The limits of global property rights: Quasi-Experimental evidence from the Energy Charter Treaty

The Energy Charter Treaty (ECT) is the primary international mechanism protecting the property rights of foreign energy investors. By giving firms the ability to sue host governments in neutral venues, the hope was that expropriation risks would reduce and thereby spur investment. Has the ECT lived up to these aims? We analyze how exogenous changes to the property rights provided to Russian firms under the Energy Charter Treaty impact political risk. We find no evidence that the increases or decreases to rights under the investment regime altered firm value. The results indicate that the ECT has limited effects on an investment climate, at least in the eyes of financial markets. The findings suggest that critics of the ECT are right to call for reforming the institution as it may be hampering a green energy transition without adequately providing the promised economic returns. More theoretically, the paper contributes to debates on the relationship between state power and international environmental institutions, and highlights the importance of offshore finance for altering business-government relations in the energy sector.