach therefore seeks regulatory balance rather than absolute priority for either side.

UNCTAD reports that newer IIAs increasingly contain right-to-regulate safeguards and more carefully circumscribed substantive standards. (Investment Policy Hub)

14. Investor Obligations

Traditional BITs generally impose extensive obligations on States but relatively few direct obligations on investors.

Modern reform proposals increasingly consider obligations concerning:

compliance with domestic law;

anti-corruption;

environmental responsibility;

human rights;

responsible business conduct;

disclosure;

sustainable-development practices.

This is especially important for large energy projects because they can affect:

land rights;

water resources;

indigenous communities;

biodiversity;

emissions;

local employment; and

public infrastructure.

UNCTAD identifies investor obligations and responsible business behaviour as emerging features of newer treaty practice. (Investment Policy Hub)

15. Treaty Reform and Sustainable Energy Investment

Reform should not simply reduce investor protection.

It can also actively promote clean-energy investment.

A modern treaty can include provisions concerning:

renewable-energy investment;

energy-efficiency technologies;

battery storage;

hydrogen;

CCUS;

smart grids;

transmission infrastructure;

energy-transition technology;

technology transfer;

skills development; and

investment facilitation.

UNCTAD's 2026 report emphasizes that investment treaties can support not only capital flows but also the transfer of technology, know-how and skills required for clean-energy deployment. (UNCTAD)

16. Important Case Laws and Their Reform Lessons

17. India and Investment Treaty Reform

For India, treaty reform is particularly significant because energy infrastructure requires substantial domestic and foreign capital.

Relevant sectors include:

solar power;

wind power;

transmission;

electricity distribution;

green hydrogen;

battery storage;

electric mobility;

offshore renewable energy;

natural gas;

critical minerals; and

emerging clean-energy technologies.

India's investment-treaty policy has increasingly emphasized a more carefully defined balance between investor protection and governmental regulatory authority.

For energy projects, future treaty drafting can therefore focus on:

precise definitions of "investment";

clear FET language;

carefully defined indirect expropriation;

explicit environmental exceptions;

climate-policy safeguards;

transparent subsidy rules;

limits on MFN-based treaty shopping;

investor compliance with domestic law;

appropriate ISDS procedures; and

provisions supporting sustainable-energy investment.

18. Major Directions of Future Reform

Investment treaty reform for energy projects is likely to develop around six major principles.

1. Greater regulatory clarity

Treaties should clearly identify the circumstances in which States may change energy regulations.

2. Stronger climate safeguards

Treaties can expressly recognize climate change and the need for decarbonisation.

3. Differentiation between energy investments

Coal, oil, gas, renewable energy, hydrogen, storage and CCUS need not necessarily receive identical treatment.

4. More precise investor protection

FET and indirect-expropriation provisions should be sufficiently precise to reduce unpredictable interpretations.

5. Reform of ISDS

States can explore alternatives to unrestricted investor–State arbitration, including consultation, mediation and specialized dispute mechanisms.

6. Positive promotion of clean-energy investment

Investment treaties can move beyond merely protecting existing capital and actively facilitate:

renewable investment;

technology transfer;

clean-energy supply chains;

skills development;

energy efficiency; and

sustainable infrastructure.

19. Conclusion

Investment treaty reform and energy projects are closely connected because the energy transition changes both the risks faced by investors and the regulatory responsibilities of States.

Older investment treaties were generally designed around a relatively simple objective: protect foreign investment against discriminatory or arbitrary government action. Modern energy systems present a more complicated environment in which governments must simultaneously attract capital, protect consumers, maintain energy security and implement climate policy.

The experience of Charanne, Eiser, Vattenfall and Rockhopper demonstrates how changes to renewable-energy incentives, environmental conditions, nuclear policy and fossil-fuel regulation can produce investment-treaty disputes. (Energy Charter Treaty)

The reform movement therefore seeks to create a more balanced treaty architecture: credible protection for legitimate energy investors, combined with sufficient regulatory space for governments to manage decarbonisation and changing energy-system requirements. UNCTAD's recent work confirms that the investment treaty system is moving toward more carefully defined protections, greater investment facilitation and stronger attention to sustainable development, although a large stock of older treaties remains in force. (UNCTAD)

Ultimately, effective reform should not simply weaken investment protection. It should make investment protection more predictable, climate-compatible and capable of supporting the enormous capital, technology and skills requirements of the global energy transition. (UNCTAD)