Dangerous Assets? The Politicisation of Investment Governance in the Energy Sector

The transition to low-carbon energy systems is one of the biggest challenges facing the world and one that requires massive investments and international cooperation. However, investment governance is undergoing sea-changes, affecting the energy sector in particular. On the one hand, although there is a large global investment capacity, particularly by emerging economies, this has also raised concerns about the risks that foreign investments by State Owned Enterprises and Sovereign Wealth Funds can pose in sensitive domains such as the energy sector, in terms of greater vulnerability to political pressure, cyber-attacks or industrial espionage. On the other hand, adequate investment protection regimes are necessary for investor confidence in capital-intensive sectors, but current rules of investor-state dispute settlement (ISDS) are under strong pressure from states, civil society and experts. Both dimensions are strongly present in European energy policy, as the EU and several of its member states have introduced tighter screening mechanisms on investments. At the same time, the Energy Charter Treaty, an EU-sponsored regime including extensive investment protection provisions, has also been growingly challenged as investment disputes have proliferated. This paper investigates how the EU navigates the dilemma between fostering energy investment and protection of vital interests and core values, and what are the implications of the politicization of investment for European and global energy transitions.